Divestment, transition from fossil fuels converging to create renewables opportunity

Capital shift from fossil fuels opens window for economic transition

Remarks of Tom Sanzillo, IEEFA’s director of financial analysis, at the launch of a report by Divest-Invest  finding $39.2 trillion in assets have been committed to some form of fossil fuel divestment. The report was a joint effort by IEEFA, Stand.earth, C40 and the Wallace Global Fund.

I want to thank you for inviting me to speak today.  My organization, the Institute for Energy Economics and Financial Analysis (IEEFA), is honored to be part of this effort. 

There are a few quick takeaways that I have realized as we prepared this report. 

Over the last decade, fossil fuels have lagged the general economy in profitability. The long-term decoupling of the economy from fossil fuel growth is the untold story of our current economic system. 

For decades, oil and gas drove the economy and the financial markets. That is no longer true. There may be short-term stock price increases, but long-term value creation is decidedly negative. Industry leader ExxonMobil had a market capitalization of $527 billion in 2007 when oil averaged $85 per barrel. Today—with the price of oil at a robust $80 per barrel—ExxonMobil’s market capitalization is half that amount. 

The oil and gas sector once commanded 28% of the Standard & Poor’s 500 index. Today, it is less than 3%. The loss of market capitalization means that the company is worth much less today than in previous years. The loss is reflected in S&P 500 holdings and institutional investors are holding fewer shares of the stock. The shift is titanic and it is poorly understood.

Large institutional investors with trillions in assets under management are now leading the charge to divestment. They see very clearly that the downward trajectory of the fossil fuel industry is tied to the larger economy.  That is why when New York State Comptroller Thomas DiNapoli talks about divestment strategy he looks at climate solutions across all asset classes. 

Moving money out of fossil fuels means moving it into the larger economy, including renewable energy and other climate-conscious investments. Divestment is an essential building block of financial logic that opens the door for investment in a decarbonized economy. 

Going forward, you will see more funds—large and small—divest from fossil fuels.  Most will make money doing so. None will be worse off.  

Today, we are describing a convergence that is driving a fundamental realignment in our economy and society. There is the slow and steady pace of capital moving away from fossil fuels. And there are the voices of those who see that this movement of capital is both urgently needed and too slow in coming.  

We acknowledge this convergence today to hasten its pace. 

Tom Sanzillo (tsanzillo@ieefa.org) is IEEFA director of financial analysis.

27 October 2021

IEEFA