Abstract
It is discussed intensively whether divestment decease sales in the fossil fuel industry or whether investors divest from the fossil fuel industry because of stranded assets. Furthermore, it is unclear what the consequences of these activities are for the fossil fuel industry. Therefore, the study explores the direction of causality between cash flow factors, such as production factors and sources of financing and sales of the fossil fuel industry using lagged regression models and applying the Granger causality test. Our sample consists of fossil fuel companies from the Carbon Underground 200 list. Because R-squared values for both lagged financial factors and lagged sales were similar, we suggest a “bi-directional causality” between the financial flow factors and sales. We conclude that divestment (because of ethical concerns) can cause lower sales and that lower sales can cause divestment because of fear of the risk of stranded assets. Because a third factor usually causes bi-directional causations, we conclude that the need for the fossil fuel industry to reduce greenhouse gas emissions is the third factor that influences both the ethical and financial motivation of divestment. Consequently, the study contributes to theoretical approaches to divestment.
Highlights
Concerns—Ethical and FinancialInvesting in the fossil fuel sector is discussed controversially as its business activities make it a significant contributor to the climate crisis
We show that divestment can be motivated ethically and financially and that both types of divestments interact and might be influenced by a third variable, such as climate change
Divestment can significantly affect business activities and the share prices of companies in the fossil fuel industry that are highly dependent on financing [13,14]
Summary
Concerns—Ethical and FinancialInvesting in the fossil fuel sector is discussed controversially as its business activities make it a significant contributor to the climate crisis. Many studies found reduced returns and the risk of stranded assets for investors [3,4] To address these issues, fossil fuel divestment aims to divest capital from the fossil fuel sector to impair the sector’s capacity of exploration, production, and capitalization of fossil fuel resources and pressure the industry to transition their business activities into a climatefriendly direction. Divestment can significantly affect business activities and the share prices of companies in the fossil fuel industry that are highly dependent on financing [13,14] Divestment announcements such as campaigns, pledges, and endorsements that aim to mitigate climate change and reduce greenhouse gases (GHGs) can impair financial returns and the share prices of divested companies in the short-term [6]. Studies estimate that the global renewable energy industry needs $1 trillion annually [16] to meet the goal of the Paris Agreement
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
