[We’re pleased to welcome authors Dr. Chelsie Hunt and Dr. Olaf Weber of the University of Waterloo. They recently published an article in Organization & Environment entitled “Fossil fuel divestment strategies: Financial and carbon-related consequences,” which is currently free to read for a limited time. Below, they reflect on the inspirations, challenges, and related papers to their research:]
The research on this paper has been motivated by the discussion about whether fossil fuel divestment decreases financial returns. This question is discussed controversially in academia and practice. Since the Canadian financial market is very fossil fuel heavy, it was interesting to understand both, financial and carbon related consequences of different fossil fuel divestment strategies.
Another influence is the intensive public discussion about how to mitigate climate change. As divestment is proposed as one way to address the problem, we wanted to understand the effect of this type of socially responsible investment that has been promoted by the NGO 350.org. However, divestment moved from being a niche political activity of NGO to the center of institutional investing with a number of big institutional investors announcing divestment from fossil fuels.
A challenging part of this research is the quality of climate related corporate data. Though many firms disclose their carbon related data, there are still gaps and the risk of biases because often those with higher carbon performance publish their data. However, I think we used an innovative approach that correlated both financial and carbon related performance to analyze whether divestment really has an effect on the decarbonization of financial portfolios.
The results might influence investors with regard to divestment decisions and also contributes to finance research by adding non-financial risks to the equation. Maybe they also influence younger scholar to conduct research in this field though it is still often seen as a niche in general corporate and financial performance research.
Finally, we would like to mention three other papers in the field that have been extremely interesting. First, it is a paper that discusses why financial implications of climate risks are not discussed in conventional financial journals (Diaz-Rainey, Robertson, & Wilson, 2017). Second, there are two more papers that discuss the consequences of fossil fuel divestment that suggesting no negative financial effects from fossil fuel divestment (Henriques & Sadorsky, 2017; Trinks, Scholtens, Mulder, & Dam, 2018)
Diaz-Rainey, I., Robertson, B., & Wilson, C. (2017). Stranded research? Leading finance journals are silent on climate change. Climatic Change, 143(1), 243-260. doi:10.1007/s10584-017-1985-1
Henriques, I., & Sadorsky, P. (2017). Investor implications of divesting from fossil fuels. Global Finance Journal. doi:https://doi.org/10.1016/j.gfj.2017.10.004
Trinks, A., Scholtens, B., Mulder, M., & Dam, L. (2018). Fossil Fuel Divestment and Portfolio Performance. Ecological Economics, 146, 740-748. doi:https://doi.org/10.1016/j.ecolecon.2017.11.036