Quantcast
Environmental News for a Healthier Planet and Life

Help Support EcoWatch

Why Fossil Fuel Stocks Are Doomed

Climate
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

People Have the Power - VOTE 2020

Climate-action nonprofit Pathway to Paris first launched in 2014 with an "intimate evening" of music and conversation after the People's Climate March in New York City.

Read More Show Less

EcoWatch Daily Newsletter

Heo Suwat Waterfall in Khao Yai National Park in Thailand. sarote pruksachat / Moment / Getty Images

A national park in Thailand has come up with an innovative way to make sure guests clean up their own trash: mail it back to them.

Read More Show Less

Trending

The 2020 presidential election poses a critical test of climate conservatives' willingness to put their environmental concerns before party politics. filo / Getty Images

By Ilana Cohen

Four years ago, Jacob Abel cast his first presidential vote for Donald Trump. As a young conservative from Concord, North Carolina, the choice felt natural.

But this November, he plans to cast a "protest vote" for a write-in candidate or abstain from casting a ballot for president. A determining factor in his 180-degree turn? Climate change.

Read More Show Less
Headquarters of the World Health Organization in Geneva amid the COVID-19 outbreak on Aug. 17, 2020. FABRICE COFFRINI / AFP via Getty Images

The World Health Organization (WHO) announced Monday that 64 high-income nations have joined an effort to distribute a COVID-19 vaccine fairly, prioritizing the most vulnerable citizens, as Science reported. The program is called the COVID-19 Vaccines Global Access Facility, or Covax, and it is a joint effort led by the WHO, the Coalition for Epidemic Preparedness Innovations (CEPI) and Gavi, the Vaccine Alliance.

Read More Show Less
Exterior of Cold Tube demonstration pavilion. Lea Ruefenacht

By Gloria Oladipo

In the face of dangerous heat waves this summer, Americans have taken shelter in air conditioned cooling centers. Normally, that would be a wise choice, but during a pandemic, indoor shelters present new risks. The same air conditioning systems that keep us cool recirculate air around us, potentially spreading the coronavirus.

Read More Show Less

Support Ecowatch