Economics and climate justice activism: assessing the financial impact of the fossil fuel divestment movement

ABSTRACT

Since 2011, climate activists have advanced divestment campaigns against private fossil fuel corporations that aim to inflict damage on fossil fuel corporations through two channels: stigmatizing them and undermining their financial operations. We focus in this paper on this second purpose, considering the extent to which divestment campaigns have succeeded in inflicting financial damage on fossil fuel corporations. We present descriptive data on the level of divested fossil fuel stocks and bonds as well as econometric analysis of the impact of divestment events on the stock market prices of fossil fuel companies. We find that divestment campaigns have not been successful in inflicting significant economic damage on fossil fuel corporations, even though the movement has been successful in mobilizing public opinion against the fossil fuel corporations.

KEYWORDS:

• Divestment
• climate
• change
• financial
• impacts

JEL CODES:

• Q54
• B59

Data availability statement

The fossil fuel divestment commitment data can be accessed at ScholarWorks@UMass Amherst via the following https://doi.org/10.7275/hgb5-3b54. Fossil fuel price data can be accessed via FRED (2018) for oil, EIA (2018b) for natural gas, and EIA (2018a) for coal. We accessed the stock market price and index data via Bloomberg L.P. (2018) with permission. However, all of the stock market data can be accessed publicly at the websites of various organizations, including the following. Stock price data for ExxonMobil, Royal Dutch Shell, Alliance Resource Partners, and Cloud Peak Energy can be accessed via Yahoo Finance using the following tickers: XOM, RDS-B, ARLP, and CLDPQ, respectively. Dow Jones US Coal Index data can be accessed via Investing.com using the following ticker: DJUSCL. Finally, S&P 500 Fossil Fuel Free Index data and Dow Jones US Oil and Gas Index data can be accessed via S&P Dow Jones Indices using the following tickers: SP5F3UP and DJUSEN, respectively.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 This is based on the most recent figures from World Development Indicators on CO₂ emissions and methane emissions from natural gas production operations as a share of total greenhouse gas emissions (World Bank, n.d.).

2 The precise wording of the IPCC’s assessment is as follows:

In model pathways with no or limited overshoot of 1.5 degrees, global net anthropogenic CO₂ emissions decline by about 45 percent from 2010 levels by 2030 (40–60 percent interquartile range), reaching net zero around 2050 (2045–2055 interquartile range). (IPCC, 2018, p. 14)

3 The IEA forecasting model extents only to 2040. The formal analysis in this paper remains within the parameters of the IEA forecast.

4 See Schifeling and Hoffman (2017).

5 McKibben uses Leaton (2011) for his analysis. For an updated version, see Leaton et al. (2013). Other literature confirming the general thesis that most fossil fuel reserves must stay in the ground to stabilize the climate includes McGlade and Ekins (2015), Heede and Oreskes (2016), and Meinshausen et al. (2009), among others. The carbon budget included in the latest report from the Intergovernmental Panel on Climate Change (IPCC) also supports this thesis (IPCC, 2018).

6 E.g. For a comparison of levelized costs of electricity generation between coal, natural gas, and renewable sources, see EIA (2019) and IRENA (2018).

7 We recognize, of course, that during the first half of 2020, the market value of oil and gas companies collapsed. For example, the combined value of U.S. companies fell by nearly 50 percent from January to April, from $1.27 trillion to $700 billion. This was due first to the price war between Russia and Saudi Arabia, but still more, to the global economic crisis resulting from the COVID-19 pandemic. But the market value of the private oil and gas corporations is likely to return to something like their early 2020 levels once a recovery from the COVID crisis takes hold. As of this writing (May 2020), we cannot know when that recovery will commence.

8 Carrington’s article more generally is summarizing the findings of the December 2016 report by Arabella Advisors, ‘The Global Fossil Fuel Divestment and Clean Energy Investment Movement’ https://www.arabellaadvisors.com/wp-content/uploads/2016/12/Global_Divestment_Report_2016.pdf. In 2013, Ansar et al. provided a very wide range for an upper limit figure for the total amount of fossil fuel assets, at between $360 and $X900 billion. But they also cautioned that even this broad estimate was itself preliminary.

