Fossil fuel divestment and portfolio performance
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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.
Trinks , A , Scholtens , B , Mulder , M & Dam , L 2018 , ' Fossil fuel divestment and portfolio performance ' Ecological Economics , vol. 146 , pp. 740-748 . DOI: 10.1016/j.ecolecon.2017.11.036
Copyright © 2017, Elsevier B.V. This work is made available online in accordance with the publisher’s policies. This is the author created, accepted version manuscript following peer review and may differ slightly from the final published version. The final published version of this work is available at https://doi.org/10.1016/j.ecolecon.2017.11.036
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