Why it makes sense to dump your fossil fuel stocks

They've been a smart investment for decades, but climate change is going to change that, too.

By TheStreet Staff Aug 20, 2013 2:43PM

thestreet logo copyright Joseph Sohm-Visions of America, Photodisc, Getty ImagesBy Laura Kiesel

 

Sure, fossil fuel companies such as ExxonMobil (XOM), Chevron (CVX) and Royal Dutch Shell (RDS.A) have been smart investments for decades -- even for environmental groups who treat them like a secret addiction. But climate change is going to change that, too.

 

In fact, it's divestment from fossil fuels that's the far smarter, safer move, according to a growing number of experts.

 

Late last month, Forbes featured an article that supported divestment in fossil fuel stocks not just as a viable financial strategy, but a necessary one. That's because though we have more than enough fossil fuel reserves worldwide to depend on for some time, they come with a huge environmental cost.

 

Divestment hit the mainstream late last year when the environmental nonprofit 350.org, headed by writer and activist Bill McKibben, began advocating for it as a main angle of its climate campaign. In particular, 350.org touts divestment as a powerful tactic in urging fossil fuel companies to begin scaling back on extraction and replace their product with sustainable alternatives such as solar and wind power.


The scientific consensus is that we have to leave untouched 80% of our coal, oil and gas reserves to keep average global temperatures from rising more than 2 degrees Celsius (3.6 degrees Fahrenheit) -- the threshold for maintaining a stable climate. Yet according to the International Energy Agency, our emissions are already on a path that will increase average global temperatures between 3.6 and 5.3 Celsius (6.5 to 9.5 Fahrenheit) by the end of the century.


The threat of catastrophic climate change and its effects -- flooding, drought and sea level rises -- make continued investments in fossil fuel stocks risky at best. Current fossil fuel reserves may be estimated to be worth as much as $28 trillion dollars, but Forbes contributor Logan Yonavjak warns of a carbon bubble.


"Although they have been lucrative, fossil fuels are becoming increasingly risky investments, and the stakes have become too high to maintain a stable climate," Yonavjak writes.


Specifically, Yonavjak explains that a possible carbon tax could raise the price of carbon to an average of more than a $100 per metric ton. This market expense, coupled with the increased costs associated with climate change, could make fossil fuels stocks toxic.


In light of the evidence of the crippling impacts and expense climate change is expected to cause if fossil fuels continue to be burned at current rates, divestment has become a key word for environmentalists and savvy economists alike. There are active divestment campaigns on more than 300 campuses and in 100 cities and states in the U.S., with six universities and 17 cities and towns already committing to divestment, including San Francisco, Seattle and Cambridge, Mass. Additionally, about a dozen religious congregations across the country have committed to divest.


Conspicuously missing from the lineup of current and potential divestors are those large green groups that are sounding some of the loudest warning cries about climate change. An article by Naomi Klein in The Nation last spring revealed that a majority of large environmental nonprofits are suspected or known to have large investments in the fossil fuel industry. The Nature Conservancy, for instance, has at least $22.8 million invested in the energy sector. Other groups with large endowments include Conservation International, the Wildlife Conservation Society and the Ocean Conservancy. None of these groups have been forthright about what percentage of their endowments are derived from or invested in fossil fuels.


On the other end of the spectrum, green groups such as Greenpeace, Friends of the Earth and the Rainforest Action Network do not have endowments and do not invest in the stock market. And other groups are taking steps to make sure their actions are more consistent with their mission. The Natural Resources Defense Council has stated that it specifically screens out the extractive and fossil fuel industry for direct investments, as does the Sierra Club.


The executive director of the Responsible Endowments Coalition, David Apfel, told The Nation that unless an institution specifically screens out investments in fossil fuels, it is virtually certain to hold some stock in the industry.


"All investors are basically invested in fossil fuels," Apfel says. "You can't be an investor that is not invested in fossil fuels unless you've actually worked very hard to ensure that you're not."


The collective effort to divest has been aided by a flurry of reports outlining an appropriate and financially beneficial way to go about divestment. These include The Aperio Group's report, Building A Carbon Free Portfolio, Joshua Humphrey's article, Institutional Pathways to Fossil-Free Investing: Endowment Management in a Warming World and Resilient Portfolios and Fossil-Free Pensions, a joint effort of HIP Investor and 350.org.


All three not only outline methods for long-term divestment, but also offer suggestions for reinvestment in renewable energy and other solutions for coping with climate change, which they all conclude is a necessary component of any successful divestment strategy.


The Aperio Group reported in January that carbon divestment carries very little risk -- much less than 1% (from 0.01 to 0.0006). At the same time, the World Economic Forum found that about $700 billion would be needed annually to address and limit the global impacts of climate change.


