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Divestment would have bolstered 2014 financial returns

January 9th, 2015 · No Comments

There is a growing movement to divest from fossil fuels. This ranges from the individual (for example, my retirement accounts are down roughly 80% over the past three years in terms of ‘fossil fuel’ (at least direct) investments) to businesses to growing numbers of non-fossil fuel/climate friendly investment operations to pressure on institutions to disinvest their endowments and retirement funds.  This is especially true with U.S. educational institutions, as university communities (students, alumni, faculty, staff) increasingly see disconnects between an institutional commitment toward improving the future and financial investments in arenas which undermine future prospects (of students, communities, and the broader world community).

Across the nation, the number of divestment commitments from educational institutions, cities and counties, and other institutions/groups is growing.

The fight against divestment has also grown, with fossil fuel firms seeing risk to their financial well-being and future prospects.

At numerous institutions, the divestment efforts are met with resistance. In no small part they are met with arguments (falsely based, fyi, even without the paragraphs that follow) that disinvestment would risk portfolio financial performance. This has been, for example, particularly acrimonious with Harvard University‘s extremely large and, what might be called, fossil-foolish endowment fund.

While it has been possible to build a (and many have built) climate-friendly financial portfolio — without difficulty — that matches (or even outperforms) the general market, what might have happened if a Harvard or otherwise had started a serious disinvestment of its fossil fuel portfolio at the beginning of 2014?

Consider sector financial performance over the past year (this is as of 8 January 2015):

  • Oil & Natural Gas: -10.51%
  • Financials: + 19.5%
  • Health Care: +27.5%
  • Information Technology: +19.16%
  • Etc …

E.g., lowering one’s exposure to fossil fuels almost certainly would have boosted portfolio performance through the year.

And, of course, the ‘oil’ fall is much heavier in the later half of 2014. Thus, even a gradual process moving just a few percent of a portfolio per month would have ended up having

This is a suggestive post … there are a tremendous range of complex issues to examine to understand just how much better endowments would have fared if they had begun a disinvestment process a year ago.  And, there are questions as to how the disinvestment process can best be pursued to marry high financial performance with ethical, moral, and policy commitments. This is something that merits more serious examination ….

Even so … even so … it is clear that disinvestment would have served institutions better financially while better aligning their financial investments with their core purposes.

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Tags: Energy