Fossil fuel divestment and portfolio performance
Abstract
Fossil fuel divestment campaigns urge investors to sell their stakes in companies that supply coal, oil, or gas. However, avoiding investments in such companies might impose a financial cost on the investor because of foregone potentially profitable investments and reduced opportunities for portfolio diversification. We compare financial performance of investment portfolios with and without fossil fuel companies over the period 1927-2016. Contrary to theoretical expectations, we find that fossil fuel divestment does not seem to impair portfolio performance. These findings can be explained by the fact that, so far, fossil fuel company stocks do not outperform other stocks on a risk-adjusted basis and provide relatively limited diversification benefits. A more pronounced performance impact of divestment can be observed over short time frames and when applied to less diversified market indices.
Citation
Trinks , A , Scholtens , B , Mulder , M & Dam , L 2018 , ' Fossil fuel divestment and portfolio performance ' , Ecological Economics , vol. 146 , pp. 740-748 . https://doi.org/10.1016/j.ecolecon.2017.11.036
Publication
Ecological Economics
Status
Peer reviewed
ISSN
0921-8009Type
Journal article
Collections
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