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The oil and gas industry faces losses of more than $3 trillion (£2.4 trillion) because of net zero, the International Energy Agency (IEA) has warned.
The IEA said companies will become increasingly risky investments, potentially losing half their overall valuation, as the world moves to restrict greenhouse gas emissions.
It has accused the global oil and gas industry of failing to understand or respond to the deepening global climate crisis and warned that the result could be a catastrophic loss of value for investors unless companies change course.
Pension and investment funds that rely on oil and gas companies for large chunks of their investment returns could face disastrous declines over the next two decades as a result, the IEA warned.
The Paris-based organisation said the value of the private oil and gas industry, which stands at $6 trillion, will fall by a quarter if all current climate goals set by governments around the world are met.
If targets are toughened up to put the world on course to limit global warming to 1.5C, as leaders committed to do under the Paris Climate Agreement in 2015, then as much as 60pc of the industry’s worth could be wiped out, the IEA said. This would mean companies collectively lose more than $3 trillion of value.
The agency said in a report published on Thursday: “In transitions to net zero, oil and gas is set to become a less profitable and riskier business over time.”
Fatih Birol, executive director of the IEA, said the industry was facing “a moment of truth”.
He said: “Oil and gas producers around the world need to make profound decisions about their future place in the global energy sector.
“The industry needs to commit to genuinely helping the world meet its energy needs and climate goals.”
Only a few fossil fuel companies are investing significant sums on clean energy, the IEA said, with Shell and BP among those singled out. However, the British companies have recently announced they are slowing down on green investments.
The report also warned that oil and gas companies are over-hyping new technologies such as carbon capture and storage.
The energy industry is currently betting on storing an “implausible” 32 billion tonnes of carbon by 2050. The IEA said: “The amount of electricity needed to power these technologies would be greater than the entire world’s electricity demand today.”
Dr Birol said: “The fossil fuel sector must make tough decisions now, and their choices will have consequences for decades to come.
“Clean energy progress will continue with or without oil and gas producers. However, the journey to net zero emissions will be more costly, and harder to navigate, if the sector is not on board.”
The IEA report comes ahead of the COP28 climate summit in Dubai, which starts next week.
In the UK oil and gas still provide about 75pc of total energy. 25m homes rely on gas boilers, 32m drivers use petrol or diesel vehicles and 40pc of UK electricity is generated by burning gas.