About six months ago I blogged about the fossil fuel divestment campaign, (popularized by Bill McKibbon’s 350.org site), providing some different approaches investors could take in response. Now I want to tell you in plain language why I think this campaign is important and why I have made my own portfolio fossil free.
Some say divesting won’t make a difference. We’re not going to put ExxonMobil or any of the other fossil fuel companies out of business by selling their stock. That is certainly true. But if we encourage those companies to exploit and produce the majority of the fossil fuel reserves they already have on their balance sheets, and if we burn those fuels in the coming decades, solid research tells us climate change will render the planet virtually uninhabitable by the majority of the human community. This is also true.
People need to say so loud and clear, with their voices and with their assets. What we do with our money matters. That is why my entire professional practice is devoted to socially responsible and sustainable investing. We are investing for the long term in the type of economy that will promote human and planetary flourishing. Yes, it matters and it will make a difference.
Investment research points to the probability that divesting from fossil fuel producers won’t even hurt your portfolio performance. The studies that have been done are necessarily historically oriented. Most start with the past performance of well-diversified portfolios, take out the fossil fuel companies (usually the Carbon Tracker 200 companies) in those portfolios, and re-calculate the past performance of the “fossil free” versions. What they’ve found is that overall performance is affected very little. Of course, past performance by no means guarantees future results.
The more difficult question might be – once we have sold our fossil fuel investments, in what do we reinvest. We could simply spread the proceeds pro-rata over the rest of our remaining portfolio. That is probably safest from a diversification standpoint. Braver souls might invest a good portion of the proceeds back into alternative energy and in other companies and sectors that are identifiably and affirmatively green. That might add to the risk inherent in their portfolios. Investors are well advised to discuss these alternatives with their financial advisors.
In the end, I’ve moved to a fossil free portfolio because it is simply the right thing to do. That is a moral statement. The case can clearly be made that integrating environmental, social, and governance (ESG) factors into investment decision-making can enhance portfolio performance in the long run. SRI investors who have been investing this way for some time are comfortable with the idea that how we spend and invest our money says something about our values. It says something about who we are in the world. I’ve made my statement. What do you say?
Mention of specific companies or securities should not be considered a recommendation to buy or sell that security.