Why divest?

catastrophic climate changeThe moral arguments for divestment are clear. As Bill McKibben sums it up: "If it’s wrong to wreck the climate, then it’s wrong to profit from that wreckage."

The financial arguments are, admittedly, more speculative, as is the nature of any financial prediction. Nevertheless, there is much evidence for the likelihood that investments in fossil-fuel companies will become increasingly risky over the next few years. The logic is this:

  1. The current valuation of fossil-fuel companies is based, in large part, on the prospective market value of the coal, oil, and gas reserves which they own and plan to sell.
  2. If catastrophic climate change is to be averted, a large percentage of those reserves (an estimated 70-80%) must remain in the ground, unsold and unburned.
  3. As the effects of climate change become ever clearer, governments will increasingly implement policies to reduce the burning of fossil fuels, in the form of regulations, carbon taxes, mandatory cap-and-trade regimes, and subsidies for renewable energy.
  4. As the associated costs increase and renewables become less expensive, fossil-fuel supply will eventually outstrip demand, and it will become uneconomical to extract the reserves, beginning with the dirtiest and the most expensive.
  5. These unextracted reserves will become stranded assets; valuation of fossil-fuel companies will be reduced; and the carbon bubble will deflate.

The uncertainties in this logic lie more in the timing than the sequence; it is possible that some governments will continue to defer implementing meaningful policies and that fossil-fuel companies will manage to manipulate their profitability and apparent valuation for several years. Eventually, however, the conclusion is inescapable: oil, gas, and coal reserves will be worth less than they are now, and so will the companies that own them. Investing in these companies now is to buy high and eventually to sell low.

Here are some useful background readings:

And some links to investment/reinvestment sources:

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commented 2014-10-08 13:50:36 -0700 · Flag
Marinites: If we focus on our own PERSONAL INVESTMENT BEHAVIOR with a laser-like intensity, we can have an enormous impact on the world by positively influencing corporate behavior! To find out more, read my book, “Green Investing, More Than Being Socially Responsible,” and visit my website: http://www.GreenRiverFinServ.com.

The biggest mutual and exchange traded funds hold over 160 Billion dollars of investor assets – each! So… when we and millions of other individual investors replace conventional funds in our retirement plans and personal investment portfolios with sustainable funds, many of which have been around for 40 years and show excellent performance, we send a clear signal to corporations: If your corporate practices are not sustainable, we will dump your stocks and bonds and move that money to stocks and bonds of corporations that are doing a better job protecting the environment, having positive social impacts (nourishing employees) and governing their enterprises transparently and wisely. This is called using “ESG” analysis, and it is practiced by more than 400 funds today, many of which have excellent performance track records, available to the public!
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