There are now a number of firms who are helping investors to move away from fossil fuels. While investing in fossil fuels and associated industries was once the bedrock of a sound investment strategy, there is a growing awareness that these investments are approaching the end of their life cycle.
Investors cannot ignore the overwhelming body of climate science that links the burning of fossil fuels to the economic catastrophe of climate change. Investors are also concerned about a large and growing number of governments, businesses, institutions and people who are demanding that we transition away from fossil fuels.
Governments around the world are also supporting emissions reductions efforts, carbon pricing schemes and support for renewable energy. The burning of fossil fuels is also a health issue which is clearly linked to asthma, coronary heart disease and respiratory disorders. That is why some healthcare professionals are at the forefront of divestment.
However, the strongest argument for fossil free investments is a purely financial one that is supported by a number of respected figures including the former SEC Commissioner Bevis Longstreth. As he explained investing in fossil fuels makes no sense in the context of expected governmental restrictions on carbon, advances in clean alternatives, growing public awareness about the dangers of high carbon fuels, investor actions to curtail high carbon investments and reputational risks.
Investors are beginning to change their focus. Driven by a new appreciation of risk assessment and concerns about investors are now integrating a wealth of additional considerations into their investment choices.
This new approaches increasingly factors sustainability into the value equation calculus. Investors are asking about the impact their investments will have on the environment and on people. They understand that investments that harm people and the planet are risky.
Going fossil free is one of the chief concerns from investors who are worried about three things:
1. carbon bubble
2. carbon budget
3. stranded assets and the carbon bubble.
A number of reports have made the case for fossil fuel divestment, warning against exposure to thecarbon bubble. When we talk about a carbon bubble we are talking about a situation where the true costs of carbon dioxide in intensifying global warming is not taken into account in a company’s stock market valuation. The result is the formation of an economic bubble.
The math driving concerns about the future of fossil fuels is known as a carbon budget. Between 2000 and 2050, the allowable “Carbon Budget” to keep global warming from spiraling out of control (2 degree Celsius of warming) is about 886 gigatons. One third of that amount has already been burned. To stay within our budget, we can burn an additional 565 gigatons by 2050. However, the 200 largest fossil fuel companies, combined with government-owned companies, currently have a total of 2795 gigatons.
This means that we will never be able to extract and burn 80 percent of these reserves if we are to have a hope of keeping global warming within manageable limits. Only 20 percent of the world’s total proven fossil fuel reserves can be burned, so those who do not divest will get stung by an inevitable correction that will result in the what as known as stranded assets.
According to Tim Ratcliffe, European divestment co-ordinator at the campaign group 350.org., “fossil fuel companies are currently grossly overvalued. Eighty percent of their oil, coal and gas reserves need to stay underground to limit global warming below 2C, which will turn them into stranded assets.” Ratcliffe added, “This makes these investments a highly risky gamble.”
This makes for an uncertain future for fossil fuels and investors deplore such uncertainty. A recent report described such investments as “Risky Business.”
Investing in fossil fuels also makes less sense in the context of a new slate of clean energy investments that are proving to be very lucrative. Impax Asset Management further concludes that even today, fossil fuel free portfolios that include cleaner sources of energy outperform the average portfolio.
In response to these concerns and opportunities there are now a number of firms that help investors go fossil free while at the same time maximizing their returns:
- Capital Intelligence Associates – Santa Monica, Calif.
- First Affirmative Financial Network – Colorado Springs, Colo.
- Natural Investments – Many locations
- Progressive Asset Management, Inc. – Oakland, Calif.
- Quantum Financial Planning, LLC – Grayslake, Ill.
- Green Century Balanced Fund
- Portfolio 21
- Pax World Global Environmental Markets Fund
- Access Capital Community Investment Fund
- CRA Qualified Investment Fund
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