Divesting Fossil Fuels: The Implications for Investment Portfolios
Bert Scholtens (),
Machiel Mulder () and
MPRA Paper from University Library of Munich, Germany
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
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:76383
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