This post was first published on Corporate Knights - The Magazine for Clean Capitalism.
Global banking firm UBS is currently running an ad campaign that asks: "Do I invest in the world I am in? Or the one I want?" This question has never been more pertinent as we come to grips with the climate reality on the eve of the Paris climate talks.
In our market society, investors have immense power to shape norms and political culture on questions of economic importance.
To date, the conventional wisdom has been that investing to foster a world that accelerates the shift from old fossil fuel energy to new clean energy is a well-intentioned, but bad idea if you care about financial returns.
As the fossil fuel divestment movement took flight over the past few years, many of the wise stewards of capital at university endowments and pension funds warned of the financial harm that would result if divestiture was pursued. An article in the Wall Street Journal summed it up with a headline: The feel good folly of fossil fuel divestments. The argument went that shifting capital out of fossil fuels would constrain the investment universe, in turn leading to reduced returns.
It's now been three years since the fossil fuel movement was launched by 350.org's Bill McKibben's article in Rolling Stone. And the evidence is clear: not divesting has destroyed billions of dollars of investor wealth. In the analysis Corporate Knights released today, which examined 14 major funds with a collective $1 trillion in assets, we found that over $22 billion dollars had been sacrificed as a result of not shifting out of fossil fuels into clean energy stocks three years ago. Contrary to the conventional wisdom, divesting out of fossil fuels in favour of clean energy has been a huge money-maker.
Oil and coal prices may recover somewhat over the next several years, but make no mistake – the global economic shift away from declining fossil fuel industries toward the rising clean energy economy is already underway. Investors who fail to grasp this reality will do significant financial harm to the people who have entrusted them with their savings.
Some of the biggest investors are already getting with the program. PFZW, the $183 billion Dutch pension fund has pledged to halve its carbon footprint by 2020 while increasing its investments in climate solutions fourfold. AXA, the French insurer with $1.6 trillion in assets under management, is selling off its stakes in mining companies and electric utilities deriving over 50 per cent of their turnover from coal, while tripling its green investments.
Overall, however, investors have been dragging their heels – too reliant on outdated asset allocation models ill-equipped to navigate the future. In order to make a timely transition from the fossil fuel age to the clean energy age, we cannot afford to have such a large portion of the capital markets missing in action. That is why regulators are stepping in. The French government recently amended legislation to require institutional investors to report their carbon footprints as well as how they are contributing to the international goal of limiting climate change. State lawmakers in California have passed a billbanning its largest public pension funds from investing in coal stocks. In order for investors to decarbonize their portfolios, it helps if they have data, which the UK government recognised by making it compulsory for listed companies to include emissions data in annual reports.
The good news is there is finally a place to re-invest. In the public equity space, there are over 1,300 companies with a collective market value of over $2.3 trillion that Bloomberg has identified as earning significant sources of revenue from the new energy economy. That is bigger than the collective $2.2 trillion value of the global coal and oil stocks as tracked in their MSCI index. The story of a fossil fuel sector being overtaken by new energy holds for bonds, private equity and real assets such as real estate.
Where would you rather invest: in an old energy economy in decline or in a new energy economy on the rise? Do you want to live in a world that falls into dangerous climate change and economic upheaval or a safer and more prosperous planet?
It's time for investors to get on with it and for governments to enact measures to ensure the take-up is as broad and swift as possible.
Many world leaders and sophisticated investors get this, but are stuck in their old ways of doing things. It is up to average citizens – whose money is ultimately on the line via their pensions – to speak up and make them do what is required. Franklin Delano Roosevelt famously remarked in a meeting with social justice activists after his election in 1932: " I agree with you, I want to do it, now make me do it."
In this spirit, in partnership with
South Pole Group and 350.org, Corporate Knights has created a new tool to empower citizen investors with the financial facts to make the case for shifting investments out of old fossil fuel companies into new energy companies.
The Clean Capitalist Decarbonizer powered by carbon data from South Pole Group shows the financial implications of divesting fossil fuel companies in favour of those that derive at least 20 per cent of their revenues from environmental markets or new energy. To get things rolling Corporate Knights tracked down the investment holdings of 14 major funds and ran the numbers. The results can be seen in the table below.
Find the portfolio of your college, institution, or pension ( click here to see how to do this), and run them through the Decarbonizer. Then share the results with us in this form and with the hashtag #decarbonizer so we can share them with all of you and send a clear message about what kind of world we want to invest in.
For more information on the launch of the Decarbonizer, read the full media release here.