Without Government Mandates, Investors Aren’t ‘Greening’ Their Portfolios

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Michael Bastasch Contributor
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Short of government force, investors aren’t interested in ditching their coal, gas and oil investments, according to a new survey of hundreds of institutional investment experts.

“[A] majority of respondents believe that fossil-fuel related securities have the greatest potential to generate the highest returns compared to other sectors over the next three to five years,” according to the survey by FTI Consulting on behalf of the Independent Petroleum Association of America.

“Only 13 percent of respondents expressed the view that so-called ‘green’ energy investments will outperform fossil-fuel related equities over that same period,” FTI’s survey found.

The survey comes after environmentalists, including Al Gore, have called on companies, universities, governments and international bodies to divest themselves from fossil fuels and invest in green energy and technologies. Activists say divesting will help put fossil fuel companies out of business, while investors like Gore say it makes financial sense.

Investors, however, have been hesitant to jump into green tech without government subsidies or price supports. Even green mogul Elon Musk built his solar panel and electric car empire using federal and state tax credits and subsidies to entice consumers to buy his products.

“In fact, among the professionals we surveyed, barely five percent indicated that they would find credible any study or research arguing that portfolio performance would increase under a divestment scenario,” FTI’s survey found.

“A plurality of respondents told us they would expect portfolio returns to decrease if divested of fossil-fuel related stocks, and on a separate question, another plurality said that a best-guess estimate of what those losses could be is between one and three percent of a portfolio’s total value, shed on an annual basis,” according to the survey.

Right now the biggest push among environmental groups has been to get college students to petition their schools to divest their endowments from fossil fuels. has been the main instigator of this movement, currently holding a week of protests at the University of Colorado to get the school to divest from fossil fuels.

Ironically, the first days of protests were met with snow — putting a damper on the anti-global warming rally. Students efforts in Colorado, however, were for not because the Board of Regents voted last week not to divest.

But most schools targeted by activists have opted not to divest, including Harvard University. In light of this, investment-types like Al Gore and others have tried to show skeptics that divesting will actually generate higher returns for their portfolio.

In 2013, the Gore-founded Generation Investment Management put out a report arguing that investing in fossil fuels ceases being profitable once governments start to get serious about tackling global warming.

“It is no longer prudent for investors and asset owners to treat climate change as a peripheral issue,” said David Blood, who co-founded Generation Investment with Gore.

“Investors and asset owners should capitalize on the opportunities emerging from the transition to a low-carbon economy,” Blood added. “The competitive landscape for fossil fuel-intensive companies is losing its attractiveness at an accelerated rate.”

A separate 2013 study commissioned by The Associated Press found that “[a]n endowment of $1 billion that excluded fossil fuel companies would have grown to $2.26 billion over the past 10 years, but an endowment that included investments in fossil fuel companies would have grown to $2.14 billion.”

Despite these reports, investors are still unwilling to pull out of fossil fuel investments, especially when developing countries are ramping up coal use and the U.S. is pumping out record levels of oil and natural gas.

“[T]he vast majority of professionals surveyed indicated that the movement heretofore has had virtually no impact on the way they view the energy sector, or on the decisions they make with respect to investing,” FTI found.

“[T]he overwhelming majority of professionals included in this survey identified themselves, and their firms, as having little to no interest in purging their portfolios of fossil-fuel related securities either in the near-term, or in the foreseeable future,” the survey notes.

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