The financial impact of divestment from fossil fuels

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Divesting from fossil companies has been put forward as a means to address climate change. We study the impact of such divesting on investment portfolio performance. To this extent, we systematically investigate the investment performance of portfolios with and without fossil fuel company stocks. We investigate mispricing in stock returns and test for the impact of (reduced) diversification by excluding fossil fuel companies from the portfolio. While the fossil fuel industry outperforms other industries based on returns only, we show that this is due to the higher systematic risk of this industry, as there is no statistically significant difference between the riskadjusted performance of stocks in the fossil fuel sample and the non-fossil fuel sample. We conclude that divesting from fossil fuels does not have a statistically significant impact on overall portfolio performance, and only a very marginal impact on the utility
derived from such portfolios. The policy implication is that investors can divest from
fossil fuels without significantly hurting their financial performance.
Original languageEnglish
Place of PublicationGroningen
PublisherUniversity of Groningen, SOM research school
Number of pages47
Publication statusPublished - 29-Mar-2016

Publication series

NameSOM Research Reports


  • Divestment
  • Fossil fuels
  • Investment management
  • Portfolio performance
  • Stock markets

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