Quantcast

Why Fossil Fuel Stocks Are Doomed

Numerous fossil fuel divestment campaigners have pointed to the stock markets lately to tell trustees that they are losing significant funds by not divesting. It’s true, fossil fuel stocks have lost 30 cents on the dollar in the last 21 months alone. That translates to big money when looking at large institutional investor portfolios like pension funds and school endowments.

A recent report by the University of Cambridge detailed the material risk of climate change to investment portfolios and found that, “short-term shifts in market sentiment induced by awareness of future climate risks could lead to economic shocks and losses of up to 45 percent in an equity investment portfolio value.”
Photo credit: Shutterstock

The reflex response from the Chief Investment Officers, trustees and investment professionals (not to mention the oil industry) has been: "you’re cherry picking, it’s cyclical." What they mean is that there are ups and downs in the price of oil and the value of stocks throughout history. They’re long-term investors so they should ride this out until oil prices climb back up to $100/barrel and the stocks rise with it.

There is one major problem with calling this a downturn cycle. In fact, by calling low fossil fuel stock prices a normal ride through the peaks and valleys of the stock market, they are ignoring the elephant in the room—climate change.

Unfortunately, for those CIOs and Trustees, climate change is not on a business cycle (well, maybe a ten thousand year business cycle, but I don’t know of any long-term investors who take it that far).

If you factor in climate change and the correlated political and economic shifts (think fossil fuel regulation, renewable energy becoming more competitive, higher cost oil extraction projects, etc.), this ain’t no normal cyclical downturn. And as we are seeing with the coal industry (and witnessed with Kodak and Blockbuster), there are ups and downs, until there aren’t anymore.

There is a new complex stock market that is reflecting a new complex economy. Agriculture is shifting in formative ways to adjust to drought and heat. Real estate, insurance, utilities, transportation and health care industries—almost every sector in the stock market—are going through major changes as global warming rearranges the status quo. For example, the California drought pushed ranchers to move 100,000 cattle across state lines, leading to the closure of one of the nation’s largest packing plants.

Investors are going to have to rethink strategies and integrate climate and carbon into their vision of the world market place. But the energy sector is different—fundamentally different—especially when it comes to carbon risk.

There is a simple and clear limitation to the production of fossil fuels. And we’re there. We have about hit our limit. The declining value of fossil fuel stocks can’t be cyclical, because there isn’t a long enough future in fossil fuels for an upswing.

A recent report by the University of Cambridge detailed the material risk of climate change to investment portfolios and found that, “short-term shifts in market sentiment induced by awareness of future climate risks could lead to economic shocks and losses of up to 45 percent in an equity investment portfolio value.”

Those major losses are advancing the divestment dialogue this year. California’s pensions systems lost more than $5 billion on their fossil fuel holdings last year. The Massachusetts state pension fund lost $521 million in value from their fossil fuel stocks over the past year (that’s a 28 percent decline). And if calculated as an opportunity cost—what would have happened if you had divested—most funds are looking at a huge missed opportunity.

The University of Cambridge report wasn’t groundbreaking. The growing risk to the economy and investment funds because of climate change has been reported by the financial giants of the world—HSBC, Deutsche Bank, Standard and Poor’sCitiBank, The Bank of England and my favorite mainstream awakening Jim Cramer—to name a few. If investors don’t wake up to the doom in their portfolios and heed the call from Go Fossil Free campaigners … well … let’s just say, we’re already way passed “I told you so.”

YOU MIGHT ALSO LIKE

Who Pays the Real Cost of Exxon’s Climate Deception?

Bernie Sanders: ‘Climate Change Is Directly Related to the Growth of Terrorism’

10 Photos Show the Reality of a Warming Planet

Bill McKibben: We Must Keep Brewing Gale-Force Winds to Shift Political Landscape

Sponsored
Prince William and British naturalist David Attenborough attend converse during the World Economic Forum annual meeting, on January 22 in Davos, Switzerland. Fabrice Cofferini /AFP / Getty Images

Britain's Prince William interviewed famed broadcaster David Attenborough on Tuesday at the World Economic Forum's annual meeting in Switzerland.

