The market is encouraging pension funds and institutions to jettison fossil fuels from their portfolios, waving a clear warning flag to investors about the financial future of oil and coal companies.
Fossil fuel stocks are performing poorly compared to the market as a whole — and perhaps most importantly, compared to renewable energy stocks, said Michael Liebreich, chairman of Bloomberg New Energy Finance, at a summit on climate risk put on by the nonprofit sustainability advocacy group Ceres.
Referring to investors who won’t divest and continue to own fossil fuel stocks, Liebreich pointedly said that the market was “divesting through value destruction” — in other words, cutting their holdings in traditional, polluting energy companies by slashing their value.
Over the last 10 years, the S&P 500 index is up just over 50 percent. Yet energy stocks over the same time period have risen only 1.3 percent.
For big investors to simply allow their holdings in big energy companies to fall toward a vanishing point of worthlessness is deeply irresponsible, observers say.
Indeed, former Vice President Al Gore, who shared the Nobel Peace Prize in 2007 for his work on climate change, compared the risk that some fossil fuel companies’ assets will become worthless to the danger of mortgage-backed securities, whose collapse triggered the 2008 financial crisis.
The nonprofit research group Carbon Tracker estimates that if the world changes its energy sources to keep climate change below 2 degrees Celsius, $2 trillion in fossil fuel assets will be stranded — that is, unusable, far less valuable, and in some cases, liabilities.