The effects of the fossil fuel divestment campaign on stock returns

Abstract

Recent campaigns by environmental activists have placed pressure on institutional investors to divest holdings of oil, coal and other fossil fuel industry stocks. A substantial literature has emerged to evaluate the effects of this divestment campaign on stock returns. Findings have been mixed, with some studies identifying above-market returns to socially responsible investing and others documenting a premium on the targeted stocks. We calculate the rate of return for a fossil fuel-free portfolio and compare it to the return for the Standard & Poor’s 500 index. We also compare a portfolio consisting only of fossil-fuel oriented stocks with the S&P 500. Over various sample periods ranging from January 4, 2010 to June 29, 2018, the low-carbon portfolio typically earns a slightly higher rate of return than the overall market, due to the poor performance of the fossil fuel industry. These findings suggest that in the case of fossil fuels divestment, given the timeline of the movement, socially responsible investing has not been costly in terms of forgoing market returns.