A Differentiated Strategy to Promote Radical Energy System Transformation

Susanna Gibbons (), Olivia Starr () and Chun Kuei Tsai
Additional contact information
Susanna Gibbons: University of Minnesota
Olivia Starr: University of Minnesota
Chun Kuei Tsai: University of Minnesota

A chapter in Advancements in Sustainable Development, 2025, pp 85-103 from Springer

Abstract: Abstract Divestment has long been a contentious issue for institutional investors, often framed as a choice between moral values and financial returns. This debate hinges on the perceived trade-off between adhering to ethical investment principles and the potential financial penalties of avoiding certain assets. Critics argue that this choice overlooks the possibility of integrating divestment into a comprehensive long-term investment strategy. Most current discussions on divestment focus on public equity markets, emphasizing values alignment and the impact on companies’ cost of capital. However, institutional investors have increasingly favored engagement strategies over divestment. The focus on equities neglects the unique considerations of other asset classes, particularly corporate bonds. Bondholders, unlike equity holders, can significantly influence corporate behavior regarding environmental and human rights issues through their interactions before companies issue new debt. After the debt is issued, secondary market trading does not affect the company, similar to secondary equity trading. By analyzing corporate bond holdings in the energy sector, we demonstrate that divesting from oil and gas bonds does not result in a divestment penalty. Because of the high correlation across all corporate bond sectors, eliminating certain sectors does not result in less efficient portfolios. Thus, bondholders are well-positioned to influence the fossil fuel industry by engaging with companies, rather than focusing solely on equity markets. This nuanced approach suggests that bondholders can play a crucial role in shaping corporate practices without sacrificing financial returns.

Keywords: Divestment; Bond Market; Risk Analysis (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:csrchp:978-3-031-86337-0_6

Ordering information: This item can be ordered from
http://www.springer.com/9783031863370

DOI: 10.1007/978-3-031-86337-0_6

Access Statistics for this chapter

More chapters in CSR, Sustainability, Ethics & Governance from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().