Economic Analysis of Fossil Fuel Divestment: Less Fossil Fuels=Greater Returns

IMPAX Asset Management  recently released a report on the economic impacts of fossil fuel divestment. Their findings? That fossil fuel free portfolios outperform the average portfolio. I’ve embedded the report below. For those who don’t want to wade through the whole thing, here are the key points (direct quotes):

  • “The world’s listed fossil fuel companies, whose share prices are partly based on their proven reserves, are grossly overvalued.”
  • “The key areas for investor campaigns to bring about change are to encourage fossil fuel companies to: 1) Stop investment in further fossil fuel exploration; and/or 2) Modify their business models towards one with a lower emissions-intensity, and/or to invest aggressively in renewables.”
  • “Impax examined various alternative approaches to portfolio construction:

    1. The MSCI World Index without the fossil fuel energy sector (the “Fossil Free Portfolio”).
    2. Replacing the fossil fuel stocks of the MSCI World Index with a passive allocation to an investable universe of renewable energy and energy efficiency stocks (the “Fossil Free PlusAlternative Energy (Passive) Portfolio”)
    3. Replacing the fossil fuel stocks of the MSCI World Index with an actively managed portfolioof renewable energy and energy efficiency stocks (the “Fossil Free Plus Alternative Energy

      (Active) Portfolio”)

    4. Replacing the fossil fuel stocks of the MSCI World Index with an actively managed allocationof stocks selected from a wider range of resource optimisation and environmental investment opportunities (the “Fossil Free Plus Environmental Opportunities (Active) Portfolio”).”
  • “The results show that removing the fossil fuel sector in its entirety and replacing it with ‘fossil free’ portfolios of energy efficiency, renewable energy, and other alternative energy stocks, either on a passively managed or actively managed basis would have improved returns with limited tracking error.

    Screen Shot 2013-07-24 at 3.55.02 PM

    This report is exciting news for fossil fuel divestment activists–we have moral and economic arguments on our side!

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