New research on the financial impacts of fossil fuel divestment

Our partners in 350 have shared some recent research on the financial impacts of fossil fuel divestment with us (thesis PDF,thesis summary PPT). This research was undertaken by Alison Shulz of the University of Kassel, Germany. It should be noted that the primary focus of the divestment-reinvestment campaign is on social impacts: discrediting the fossil fuel industry to remove their social license to operate. So financial impacts, where they exist, are in a sense a bonus. Here are some of the headline conclusions of the paper:

– The direct, short-term impact of divestment (if any)…

• Theoretically, a direct effect of divestment should result from limited risk sharing (Merton) and the fact that assets can only be sold at a discount (Miller)

• Empirically, announcement to divest from a specific company has no effect on this specific company’s stock price

• This effect is however present for coal firms which mainly operate in markets of the Global North

• Divestment announcements are found to have a negative impact on stock prices of the whole fossil fuel sector

• This effect is even more pronounced for financially motivated divestment and large divested sums

The long-term impact is still unclear.

It should be noted that this is an under-researched area. It’s our impression that this research does not include the likely additional positive impacts of capital which is diverted from fossil fuels directly into renewable energy or other ethical investments.

Sydney University freezes coal investment, and other updates

• Great news from Australia: Sydney University has frozen investment in coal.

• Pitzer College is a private liberal arts college in Los Angeles which has divested completely from fossil fuels. Donald Gould, a trustee and chair of the investment committee at Pitzer College and president of Gould Asset Management, explains why, and his reasoning includes a response to those who claim it is hypocritical to divest while still making some use of fossil fuels:

This misses the fundamental reality that while we are all embedded in the carbon economy to some degree, it is not really by choice. Do we choose to buy a particular car because it is powered by gasoline? Does anyone (other than a fossil-fuel company) care about the source of the electricity that powers our appliances? No.

The real hypocrisy is saying that you support a world largely free of fossil-fuel emissions, while at the same time betting on their producers to continue delivering a steady profit stream to your endowment.

• The ratings agency Standard and Poors has warned that global coal assets may well be overvalued:

In a report released on Tuesday, Standard & Poor’s Ratings Services said that, despite the dominant position still held by coal in the world’s primary energy and electricity markets, and the sheer size of global coal reserves – enough to last more than 110 years at current production levels – in an increasingly carbon-constrained environment, most of those assets would wind up having no economic return.

• It’s well worth reading the logic of Stanford University’s coal divestment decision. Stanford’s Statement on Investment Responsibility, originally adopted in 1971, states that the trustees’ primary obligation in investing endowment assets is to maximize the financial return of those assets to support the university. In addition, it states that when the trustees judge that “corporate policies or practices create substantial social injury,” they may include this factor in their investment decisions.

• At the University of California, Berkley, Professor Daniel Kammen, a member of the Intergovernmental Panel on Climate Change (IPCC) and energy professor at , has called for divestment:

Today, UC Berkeley and most institutions are financially invested in destroying our future… Instead of funding the problem, we should be investing in solutions that at once aid the transition to a low-carbon economy and grow our university’s bottom line. There is no lack of financially and environmentally sustainable reinvestment opportunities; as of yet, there is only a lack of leadership.

• Going back a few months, we find a call from faculty at Cornell University, arguing that:

Our scientific papers, public presentations, and advice to policymakers have not spoken loudly enough. For better or worse, we need to “put our money where our mouth is.” And we can do this in two ways: First, by becoming carbon neutral and, second, by simultaneously stopping our investment in the ongoing extraction of fossil fuels. Although some financial sacrifice in pursuit of our institutional responsibility would be justified, we have conducted the analyses and determined that the proposed actions will not only have a negligible impact on growth of the University’s endowment, they may significantly reduce overall risk in the University’s investment portfolio.

Our students have led the way. It is time for the faculty to step up to the plate. Our goal is to make a strong public statement that will draw attention to the need for society to transition from fossil fuels to truly clean sources of energy that are fossil carbon neutral. We recognize that the University’s divestment actions can result in only a relatively small direct financial impact on these companies. However, the moral courage demonstrated first by Cornell, and then by its peer institutions, will have a galvanizing effect on the movement within this country and internationally.

• On the other hand, Oregon State University has rejected divestment calls, with the excuse that “categorically removing this sector would violate prudent investing rules that characterise best practices in asset allocation.” To which, the best response may be this cartoon.


Fossil Free UCT campaign launches 30 July


The launch event for the UCT fossil fuel divestment campaign will be on 30 July, from 5.30-7pm, in Leslie Social Sciences 1A. Speakers will include Jolynn Minnaar, director of the award-winning fracking documentary, Unearthed, and associate professor Richard Calland of the UCT Law Faculty. For the hungry, a light supper will be provided.