Many UK oil and gas companies are underestimating the financial risks posed by the transition to net zero, potentially leading to overvalued company accounts and exposing investors to significant losses, according to a new study.

Smaller companies with ageing North Sea assets were especially vulnerable to financial losses, researchers found.

Led by academics from the UK and France and based on company reports and interviews with industry insiders, the study’s aim was to explore how well transition risks were being accounted for. It found that the net zero shift was likely to reduce access to capital for fossil fuel companies, push up borrowing costs, and trigger large-scale write-downs.

Dr Freeman Owusu, of Loughborough University Business School, said: “These pressures could have put the future viability of some companies in question. Our findings show that the transition to net zero presents significant risks for oil and gas companies in the UK. These risks include rising operational costs, reduced access to finance, and increased financial pressure.

“Together, these risks threaten the going concern of some oil and gas companies, lower market value, and have knock-on effects on the wider energy supply chain and government revenues.”
Smaller firms with high emissions and fewer alternative business streams were seen as most exposed. The research pointed to two urgent issues: the financial risks tied to the energy transition, and the need for clearer, more tailored company disclosures.

While existing reporting frameworks – such as the TCFD, CDP, ISSB, and TPT – offer guidance on climate risks, sustainability performance, and transition readiness, the study found they often do not fully capture the unique financial and accounting risks that oil and gas firms face in moving towards net zero.

Owusu added: “What is particularly concerning is the lack of transparency. Our research highlights a disconnect between the magnitude of these risks and the level of disclosure currently provided by oil and gas companies. We argue that more detailed and forward-looking disclosures are urgently needed not only to meet stakeholder expectations but to allow for informed investment and policy decisions.”

The research was a collaboration between Loughborough University Business School, Nottingham University, UCL and ICN Business School, Nancy, France.

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