Munich Personal RePEc Archive

Divesting Fossil Fuels: The Implications for Investment Portfolios

Trinks, Arjan and Scholtens, Bert and Mulder, Machiel and Dam, Lammertjan (2017): Divesting Fossil Fuels: The Implications for Investment Portfolios.

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Abstract

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.

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