GLOBE-Net, August 8, 2013 – A new report investigates whether divesting from investments in fossil fuel companies and replacing it with ‘fossil free’ portfolios, offers similar, or even better returns.
The past perception of the divestment movement is that it falls within the realm of socially responsible investing, where direct returns are exchanged for societal benefit. As a result, finance professionals do not take the strategy seriously.
This new study, Beyond Fossil Fuels: The Investment Case for Fossil Fuel Divestment, considered four different performance scenarios from 2008 until 2013 in the MSCI Index, which tracks 500 exchange traded funds globally.
Four scenarios were run where the fossil fuels were removed from the index, and in three of the cases replaced with energy efficiency, renewable energy, and combinations of other environmentally focused stocks.
The outcome was that each fossil free strategy offered equal, if not slightly better returns for investors. The authors of the report hope the research goes some way towards reducing the anxiety that financial managers currently feel when they contemplate going fossil-free.
Modeled on an approach used during the apartheid era to put pressure on South Africa to change its policies, the divestment movement is gaining momentum around the world as protesters seek to deprive fossil fuel companies of some of the capital they need to operate.
Warren Buffet commented that he sees the decline of coal use in the United States (US) to be gradual, yet permanent. Both the World Bank and the European Investment Bank have said they will limit the financing of coal-fired power plants, with the latter setting a strict emissions ceiling for new and refurbished plants.
Harvard University has recently hired a vice president for sustainable investing to counter growing calls for the world’s richest university to rid itself of fossil-fuel stocks.
According to the University of British Columbia (UBC) student newspaper The Ubyssey, approximately $7.14 million of the university’s endowment fund is currently invested in oil and gas.
A separate campaign has been launched to include an assessment of ethical investment in the annual university rankings published by Maclean’s Magazine.
Whether a university endowment or a large corporate pension fund, this new research combined with the recently published concept of a carbon bubble highlights that beyond the social casefor investing fossil-free, there is a sound financial one too.
This article first appeared in the August 7, 2013 PICS CLIMATE NEWS SCAN Produced by: ISIS Research Centre, Sauder School of Business, in partnership with PICS. UBC Authors: Justin Bull, Liz Ferris, Chanda Brietzke, Sarah Thomas, Editors: Neil Thomson, James Tansey, Chris Kantowicz, Robyn Meyer.