Divesting from fossil fuel companies does not incur additional portfolio risk, according to a new report by Aperio Group.
Divesting from fossil fuel companies does not incur additional portfolio risk, according to a new report by Aperio Group.
The financial advisory firm conducted two studies to analyze the impact of divesting from the Filthy Fifteen, a group of coal utility and extraction companies designated by the university Coal Divestment Campaign as the dirtiest public companies to hold, and the exclusion of the entire industry of Oil, Gas and Consumable Fuels.
Do the Investment Math: Building a Carbon-Free Portfolio finds the impact of removing all of the Oil, Gas and Consumable Fuels industry results in forecasted tracking error versus the Russell 3000 of only 0.60%, which adds incremental portfolio risk of 0.01%. The more narrow divestment of just the Filthy Fifteen results in a tracking error of only 0.14% with an incremental risk of 0.0006%.
Aperio Group CIO Patrick Geddes says the tracking error can be converted to incremental portfolio risk to give investors a more accurate measurement of the impact upon a portfolio. "The portfolio becomes riskier by such a trivial amount that the impact is statistically irrelevant. In other words, excluding the Filthy Fifteen has no real impact on risk," Geddes says. "The impact of screening for coal and carbon is far less significant than skeptics often presume. Anyone on an endowment board facing that decision should do the investment math."
Aligning Value Management and Regenerative Practices
Join us as Regenovate co-founders Chris Grantham and Adam Lusby lead an interactive workshop on how to rethink value in the context of regenerative innovation by linking value to the dividends and resilience that come to an organisation from enhancing system health — Thurs, May 9, at Brand-Led Culture Change.
The study comes as students and university community members on campuses across the country increase pressure on academic institution to invest responsibly and diminish the financial power of the coal industry in the U.S.
According to Dan Apfel of the Responsible Endowments Coalition, "This report answers the critical question that students and university endowments have been asking: ‘Can we divest from fossil fuels without incurring additional risk?’ Now we have the math to prove that carbon divestment is not just good for people and planet, but has no impact on risk or profit."
In related news, impact investing is expected to grow more than 12 percent in 2013 as more investors begin to seek environmental and social performance alongside financial returns.
@Bart_King is a freelance writer and communications consultant.
Published Jan 30, 2013 7am EST / 4am PST / 12pm GMT / 1pm CET
Bart King is the founder and principal at New Growth Communications. He specializes in helping sustainability leaders develop thought leadership content and strategy