Divestment 101: FAQs

THE FAST-MOVING EVOLUTION OF THE ENERGY SECTOR IS CHANGING INVESTOR MINDS AND ALTERING CAPITAL MARKET FLOWS.

This shift raises as many questions about where things are going as it does about the status quo. A report we published earlier this summer—“The Financial Case for Fossil Fuel Divestment”—takes a stab at addressing the topic practically and in a way meant especially to help fund managers and trustees navigate this new landscape.

Emerging themes include:

• The impact of divestment on investment returns
• Cores rationales for divestment
• Divestment fundamentals
• Rebuttals to anti-divestment arguments
• Reputational risk in not divesting

You can see the full FAQ monty here (Pages 39-45), but in the meantime here’s a condensed, 10-point overview that distills some of our core takeaways.

*For the full article, click here.

Q. Will funds lose money if they divest?

A. No. The fossil fuel industry doesn’t lead the market liked it used to. It lags. Energy was the worst performing sector in the S&P 500 Index last year, and its cumulative returns over the past five years have been abysmal. The chart below shows the trend. Fossil fuel investments volatile revenues, limited growth, and a negative outlook as the quality of its equities continues to deteriorate from the quintessential blue chip component of investment portfolios to one that is speculative and tied to the oil-price uncertainty.

Q. Is it possible for managers to hit their targets without investing in fossil fuels?

A. Yes. Over the past five years, the MSCI-All Country Global Index excluding fossil fuel holdings has outperformed a companion index that includes such holdings. A recent study by Mercer Associates commissioned by 16 large institutional investors presents a strong case for divestment alongside the construction of products that can achieve fund targets. 

*For the full article, click here.