Fossil Fuel Divestment & Reinvestment


This webpage provides fossil fuel divestment resources and a broad framework for thinking through reinvestment options. 

Background and Context


Creating and implementing systemic solutions to address climate change becomes more urgent every year. The global warming of the last several decades has been caused largely by human activities—in particular the burning of fossil fuels such as coal, oil and gas—that add to atmospheric concentrations of carbon dioxide and other greenhouse gases that trap heat from the sun. The concentration of carbon dioxide has risen from 280 parts per million in 1750 to more than 400 in recent years, reaching 415 in 2019.

Without concerted action, average global temperatures will rise more than 2 degrees Celsius above pre-industrial levels, a scenario widely conceded to be disastrous for human and environmental health. According to the journal Energy Research & Social Science, more than 80 percent of global fossil fuel reserves must remain in the ground to stay within the 2 degree Celsius target.

While the role of governments and multilateral organizations is crucial, their efforts alone are not sufficient. Investors hold immense pools of capital that can be diverted from the industry that has driven climate change and invested instead in positive solutions. Investors can put pressure on the fossil fuel industry to support a transition to clean energy. Some asset managers that provide fossil fuel free investment products have also produced research reports and resource guides to raise awareness and facilitate the process of divestment and reinvestment.

Over the last several years, fossil fuel divestment has gained momentum and attention. According to the US SIF Foundation’s biennial Report on US Sustainable, Responsible and Impact Investing Trends, money managers applied restrictions related to fossil fuels across $226 billion in assets under management in 2018, compared to $152 billion in 2016. At the outset of 2018, institutional asset owners had adopted fossil fuel restriction or divestment policies that apply to $680 billion in assets, compared to $144 billion in 2016.

Moreover, institutions and individuals worldwide representing about $12 trillion in assets have so far made commitments to divest, according to Fossil Free, a project of 350.org. Well-known and prominent institutional investors, including public retirement funds, faith-based organizations, educational institutions and foundations, are among those that have divested or made commitments to do so.

The fossil fuel divestment movement, supported by initiatives such as Divest-Invest and Fossil Free, is based on the lessons of the South African divestment campaign that helped end apartheid.

An increasing number of investment products target fossil fuel divestment and reinvestment opportunities. The US SIF Foundation defines fossil fuel divestment as the exclusion or partial exclusion of companies engaged in the extraction or production of coal, oil or natural gas. Investment strategies are available across a range of asset classes, and use different approaches. For example, some funds may exclude all fossil fuel companies, others may stop investing in the top 200 fossil fuel companies as measured by carbon reserves, while others may exclude coal and oil sands projects but not natural gas companies. It is important to read the prospectus to understand the approach.
 

Where do I want to reinvest? What are my reinvestment parameters?


This chart and the following notes provide a brief overview of the asset classes where reinvestment is possible for retail, accredited and institutional investors to address climate changes risks and encourage progress toward a low-carbon economy. More details and resources can be found in the US SIF Foundation's guides for retail and institutional investors, Investing to Curb Climate Change



*options more limited for retail investors


The term “retail investors” refers to individual investors who are generally unaccredited and invest relatively small amounts. “Accredited individual investors” are people who meet certain wealth standards and whom regulators consider financially sophisticated, with less need for the protection provided by certain government filings on the part of their advisors. The term “institutions” refers to organizations investing large sums and subject to fewer regulatory protections, such as investment companies, insurance companies, mutual funds, religious organizations, pensions and trusts.

Retail investors who wish to put climate change investment strategies into action in a manner that is appropriate for their age, investment objectives, risk tolerance and return expectations may want to enlist the assistance of a financial advisor. A good place to start is the directory of financial services offered by US SIF members, as they have expertise in sustainable and responsible investing options and strategies. Under “Directory Categories,” select “Financial Advisors and Brokers.”

Accredited and institutional investors may also wish to enlist the services of financial advisors or investment consultants with expertise in sustainable and responsible investing strategies. In the directory of financial services offered by US SIF members, under “Directory Categories,” select “Investment Consulting Firms” in addition to “Financial Advisors and Brokers.”

 

Other Resources

•  Steps to Divest and Reinvest, Green America
•  1,000 Divestment Commitments and Counting, Fossil Free (2019)

•  The Financial Case for Fossil Fuel Divestment, Institute for Energy Economics and Financial Analysis and Sightline Institute (2018)
•  The Fiscal Case for Fossil Fuel Divestment, 350.org (2018)

•  ‚ÄčThe Global Fossil Fuel Divestment and Clean Energy Investment Movement, Arabella Advisors (2018)
 Make a Clean Break: Your Guide to Fossil Fuel Free Investing - An Updated Guide to Personal Divestment and Reinvestment, Green Century, Trillium Asset Management and 350.org (2017)
•  Climate Change and Fossil Fuel Aware Investing: Risks, Opportunities and a Roadmap for Investors, Morgan Stanley (2016)
•  Investing in Climate Solutions: Creating Sustainable Economies, Veris Wealth Partners (2016)
•  Stranded Assets: What Next? HSBC Global Research (2015)
•  Fossil Fuel Divestment: A $5 Trillion Challenge, Bloomberg New Energy Finance (2014)
•  The Risks and Returns of Fossil Fuel Free Investing, Sustainable Insight Capital Management (2014)
  Beyond Fossil Fuels: The Investment Case for Fossil Fuel Divestment, Impax Asset Management (2013)
•  Institutional Pathways to Fossil Free Investing, Tellus Institute (2013)
•  Portfolio Carbon: Measuring, Disclosing and Managing the Carbon Intensity of Investments and Investment Portfolios, UNEP - Finance Initiative (2013)
•  Resilient
Portfolios and Fossil Free Pensions, HIP Investor (2013)
•  Stranded Assets and the Fossil Fuel Divestment Campaign: What does divestment mean for the valuation of fossil fuel assets? Oxford University, Smith School of Enterprise and the Environment (2013)
•  To Paraphrase Mark Twain: The Cost of Fossil Fuel Divestment has been Greatly Exaggerated, NorthStar Asset Management (2013)

