Over the weekend, divestment supporters gathered at nearly 500 events in 60 countries for Global Divestment Day. And now, new data from the London-based FTSE Group has bolstered the argument that ditching fossil fuels stocks does not have to cost.
In order to block divestment campaigns from accomplishing their objective, fossil fuel boosters have claimed that ditching holdings in coal, oil, and gas companies could have a damaging effect on portfolios. But this claim—newly backed by a biased, industry-funded study—is becoming less believable with each day.
Over the course of five years, the FTSE Group developed fossil-free indexes and tracked their performance. According to a new report from the organization, FTSE’s North American fossil fuel free index consistently outperformed the conventional benchmark index, while also demonstrating lower rates of volatility.
The findings build on a recent announcement that a fossil-free version of the S&P 500 handily outperformed its dirtier counterpart. According to Fossil Free Indexes, a New York-based firm specializing in ethical investing, the FFIUS index beat the traditional S&P 500 by 1.5% in 2014.
Past performance of an index is not a measure of its future success, but these trends show that excluding fossil fuels from a portfolio is not just “feel-good folly.” And in fact, the true folly may be making investments in outdated energy forms that are destined for some rocky years ahead.
Ample evidence suggests that now is the time to be pulling out of fossil fuel investments rather than doubling down. The precipitous and unexpected fall of oil prices over the last several months is just one example of how volatility can have very real costs, with the bear market losing investors $393 billion since June 2014.
While the fossil fuel sector was a reliable bet in the 20th century, the tables have turned over the course of the last decade. Major oil companies are spending more money to produce less oil, resulting in diminishing returns for shareholders.
Coal is likely even worse of an investment than oil. According to a new Credit Suisse analysis, coal was one of the least profitable industries in the United States over the course of the last century, even despite being the beneficiary of sizable government subsidies.
By dumping unprecedented sums of cash into exploring for new coal, oil, and gas, fossil fuel companies are setting themselves on a collision course with world governments, which have collectively agreed to limit global warming to a maximum increase of 2 degrees Celsius.
One recent study published in the scientific journal Nature concluded that containing global temperature rise to 2 degrees Celsius means keeping massive quantities of fossil fuels in the ground—including nearly nine-tenths of the world’s known coal reserves.
These calculations form the basis for concerns about a ‘carbon bubble.’ If governments take action to regulate the polluting fossil fuels that are driving climate change, large reserves of fossil fuels will become stranded assets—and will drive down the stock prices of fossil fuel companies. Experts like those at the Carbon Tracker Initiative fear that this could upend the market, costing investors billions in the process.
As more and more institutional investors realize that fossil fuel divestment is a way to both address climate change and manage risk, the divestment movement is growing.
Already, 180 institutions with combined assets of over $50 billion have divested, including Norway’s Sovereign wealth fund—the richest in the world—which recently ended investment in 40 coal companies.
With solid arguments for both the short-term and long-term benefits of divestment, its almost certain that the movement will only continue to grow. May Boeve, Executive Director of 350.org said:
The divestment movement is already making a huge impact. In just two years, this campaign has grown from a few universities to hundreds of institutions around the world. Together, we’ve succeeded in challenging the social license of the fossil fuels industry, and begun to chip away at their political power.
As activists continue to put feathers in their cap with near-weekly wins, the push to divest pension funds and endowments from dirty fuels keeps getting bigger, with estimates showing roughly 500 active campaigns across the world.