Fuel for thought: Is divesting the responsible choice - or the most convenient?

Reappraisal of the practice needed

The recent International Energy Agency report 'Net Zero by 2050' sets out a road map on how to decarbonise the global energy system, arguing for no more capital investment in fossil fuels from 2021. This will encourage many investors to consider divesting oil, gas and coal companies from their portfolios.

There are moral and financial arguments for doing so, but the pros and cons need to be considered carefully for fear of unintended consequences. Most investors agree that we are on the path to making portfolios as carbon neutral as possible. There is a moral argument for not holding fossil fuel producers, namely that investors do not wish to be involved in practices which they consider damaging the environment. The financial arguments are two-fold. First, if enough investors sell then the cost of capital increases for such firms, encouraging them to find new sources of revenue. A t...