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Divesting Fossil Fuels: The Implications for Investment Portfolios

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

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Fossil Fuel Divestment; Socially Responsible Investing; Portfolio Performance; Risk-adjusted returns; Market Capitalization; GARCH (search for similar items in EconPapers)
JEL-codes: G11 Q41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-pke and nep-reg
Date: 2017-01-16
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