IEEFA report: Financial case builds for fossil fuel divestment
The financial case for investing in fossil fuels is losing ground as the powerful oil and gas industry continues its steady decline, according to the Institute for Energy Economics and Financial Analysis (IEEFA).
In a briefing note released Feb. 6, Fossil Fuel Investments: Looking Backwards May Prove Costly to Investors in Today’s Market, IEEFA analysts concluded that investing in the fossil fuel sector no longer made sense in light of its last-in-class S&P position in 2018, a decade of lagging stock market performance, fewer institutional investors, depressed profits and a weak outlook.
“If you take an honest look at the data, the sector has underperformed in the stock market for a decade and continues to perform poorly,” said Kathy Hipple, IEEFA financial analyst and co-author of the briefing note.
Energy: S&P’s Worst Sector in 2018
IEEFA’s analysts noted that the oil and gas sector went from occupying 29% of the S&P 500 in 1980 to just 5.3% in 2018, the lowest level in more than 40 years.
“Last year, after almost three years of rising oil prices, the oil and gas sector placed
dead last in the S&P 500,” said IEEFA director of finance Tom Sanzillo who co-authored the briefing note, adding: “Finding alternatives is not difficult since practically every other sector of the economy is growing faster and smarter.”
Even ExxonMobil, the only oil company to still place in the top ten of the S&P 500, has lagged in the last decade, according to IEEFA. While the S&P 500 increased by more than 223%, Exxon Mobil declined by 4.56%.
The IEEFA analysts urge fiduciaries to adopt sound plans to free their portfolios from fossil fuels.
“At a minimum, institutional investors should require their money managers to provide them with a fossil-free portfolio that meets investment targets and a time frame in which they can achieve the portfolio changes,” according to Hipple and Sanzillo.
The Institute for Energy Economics and Financial Analysis (IEEFA) conducts global research and analyses on financial and economic issues related to energy and the environment. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.