During the sit-down, the 92-year-old naturalist advised the world leaders and business elite gathered in Davos this week that we must respect and protect the natural world, adding that the future of its survival—as well as humanity's survival—is in our hands.

Read More Show Less
EV charging lot in Anaheim, California. dj venus / Flickr / CC BY-ND 2.0

Electric vehicle sales took off in 2018, with a record two million units sold around the world, according to a new Deloitte analysis.

What's more, the accounting firm predicts that another 21 million electric cars will be on the road globally over the next decade due to growing market demand for clean transportation, government subsidies, as well as bans on fossil fuel cars.

Read More Show Less
Sponsored
Teenager Alex Weber and friends collected nearly 40,000 golf balls hit into the ocean from a handful of California golf courses. Alex Weber / CC BY-ND

By Matthew Savoca

Plastic pollution in the world's oceans has become a global environmental crisis. Many people have seen images that seem to capture it, such as beaches carpeted with plastic trash or a seahorse gripping a cotton swab with its tail.

As a scientist researching marine plastic pollution, I thought I had seen a lot. Then, early in 2017, I heard from Alex Weber, a junior at Carmel High School in California.

Read More Show Less
Southwest Greenland had the most consistent ice loss from 2003 to 2012. Eqalugaarsuit, Ostgronland, Greenland on Aug. 1, 2018. Rob Oo / CC BY 2.0

Greenland is melting about four times faster than it was in 2003, a new study published Monday in the Proceedings of the National Academy of Sciences found, a discovery with frightening implications for the pace and extent of future sea level rise.

"We're going to see faster and faster sea level rise for the foreseeable future," study lead author and Ohio State University geodynamics professor Dr. Michael Bevis said in a press release. "Once you hit that tipping point, the only question is: How severe does it get?"

Read More Show Less
Seismic tests are a precursor to offshore drilling for oil and gas. BSEE

Finally, some good news about the otherwise terrible partial government shutdown. A federal judge ruled that the Trump administration cannot issue permits to conduct seismic testing during the government impasse.

The Justice Department sought to delay—or stay—a motion filed by a range of coastal cities, businesses and conservation organizations that are suing the Trump administration over offshore oil drilling, Reuters reported. The department argued that it did not have the resources it needed to work on the case due to the shutdown.

Read More Show Less
Brazil, Pantanal, water lilies. Nat Photos / DigitalVision / Getty Images Plus

Most people have heard of the Amazon, South America's famed rainforest and hub of biological diversity. Less well known, though no less critical, is the Pantanal, the world's largest tropical wetland.

Like the Amazon, the Pantanal is ecologically important and imperiled. Located primarily in Brazil, it also stretches into neighboring Bolivia and Paraguay. Covering an area larger than England at more than 70,000 square miles, the massive wetland provides irreplaceable ecosystem services that include the regulation of floodwaters, nutrient renewal, river flow for navigability, groundwater recharge and carbon sequestration. The wetland also supports the economies of the four South American states it covers.

Read More Show Less
Demonstrators participate in a protest march over agricultural policy on Jan. 19 in Berlin, Germany. Carsten Koall / Getty Images Europe

By Andrea Germanos

Organizers said 35,000 people marched through the streets of the German capital on Saturday to say they're "fed up" with industrial agriculture and call for a transformation to a system that instead supports the welfare of the environment, animals and rural farmers.

Read More Show Less
MarioGuti / iStock / Getty Images

By Patrick Rogers

If you have ever considered making the switch to an environmentally friendly electric vehicle, don't drag your feet. Though EV prices are falling, and states are unveiling more and more public charging stations and plug-in-ready parking spots, the federal government is doing everything it can to slam the brakes on our progress away from gas-burning internal combustion engines. President Trump, likely pressured by his allies in the fossil fuel industry, has threatened to end the federal tax credits that have already helped put hundreds of thousands of EVs on the road—a move bound to harm not only our environment but our economy, too. After all, the manufacturing and sale of EVs, hybrids, and plug-in hybrids supported 197,000 jobs in 2017, according to the most recent U.S. Energy and Employment Report.

Read More Show Less