In the build-up to next month’s shareholder vote on the proposed ￡70bn merger of Xstrataand Glencore, investors have focused on executive compensation. As is so often the case, they are neglecting other systemic risks, in particular that of climate change. Yet a third of Xstrata’s revenues come from coal. Atmospheric research centres are telling governments that unless greenhouse gas emissions from coal, oil and gas burning are slashed, we are heading for a 6C rise in global temperatures that would be economically and environmentally catastrophic. As things stand, the markets assume governments will not act on these warnings in any meaningful way. But they might – especially if events such as this week’s devastating storm on the US north-east coast become more frequent. And if they don’t, others might act even without regulation.

Recently the Carbon Tracker Initiative, a group I chair, mapped the extent of climate risk in capital markets. We analysed the coal, oil and gas reserves of listed companies, estimated how much carbon dioxide would be emitted if these and state-owned reserves were burnt and compared the total to a global carbon budget for keeping the rise in global average temperature below an acknowledged danger threshold of 2C. We found that if listed and state-owned companies were to release reserves for burning at equal rates, there would be 80 per cent more fossil fuels listed on stock exchanges than society can afford to burn. Despite this “carbon bubble”, companies go on turning resources into reserves and investors continue to pile in. This is feasible because companies are allowed to account coal, oil and gas as assets at zero risk of impairment today.

It would be relatively simple for regulators, actuaries, auditors and the rest to begin recognising the risk of assets becoming stranded. If they did, market sentiment could swiftly change and investors begin diverting the river of capital currently flowing dysfunctionally to carbon.