Sustainable Investment is Better for the Planet– and Your Portfolio!
In a recent post on Grist, author Ben Adler explains that while divestment is often thought of in feel-good, sustainability terms– fossil fuels are bad for climate change and thus we should not support them– it turns out that fossil fuels are actually just a bad investment. In the article Adler asks, “What if oil, gas, and coal companies have sunk billions of dollars into buying up the rights to carbon fuels that they will never actually be able to extract? That’s what a growing band of financiers argue, and the people who follow their investment advice are benefiting from it.”
If we plan on keeping our atmosphere from changing more than 2ºC, serious curbs on fossil fuel emissions are necessary– this we know. But what is less known is that fossil fuel investments bank on getting all their reserves out of the ground– something that is incongruous with keeping our emissions in check. Adler explains:
“Tighter regulations on polluters — Obama’s Clean Power Plan, for example — are reducing the amount of carbon that can be legally emitted and raising the cost of the emissions that are still permitted. Meanwhile, the price of renewables is dropping while the price of extracting harder-to-reach fossil fuels means they must be sold at a higher price than they were in the past to be profitable. If that price exceeds the price of energy from a cleaner source, then extraction becomes uneconomic and the fossil fuels stay in the ground. That’s why Shell gave up for now on drilling for oil in the Arctic Ocean.
The combination of these trends makes the long-term outlook for fossil fuel companies very bad, according to some analysts. The Carbon Tracker Initiative, an energy industry research group, published a landmark report on this in 2011, which inspired the divestment movement. Now the group is out with a new report, “Lost in Transition: How the energy sector is missing potential demand destruction,” comparing published fossil fuel industry scenarios to financial market research. Carbon Tracker finds that the industry is ignoring risks of declining demand.”
As it becomes increasingly clear that fossil fuels are a bad investment, and as investment in renewables and energy efficiency becomes more common and more profitable, smart consumers will logically take advantage of building a better portfolio AND a better climate.
You can learn more about sustainable investing– or natural investing– from our interview with Michael Kramer of Natural Investing and author of the book, The Resilient Investor. As he explains on Green Living ideas, “Natural Investments helps people choose investments that match their values in a style of investing known as socially responsible investment or sustainable investment [which] helps to bridge the gap between sustainability and investment.”
But the very best part about natural investing is that there is NO good reason not to switch– in the past few years fossil fuel free investments have proven more successful than fossil fuel-based investments. The Guardian writes that, “Investors who dumped holdings in coal, oil and gas earned an average return of 1.2% more a year over last five years.”
This can be seen in this chart from Divest Invest: non-fossil fuel based portfolios actually out-perform fossil fuel based portfolios. And it’s highly likely that this trend will continue.
Need some more good reasons to pledge to go fossil fuel free? Divest Invest says that sustainable investment can help you:
- Maintain competitive returns
- Avoid unnecessary risk
- Invest to fuel change
- Accelerate clean energy for all
- Lead by example
- Be proactive
If you’re ready to divest now, you can take the pledge from Divest Invest to commit to a fossil fuel-less investment future along with thousands of other investors. Our friends at Oroeco have partnered with Divest Invest and Etho Capital to make it easy for you to invest responsibly, and be a part of the divestment movement.
Take their pledge to say that you will:
- Make no new investments in the top 200 oil, gas, and coal companies.
- Sell my existing assets tied to these oil, gas, and coal investments within 3-5 years.
- Invest in a sustainable and equitable new energy economy