•  Unburnable Carbon 2013: Wasted Capital and Standed Assets, Carbon Tracker Initative (2013)
•  Unburnable Carbon: Are the World's Financial Markets Carrying a Carbon Bubble? Carbon Tracker Initiative (2011)

 

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Asset Classes


Public Equities

Direct Stock Ownership and Separate Accounts
Investors who divest from publicly traded fossil fuel companies should consider how to re-weight the public equities portion of their portfolios. Investors may wish to purchase additional shares in companies that generate power from renewable energy; offer energy efficiency solutions for buildings, industrial uses or power generation; or produce goods and services, such as wind turbines, for renewable energy generation. In addition, investors may wish to set parameters for companies in other sectors—such as consumer goods, financial services, health care, industrial goods, services and technology—to give preference to companies that are setting goals and making progress in reducing their carbon footprints.

Accredited and institutional investors can also turn to separate account managers with expertise in sustainable, responsible, and impact investing. A good place to start is the separate account strategies offered by US SIF members. Some of these managers already offer fossil-free strategies, and others can customize their strategies to exclude fossil fuel companies. Visit our Separate Account Strategy chart for more information.

Mutual Funds and Exchange Traded Funds
For investors in mutual funds or exchange traded funds, an important next step is to assess mutual and exchange traded funds through the lens of climate change; several clean energy mutual funds exist as do mutual funds with broader sector holdings that do not include fossil fuels. A good place to start is the list of mutual funds offered by members of US SIF. By clicking on the screening and advocacy tab, visitors can see a broad range of sustainability criteria, including funds that consider climate change criteria in portfolio selection or invest in clean energy or energy efficiency. Some of these funds do not invest in fossil fuel companies. As You Sow and Morningstar also created a search platform, called Fossil Free Funds, which enables users to check if a mutual fund has fossil fuel investments. In addition, Green America compiles a list of fossil-fuel free mutual funds and exchange traded funds on its Divesting & Reinvesting webpage.

Investors that own shares in publicly traded companies should continue to pay close attention to the shareholder resolutions offered at their annual meetings and be sure to vote their shares. Many climate and other sustainability resolutions are being proposed to companies in a range of industries. More information on shareholder engagement can be found in Investing to Curb Climate Change: A Guide for the Individual Investor.

 


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Fixed Income

Bonds
Investors can screen corporate bonds the same way they screen public equities---avoiding bonds in carbon-intensive companies in favor of companies that offer energy efficiency solutions or renewable power generation and companies in other sectors that are setting goals and making progress in reducing their carbon footprints. Other fixed income options include Green Bonds (offered via a World Bank program), and municipal bonds for transit-oriented development and other projects that reduce carbon intensity.

Mutual Funds and Exchange Traded Funds
In addition to purchasing bonds directly, investors can add fixed income to their portfolios through mutual and exchange traded funds. To find a list of fixed income and balanced mutual funds that consider climate change and clean technology in portfolio selection, visit the list of mutual funds offered by members of US SIF. By filtering for “fixed income” or “balanced” and clicking on the screening and advocacy tab, visitors can see which funds in this asset class consider climate change criteria in portfolio selection or invest in clean energy or energy efficiency.

Loan Funds and Microfinance
Community development financial institution (CDFI) loan funds that promote transit oriented development, energy efficiency retrofits for buildings, sustainable agriculture and other environmentally oriented projects can be part of efforts to address climate change.  Most advisors consider these investments restricted to accredited investors, but state filings may or may not contain this restriction, and some loan funds accept investments from non-accredited investors who invest directly.

To find a CDFI loan fund, please visit Opportunity Finance Network. You may also visit Aeris, an independent CDFI rating source. 

 

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Cash

Checking and savings accounts and certificates of deposit from community development banks and credit unions are easy ways to invest and make social and environmental impact. These banks and credit unions have a commitment to financing small businesses, non-profits, commercial real estate and affordable housing, which may include loans for energy efficiency retrofits, as well as other green initiatives in low- and middle- income communities.

To find a community development bank or credit union, please visit:

• Community Development Bankers Association
Inclusiv
National Community Investment Fund


You may also find more information on community investing via the US SIF Foundation report, Options & Innovations in Community Investing.

 

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Alternative Investments

Accredited investors can invest in alternative investment funds, such as private equity funds or funds of funds, venture capital funds, property and real estate investment funds and hedge funds. A number of these funds are now directed towards environmentally sustainable companies, renewable energy, energy efficiency, sustainable agriculture and forestry and waste management.


Private Equity and Venture Capital Funds
Increasingly, private equity options include financing for clean energy, energy efficiency, environmental services, waste management, water, and sustainable and biodegradable materials. Accredited and institutional investors will want to consult with their financial advisors or consultants about the most appropriate private equity vehicles.

Real Estate
Ranging widely from direct investments in farms and forests to more indirect investments in property-related instruments, real estate comprises a large portion of the alternative investment universe. Climate-focused real estate investments include: green building; sustainable timber-, farm- and ranchland and nature conservation; brownfield redevelopment; urban infill development and responsible community reinvestment; and smart growth and transit-oriented development.

For more information, please consult Sustainability Trends in US Alternative Investments

Disclaimer: This webpage is provided only for informational purposes and does not constitute investment advice.