Divestments in fossil fuel stocks owned by university, nonprofit and corporate endowments -- as well as those in pension funds -- would free up hundreds of billions to tens of trillions of dollars that could be redirected to sustainable development and climate adaptation projects. This could help prevent or alleviate many of the worst impacts of climate change while also benefitting the economy.


"A carbon-neutral, and eventually carbon-free, economy is not only possible," Yonavjak writes, "it has become imperative."

 

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11Comments
Aug 20, 2013 4:05PM
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"Di-vestments in fossil fuel stocks owned by university, nonprofit and corporate endowments -- as well as those in pension funds -- would free up hundreds of billions to tens of trillions of dollars that could be redirected to sustainable development and climate adaptation projects."

Like Solyndra!  And ethanol (subsidies and mandates)!  And perpetual motion machines! And searches for the Holy Grail and the Fountain of Youth!

Why, the number of ways that we could mis-allocate (and evaporate)  these "hundreds of billions to tens of trillions of dollars" is positively and titillatingly endless!
Aug 20, 2013 3:17PM
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The decay, decline and ultimate fall of ExxonMobil is greatly exaggerated.
Aug 20, 2013 5:15PM
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I think it's funny that she thinks that someone divesting themselves from fossil fuel stocks would then take that money and, instead of reinvesting it in some other stock, would "redirect it to sustainable development and climate adaptation projects".  She thinks that the people in charge of "university, nonprofit and corporate endowments -- as well as those in pension funds" would suddenly become totally lacking in their responsibilities to conserve and grow the assets under their control?  What world does she live in?
Aug 20, 2013 4:48PM
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What nonsense.  Exxon has a great dividend and still has growth potential.  Alternate fuel will never fill the world's needs.
Aug 20, 2013 5:22PM
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One question, maybe two...

 

Got Coal, Oil/gas, or Pipelines ???

 

Ever notice the dividends they pay as investments...???

Aug 21, 2013 12:52AM
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 To Laura Kiesel and TheStreet Staff.

I have two works for all you guys.

NORTH DAKOTA

They are drilling in the open fields, on farm lands, on Indian Reservations, just outside of small towns....Hell, they already have working wells just a couple of hundred feet off the Interstate 94 highway. 
And you talking about selling fossil fuel stocks?
 Well Ms. Laura Kiesel....you might be right!
But it won't happen within my life time.....in the meantime, I have to get back to work delivering water to a new well being drilled.
 I'm still bullish on oil stocks.
and don't forget the non-sense that is currently happening in the Middle East.




Aug 20, 2013 6:44PM
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Laura you are the Biggest Obama - Green - touting Groupie (Journalist ?- ) I have  ever read !

 

If you think I am going to sell Exxon becuase some Pinko Commie wrote a Green Article - you are an Idiot!

 

PS : It was in the 70's here in Virginia - No Climate Change - Read my Lips - There is no Climate Change !

 

Who do you really work for ? Green Peace?

Aug 21, 2013 2:57AM
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Moreover ,   whatever climate change here is is primarily caused by mother  Nature   Just  watch the 7:00pm network news and you will see thousands of square miles  of wildfires . These  together put out more r smoke and particulate that all the coal burning power

generating plants combined in this country.  AND what about all the  Volcanoes that are in a near constant state of eruption.  The also spew more poisons in the air such as carbon dioxide  and suppers  dioxide.  

 

You never hear the Obama whacko's  mention  how much these  natural occurrences contribute to pollution.  When some pencil neck geek of an environmental whacko professor measures particulates in the  air there is NEVER any acknowledgement regarding

how much of the particulate OCURRES  naturally  and how  much can actually be attributed to man.  They don't  do it because  admitting that natural pollution  is a major contributor to climate change  does NOT fit their preconceived conclusion that it is only man made pollution via the power companies that contributes to  global warming.

 

Moreover, Mankind and most other earth species'  do just fine with the earth getting a little warmer.  The earth was designed by someone a little more intelligent that this environmental whacko.   The designer included many provisions for the earth to cleanse itself .  Just look at Mt.  St Helens and Mt, Kiloweaua  in HI.  Life returns to these mountains and surrounding seas rather quickly after an eruption.   Again it is NOT ABOUT CLEAN AIR AND WATER  IT IS ALL ABOUT CONTROLLING  A MAJOR PORTION OF THE HUMAN POPULATIONS.

Aug 21, 2013 12:02PM
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I drive a dodge 1500 with a hemi and own chevron stock did a lot of roughnecking so I disagree with her completely,keeper turnin to the right boys!!!!

 

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