22nd April is World Earth Day. With the latest report from the IPCC saying that we need to act ‘now or never’ to limit dangerous levels of global warming, we all need to look seriously at the ways we can make a difference. Fossil fuel divestment is one of them.
What is divestment?
Divestment is the opposite of investment. It means getting rid of stocks, bonds or investment funds. While divestment can occur for many reasons, protest divestment is motivated by a desire to sell investments on ethical or moral grounds. And it can be extremely effective.
Divestment was a major contributing factor in the campaign to end apartheid in South Africa. According to Investopedia, between 1985 and 1990, over 200 U.S. companies cut all ties with South Africa, resulting in a loss of $1 billion in direct investment from America alone. In the same vein, in March 2022 Scottish Widows pledged not to invest in any company that derives more than 10% of its revenue from tobacco.
And of course, fossil fuel divestment is a key factor in the fight to save the planet.
Fossil fuel divestment
In the current climate crisis, fossil fuel divestment has become big news. The Global Fossil Fuel Divestment Commitments Database estimates that 1508 institutions with an approximate value of $40.43trillion are divesting. Faith-based organisations and educational institutions are leading the way making up 35.1% and 15% respectively. Pension funds come in fourth place at 12%. Which is good, but not good enough.
In 2021 Friends of the Earth estimated that UK pension funds have an estimated £128billion invested in fossil fuels, equivalent to £2,000 per person.
How can I divest?
Some people are unable to choose where they invest their pension money because their employer has decided on a particular fund. In this case, the best individuals can do is put pressure on institutional investors to demand that their money be moved out of coal, gas and oil companies. The more the public demands that fossil fuel companies be held accountable, the quicker institutional investors will pivot towards fossil-fuel-free pension funds.
Individual investors have more power however, as they have absolute freedom to choose where they invest their money. And the good news is that the choice of investments for those wishing to opt for sustainable and responsible funds has exploded in recent years. A recent Harvard study estimated that in 2021 there was in excess of $330billion invested in Environmental, Sustainable and Governance (ESG) and states that ‘The rise and rise of ESG that we have seen over the past few years is likely to continue in 2022, as ESG remains a priority in the corporate sphere.’
Does divesting mean sacrificing return?
Until recently, sustainable investments involved a compromise in terms of return however experts are now arguing a solid financial case for divestment. Fossil fuel investments are undoubtedly a risk for the planet, and they are looking increasingly risky for investors with detractors citing an outdated business model and the turning tide of public opinion as important factors in their potential demise.
ESG may no longer be just a moral choice but also a canny one, which could deliver the best return over the long term.
How do I divest?
Speak to your financial adviser about how you can rebalance your portfolio in favour of more sustainable investments.
Infinity is ahead of the game in this respect. We work in partnership with investment manager Tilney, which has a track record of successfully managing sustainable and ethical investment mandates for clients dating back more than 15 years. It was no surprise that in 2021 Tilney won Best ESG Investment Strategy at the City of London Wealth Management Awards.
If you want to take meaningful action this Earth Day and do your bit to save the planet, talk to one of our professional financial advisers about divesting your investments in fossil fuels in favour of greener alternatives.
A leading provider of expat financial services and wealth management services across Asia.