9 See a time series of the West Texas Intermediate crude oil price at https://www.macrotrends.net/1369/crude-oil-price-history-chart.

10 In terms of more anecdotal evidence, Davies (2019) reported in a news story that the market value of five UK-based oil companies decreased by about 3 percent on the day that Norway’s sovereign wealth fund divested from upstream oil and gas companies. But we do not have evidence as to how long these stock prices remained at this lower level.

11 Bergman (2018) presents another discussion of the financial impact of divestment actions on fossil fuel companies, within a broader context of impacts on policy environment and public discourse. Bergman concludes that ‘the direct impacts of divestment are small,’ but he holds that the ‘indirect impacts, in terms of public discourse shift, are significant.’ His discussion on direct financial impacts is brief and does not include a systematic review of evidence.

12 These references are documented in detail in Appendix 1.

13 The one exception among this group of entities would be the city of Paris. But data on assets under management for Paris are unavailable. Moreover, the extent of the divestment commitment by Paris remains unclear as of this writing.

14 Median assets under management are $35.7 million. Multiply this by the 316 entities gives us $11.3 billion. However, this is likely an overestimate based on the types of entities represented among the 316 entities (e.g. disproportionate number of small churches and municipalities).

15 Our estimate is consistent with Arabella Advisors (2018), who provide a slightly lower estimate of $6.24 trillion as of 5 September 2018.

16 Appendix 1, again, provides full references to our data sources. Appendix 2 describes our extrapolation methods.

17 After compiling our data, on 8 March 2019 Norway’s sovereign wealth fund committed to divest an estimated $7.5 billion from upstream oil and gas companies (a small portion of their total investments in oil/gas companies), beyond their original coal divestment displayed in Table 4 (Davies, 2019). This was not part of the divestment movement, but was instead done for economic reasons (reducing risk exposure to a permanent decline in oil prices). Even if we did include this additional $7.5 billion, it would not change our overall results.

18 We note that entities continue to commit to divest. As of 2 June 2019, GFF estimates total assets under management to be $8.77 trillion (see www.gofossilfree.org/commitments). We cannot confirm this amount because we have not cleaned the data since 29 March 2018, but if we extrapolate from our estimate of $36 billion, this would entail an additional $12 billion, bringing the total to about $48 billion.

19 The econometrics of event studies in the finance literature is well summarized in Campbell et al. (1997), Chapter 4.

20 We excluded four divestment commitments because we either did not know the commitment date, could not verify the commitment from a published source outside of GFF, or the commitment date was too recent (e.g. MP Pension Fund’s divestment on 26 March 2018 was too recent to include in the event study).

21 We experimented with different combinations of coal prices in the regressions but decided to keep them all because there wasn’t one single price that could serve adequately as a benchmark. Moreover, the statistical significance of the event dummies was essentially the same across the different combinations.

22 We excluded three divestment commitments because we didn’t know the commitment date, or the details surrounding the commitment were ambiguous.

23 We are aware of activities at our own institution, University of Massachusetts Amherst, as well as Smith, Amherst, Middlebury and Williams Colleges, the University of California Berkeley, as well as Vanderbilt, Boston and Cornell Universities. One of the authors (Pollin) has received much of this information as a member of the UMass Amherst Carbon Mitigation Task Force.

24 The nine entities include Government Pension Fund Global, AXA Investment Managers, Allianz SE, AXA SA, CalPERS, Nordea Asset Management, CalSTRS, PFZW, and University of California (see Table 4 for level of funds divested).

Additional information

Notes on contributors

Tyler Hansen

Tyler Hansen is a PhD candidate in the economics department at the University of Massachusetts-Amherst.

Robert Pollin

Robert Pollin is Distinguished University Professor of Economics and Co-Director of the Political Economy Research Institute (PERI) at the University of Massachusetts-Amherst.