Divesting Fossil Fuels: The Implications for Investment Portfolios

Trinks, P. J., Scholtens, L., Mulder, M., & Dam, L. (2017). Divesting Fossil Fuels: The Implications for Investment Portfolios. (SOM Research Reports). Groningen: University of Groningen, SOM research school.

45 Pages Posted: 25 Jan 2017

See all articles by Arjan Trinks

Arjan Trinks

CPB Netherlands Bureau for Economic Policy Analysis

Bert Scholtens

University of Groningen - Department of Finance & Accounting

Machiel Mulder

Centre for Energy Economics Research, University of Groningen

Lammertjan Dam

University of Groningen - Faculty of Economics and Business

Date Written: January 16, 2017

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.

Keywords: Fossil Fuel Divestment, Socially Responsible Investing, Portfolio Performance, Risk-adjusted returns, Market Capitalization, GARCH

JEL Classification: G11, Q41

Suggested Citation

Trinks, Arjan and Scholtens, Bert and Mulder, Machiel and Dam, Lammertjan, Divesting Fossil Fuels: The Implications for Investment Portfolios (January 16, 2017). Trinks, P. J., Scholtens, L., Mulder, M., & Dam, L. (2017). Divesting Fossil Fuels: The Implications for Investment Portfolios. (SOM Research Reports). Groningen: University of Groningen, SOM research school., Available at SSRN: https://ssrn.com/abstract=2903926

Arjan Trinks (Contact Author)

CPB Netherlands Bureau for Economic Policy Analysis ( email )

Bezuidenhoutseweg 30
The Hague, 2594AV
Netherlands

Bert Scholtens

University of Groningen - Department of Finance & Accounting ( email )

P.O. Box 800
9700 AH Groningen
Netherlands

Machiel Mulder

Centre for Energy Economics Research, University of Groningen ( email )

Postbus 72
9700 AB Groningen
Netherlands

Lammertjan Dam

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands
+31-50-3636518 (Phone)

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