A new study has revealed that 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.
Led by academics from the UK and France, and based on company reports and 22 in-depth 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 – leading to some assets being stranded.
“These pressures could have put the future viability of some companies in question,” said Dr Freeman Owusu, of Loughborough University Business School.
"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.
Participants called for greater transparency around ESG performance (how well a company manages its environmental, social, and governance), remaining reserves, plans for asset write-downs, and how business models were evolving.
Without this, the study suggested, companies risked losing stakeholder trust and weakening their long-term prospects.
Dr Owusu said: “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.
“By clearly articulating the financial impacts of the net zero transition, oil and gas companies can act responsibly and fulfil their social contract for being transparent about both current realities and future expectations.
“Ultimately, our study adds to the growing evidence that climate-related financial risks must be placed at the heart of corporate strategy and reporting, especially in high-risk sectors like oil and gas.”
By spotlighting how transition risks were – or weren’t – captured in financial reporting, the study added an important voice to the growing field of climate accounting.
It also outlined practical steps to improve disclosure, aiming to better inform investors, regulators, and the public.
“Reaching net zero is vital for a sustainable future,” said Dr Owusu, “but it comes with real economic risks for carbon-heavy sectors. Honest, transparent financial reporting will be key to navigating these changes and making sound decisions.”
The paper, Transitioning to net Zero: Assessing the impacts on asset impairment, write-downs and the going concern of oil and gas companies operating in the UK, was published in the journal, Global Environmental Change, and co-written with colleagues from Nottingham University, UCL and ICN Business School, in Nancy, France.
ENDS