To understand the impact of fossil fuel divestment campaign on the investing criteria of institutional investors, I conducted a survey of responsible investors and fossil divestment campaigners (students). The question was a part of a broader survey on fossil fuel divestment. In totality, 77 people responded to this question in the survey. Organisations involved, directly and indirectly, in the responsible investment activities comprised more than 50% of the respondents, followed by students (36.21%). In terms of the location, almost half of the respondents come from UK, followed by the U.S. and Australia combine representing another quarter of total respondents.
Survey response suggest that both the responsible investors and students less confidently agree with the fossil fuel divestment has pushed institutional investors to consider climate risk in the investment decision making process. Response pattern of the responsible investors and students also do not vary significantly as a function of the group (χ2= 4.02, df= 4, p>0.05). Respondents also agree that due to the fossil fuel divestment campaign investors may face increased material risk in fossil fuel investments. This may be due to the stigmatization of fossil fuel companies by the divestment campaign, among other reasons suggested by Ansar, Caldecott and Tilbury (2013). Knowland (2010) also suggested that climate risk, or the risks posed to companies and investors as a result climate change, is becoming increasingly recognized as an important consideration for the private sector. So if the investment in the fossil fuel companies is becoming increasingly risky, the pertinent question is-are institutional investors considering climate risk in their investment decisions? Interestingly, 86% of the responsible investors stated that they are considering climate risk in their investment decisions, either as a distinct risk category or a part of wider ESG issues.
Therefore, two things emerge very clearly from the survey. First, fossil fuel investing is a becoming a risky affair to institutional investors who focus on long-term returns (e.g. pension funds). Similar sentiments were also expressed by the UNFCCC chief during the recently concluded Lima climate talks. Secondly, most responsible investors are now considering ‘climate risk’ in their investing decision making. However, for trustees of endowments and pension funds, building a portfolio without fossil fuel companies could be difficult and risky, as divestment imposes a penalty on the portfolio. Previous studies on South-African divestment, Sudan divestment, and sin-stocks (tobacco, arms etc.) divestment suggest that the restrictions imposed by divestment increases investment risk, reduce investment, and diversification opportunities. So what would it cost investors who choose to divest from fossil fuel companies? And how will divestment will impact the fossil fuel companies? I will answer these questions in my next blog!
 Ansar, A., Caldecott, B. & Tilbury, J. (2013) Stranded assets and the fossil fuel divestment campaign: what does divestment mean for the valuation of fossil fuel assets?
 Knowland, C. (2010) The effects of climate risk on investors. MSc Environmental Technology. Imperial College London.