Science, ethics and economics are intersecting to form a clear market signal: in the lead-up to the COP21 climate talks, responsible investors should divest from fossil fuels (Report, 13 November). At a time when the fossil fuel industry should be shifting its businesses to focus on renewable energy, it is doing the opposite, doubling down on coal, oil and gas. Capital continues to flow into the exploration and future extraction of dirty energy. Long-term investment decisions must take into account the externalities of a business model at odds with physical realities. In the lead-up to the COP21 climate talks, the financial community has a vital role to play in the transition to a new energy economy – one where fossil fuels must be left in the ground. From a fiduciary perspective, there are a number of indicators that fossil fuel investments contain significant levels of risk. The energy sector steadily shifted from high-return, low-cost conventional projects, to high-cost, capital-intensive, complex projects. Meanwhile, clean, carbon-free energy is rapidly becoming cost-competitive with dirty energy.
Within the investor community, the early adopters have already begun a substantial movement to divest from fossil fuels, a movement representing $2.6tn in assets under management. The world’s largest institutional investors, including the Norwegian Sovereign Wealth and Rockefeller Brothers funds, have all expressed their concern for carbon-related investment risk and are adjusting their portfolios accordingly by moving out of fossil fuel holdings. Divestment also models the kind of commitments we are expecting to be taken from governments. We call on national governments to take effective commitments to end all form of subsidies to fossil fuels at the forthcoming G20.
Thomas Piketty
Paris School of Economics
Tim Jackson
University of Surrey
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