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Divesting Fossil Fuels

Arjan Trinks, Bert Scholtens (), Machiel Mulder () and Lammertjan Dam

No 17001-EEF, Research Report from University of Groningen, Research Institute SOM (Systems, Organisations and Management)

Abstract: Fossil fuel divestment campaigns urge investors to sell their stakes in companies that supply coal, oil, and gas. However, avoiding investments in such companies can be expected to impose a financial cost on the investor because of reduced opportunities for portfolio diversification. We compare the risk-adjusted return performance of investment portfolios with and without fossil fuel companies over the period 1927-2015. Contrary to theoretical expectations, we find that fossil-free investing does not seem to impair financial performance. These findings can be explained by the fact that fossil fuel company portfolios do not generate above-market performance and provide relatively limited diversification benefits. Significant performance impacts of a divestment strategy, however, are observed over short time frames and when applying divestment to less diversified investment portfolios.

New Economics Papers: this item is included in nep-ene, nep-pke and nep-reg
Date: 2017
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