One of the most robust debates in recent times, is that on whether or not to continue investing in fossil energy companies. The debate on this leads to different conclusions from institutional investors. So is there not one right answer and are there parties that are right?
If we listen carefully to a campaign group like Extinction Rebellion, for example, then stand to reason fossil energy companies should disappear from all portfolios. The intention of this is clear. In that sense, then, this approach can count on a lot of sympathy. As Hegel once put it, “Die Wahrheit einer Absicht ist die Tat”. So we should not stop at the intention, but take a deed. There are two questions to be asked here. One, of course, is: does this act also deliver the desired impact? The other, less frequently asked question: suppose the impact is great, what are the consequences?
A common fallacy is often made simply because it is attractive to make. When problems arise, we often think that the simplest or most plausible reason is the cause. By removing it, the problem is thereby solved. However, this is one of the well-known 7 investment sins: ‘belief in plausible stories’. Taking fossil energy companies out of the portfolio most certainly changes the portfolio composition and the investor is no longer influenced by this sector. However, for the world, nothing seems to have changed yet; the same emitters still remain, emitting as much.
If you divide the world for a moment simply under the heading of ‘good’ and ‘bad’ money. Then ‘bad’ money is: money from states, corporations and individuals who do not think about the value of our planet. Suppose we implement the desired exclusionary policies then the property of fossil fuel companies ends up entirely in ‘bad’ money hands. Do we think that will better reduce GHG emissions over the next 30 years? At the very least, that is an incomplete thought. What seems likely is that a fossil energy company ends up in the hands of a party that does not care at all about emissions, but is very interested in the company’s profits, and it is easy to guess what will then happen to emissions (not to mention governance, transparency, etc.).
Suppose all institutional investors removed fossil energy companies from their investments and this would be very effective. Then the financing costs of these companies would rise sharply with the direct consequence that coal, oil & gas prices would rise sharply. Let’s say current level x 4. The macroeconomic consequences of this would be potentially disastrous. Yes the consumption of fossil energy might fall rapidly [the intended goal] but probably at the expense of much of the world’s population [collateral damage?]. Now it is also true that many GHG energy companies are also