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Fossil Fuel Divestment and Portfolio Performance

Author

Listed:
  • Trinks, Arjan
  • Scholtens, Bert
  • Mulder, Machiel
  • Dam, Lammertjan

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 cost on the investor in terms of foregone potentially profitable investments and reduced opportunities for portfolio diversification. We compare financial performance of investment portfolios with and without fossil fuel company stocks 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.

Suggested Citation

  • Trinks, Arjan & Scholtens, Bert & Mulder, Machiel & Dam, Lammertjan, 2018. "Fossil Fuel Divestment and Portfolio Performance," Ecological Economics, Elsevier, vol. 146(C), pages 740-748.
    • Handle: RePEc:eee:ecolec:v:146:y:2018:i:c:p:740-748
    DOI: 10.1016/j.ecolecon.2017.11.036
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    Keywords

    Fossil Fuel Divestment; Socially Responsible Investing; Portfolio Performance; Risk-Adjusted Returns; Market Capitalization; GARCH;
    All these keywords.

    JEL classification:

    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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