SYDNEY — A new tool has determined that global investors lost billions of dollars over the past three years by remaining invested in fossil fuel companies. Of the two Australian investors analysed, Australia’s Sovereign Wealth Fund – the Future Fund – lost $1.5 billion over the past 3 years and the Australian National University lost over $53 million dollars. Of the 14 funds analysed, the results showed that carbon-intensive investments may have cost them $22 billion in reduced returns.
The “Clean Capitalist Decarbonizer” tool – launched by Corporate Knights, together with 350.org and South Pole Group, shows how divesting from carbon-intensive companies in a portfolio could impact upon its financial performance.
Corporate Knights analyzed the most recently disclosed holdings of 14 prominent funds1 to estimate the potential financial impact had they shifted their investments from the world’s 200 largest fossil fuel companies2 and utilities that rely on coal for more than 30 percent of their electricity generation3 to companies providing environmental solutions 4. From there, the total returns over a three year period starting on October 1, 2012 were calculated. This coincides with the beginning of the global fossil fuel divestment campaign.
“The analysis of 14 major funds with a total $1 trillion in assets, based on available data, showed that carbon-intensive investments may have cost investors $22 billion in reduced returns. While incomplete disclosure limits the precision of analysis, the conclusion is unequivocal: decarbonizing portfolio holdings produced a better financial outcome in every case but one,” said Corporate Knights chief executive, Toby Heaps. “It helps explain why a growing group of investors 5 are voting with their dollars for less pollution and more environmental solutions.”
The analysis follows a recent report by Arabella Advisors, which found that the global divestment movement has grown 50-fold over the past year, topping $2.6 trillion in assets under management by institutions and individuals committed to divestment.
“The momentum of the divestment campaign is evidence that the tide is beginning to turn against the fossil fuel industry. This analysis powerfully demonstrates yet again that divestment is not only morally the right thing to do, it is also a financially smart course of action, said Charlie Wood, 350.org Australia Campaigns Director
“The funds analysed could have saved billions of dollars had they divested from fossil fuels when the divestment campaign started three years ago. Perhaps investors like Future Fund Chairman Peter Costello will wax less lyrical in his opposition to fossil fuel divestment when he sees how much money his $117bn Fund has forgone by remaining invested in fossil fuels.
“Whilst Tony Abbott and his friends in the coal industry were busy attacking the Australian National University for divesting last year, these results show that the University was actually pursuing a financially and environmentally responsible course of action,” concluded Wood.
The period of analysis coincides with a tough market for oil and commodity prices, and it is possible that over the next few years, some oil stocks and even coal utilities could partially recover; however, when considering the long-term, many investors recognize the increasingly tenuous business case for remaining heavily invested in carbon intensive industries, as outlined by the Governor of the Bank of England Mark Carney. In failing to divest, institutions risk under-exposure to $3 trillion of public equities positioned to benefit from a more resource efficient and expanding low carbon economy.
While this analysis focused on the past three years, dating to the launch of the fossil fuel divestment movement, other analyses over a ten year period by MSCI and Fossil Free Indexes have also found fossil free portfolios outperformed.
Toby Heaps, CEO Corporate Knights, +1 416 274 1432, firstname.lastname@example.org
Charlie Wood, Campaigns Director, 350.org Australia, +61 427 485 233, email@example.com
Notes for Editors:
1. 14 Funds analyzed:
|Fund||Size of fund in USD||Estimated Cost of not decarbonizing 3 years ago|
|Algemeen Burgerlijk Pensioenfonds (ABP): “Dutch Civil Servants Pension Fund”)||$382,344,000,000||$9,366,211,873|
|Australian National University7||$686,980,602||$53,850,841|
|Canada Pension Plan Investment Board||$199,825,920,000||$7,025,528,323|
|Future Fund (Australia)||$83,152,631,000||$1,546,602,354|
|Bill & Melinda Gates Foundation Trust Endowment||$40,564,000,000||$1,897,962,806|
|Harvard University Endowment (Harvard Management Company)||$37,600,000,000||-$206,290,976|
|London School of Economics Endowment||$147,939,674||$3,062,919|
|McGill University Endowment (McGill Investment Pool)7||$990,520,320||$32,330,177|
|New York City Employee Retirement System (NYCERS)7||$54,451,000,000||$1,618,154,962|
|Ontario Municipal Employees Retirement System (OMERS)7||$54,374,400,000||$756,153,815|
|Ontario Teachers’ Pension Plan (OTPP)||$115,081,907,200||0|
|University of Toronto Asset Management Corporation||$5,588,480,000||$419,418,629|
|Vermont Pension Investment Committee||$4,020,000,000||$79,387,949|
2. The list of Carbon Underground 200, originally pioneered by Carbon Tracker, was provided by Fossil Free Indexes, and consists of the top 100 public coal companies globally and the top 100 public oil and gas companies globally, ranked by the potential carbon emissions content of their reported reserves.
3. The list of utilities which generate more than 30 percent of electricity from coal was provided by South Pole Group.
4. Companies providing environmental solutions derive at least 20% of their revenues from environmental markets or new energy as verified by FTSE Environmental Markets or Bloomberg New Energy Finance. The collective market capitalization of the companies providing environmental solutions totalled $3 trillion as of September 30, 2015.
5. Some examples of investors leading the way: PFZW, the $183 billion Dutch pension fund has pledged to halve its carbon footprint by 2020 while increasing its investments in climate solutions fourfold. AXA, the French insurer with $1.6 trillion in assets under management, is selling off its stakes in mining companies and electric utilities deriving over 50% of their turnover from coal, while tripling its green investments. It is also notable that the French government recently amended legislation to require institutional investors to report their carbon footprints as well as how they are contributing to the international goal of limiting climate change. Bob Litterman, a former head of risk management at Goldman Sachs, is shorting carbon for higher returns. The Litterman-inspired WWF stranded assets total return swap is long S&P 500 and short “stranded” assets. It has returned more than 40 per cent for the World Wide Fund for Nature since January 2014. 23 investor signatories to the Montreal Carbon Pledge and Portfolio Decarbonization Coalition with assets totalling $1.2 trillion have pledged to reduce their portfolio carbon footprints by as much as 50%-80% without sacrificing financial returns, including the Swedish pension fund AP4 and French pension funds ERAFP and FRR.
6. Based on the difference of investing the estimated value of a fund’s public equities holdings (on Sept 30, 2012) in two simulated portfolios (Clean and Uncleaned), rebalanced quarterly over a three year time period to September 30, 2015. All evaluated funds were offered an opportunity to review the analysis in advance of its release. View full methodology here.
7. In the four cases where the fund did not have any companies classified as environmental solution providers, free float market capitalization weighting was used.