Institute for Energy Economics and Financial Analysis (IEEFA), July 2018
- 52-page report
- Best for: Understanding the financial/investment case for FF divestment. This is probably the best, most concise compilation of the financial argument for divestment that’s out there.
- Covers: Weakening of financial performance of FF companies, factors that contributed to FF weak performance (e.g. emergence of fracking), why higher gas/oil prices are NOT an argument for continuing to invest, FFs as volatile and speculative investments, how renewable energy is gaining market share, growing risks + vulnerabilities of FF industry, responses to financial objections, FAQs on divestment
- Does NOT cover: Scientific/moral case for divestment, legal fiduciary argument for divestment, how-to on divestment for trustees
- This report can be given directly to administrators as is.
Energy sector being the lowest performing industry:
“For the past five years, the energy sector has lagged almost every other industry on the world market. Instead of bolstering portfolio returns, energy stocks dragged them down and investors lost billions.” (p. 2)
Why higher prices does not mean we should continue to invest:
“Higher prices will be no solution. Recently, oil prices have begun rising from a very low point of $28 per barrel in 2016 to where they are now, above $75 per barrel. But even with this two-year run up in prices, energy stocks were the second-to-last performing sector in 2017, as information technology, health, consumer discretionary, real estate, utilities and manufacturing all posted stronger returns, as did the Standard and Poor’s 500 as a whole. And whatever benefit higher prices bring to companies’ balance sheets, they increase the competitive advantage of renewables and push consumers to work harder to reduce their dependence on fossil fuels.” (p. 3)
- “The world economy is shifting toward less energy-intensive models of growth, fracking has driven down commodity and energy costs and prices, and renewable energy and electric vehicles are gaining market share. Litigation on climate change and other environmental issues is expanding and campaigns in opposition to fossil fuels have matured. They are now a material risk to the fossil fuel sector...” (p.3)
- “In short, the returns for coal, oil, and gas are no longer worth the risk.” (p. 3-4)
Why divestment as an investment risk is not only wrong but a violation of fiduciary duty:
“As this paper shows, the markets for the last five years and for the foreseeable future demonstrate that indexes without fossil fuels are doing better than those with fossil fuels. Most of the claims of prospective fund losses from divestment are derived by looking at the past performance of the fossil fuel industry. Such claims form a dangerous basis for forward-looking investment and are a breach of fiduciary standards.”