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Investor implications of divesting from fossil fuels

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  • Henriques, Irene
  • Sadorsky, Perry

Abstract

There is a growing movement for both individual investors and large institutions to divest from oil companies, and from fossil fuel producers in general. This paper investigates the implications of doing so, by comparing three portfolios: (1) a portfolio that includes fossil fuel producing companies and utilities, (2) a portfolio that replaces fossil fuel producing companies and utilities with clean energy companies, and (3) a portfolio without fossil fuel producing companies, utilities, or clean energy companies. Using a range of measures, we find that portfolios that divest from fossil fuels and utilities and invest in clean energy perform better than those with fossil fuels and utilities. We also find that risk-averse investors would be willing to pay a fee to make this switch, even when trading costs are included.

Suggested Citation

  • Henriques, Irene & Sadorsky, Perry, 2018. "Investor implications of divesting from fossil fuels," Global Finance Journal, Elsevier, vol. 38(C), pages 30-44.
    • Handle: RePEc:eee:glofin:v:38:y:2018:i:c:p:30-44
    DOI: 10.1016/j.gfj.2017.10.004
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    More about this item

    Keywords

    Clean energy; Divestment from fossil fuels.; GARCH; Oil; SRI;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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