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Investors weigh in on climate control

In a recent paper highlighting the increasing regulation surrounding fossil fuels, and the potential impact on portfolio performance, FTSE discussed the concept of  stranded assets . The paper argued that continued heightened regulation could result in un-mined or unburned fossil fuel deposits, thereby triggering write-offs or downward revaluations. Although the paper was published only four months ago, the fossil fuel story has continued to evolve and become more prominent in headlines, making the issue even more relevant and central to investment discussions.

It’s become increasingly evident that what years ago started as a college campus grassroots campaign has now become a global movement. On September 23, the UN held a climate summit in New York City, to discuss the consequences of climate change and calling on member countries to take action. In advance of the summit, 400,000 people took to the streets of New York for the People’s Climate March, demanding that world leaders take measures to reduce carbon pollution and commit to renewable, clean energy alternatives. 

While these developments represent loud and clear calls for governments to act more decisively, some high-profile investors are already taking action.  In what’s been dubbed the Divest-Invest movement, many large institutional funds have publicly announced divestment from fossil fuel investments. Among leaders of the movement is Stanford University, who recently announced it has dropped all coal holdings from its $18 billion endowment. 

Another recent addition to the list of divestment movement participants is the Rockefeller family, who announced they sold all fossil fuel investments from their $860 million Rockefeller Brothers Fund. As the Rockefeller family famously built their storied fortune in oil, their divestment can be viewed as a symbolic turning point in the movement.

Among some large institutional investors such as pension funds for whom divestment is not a realistic strategy, there is a trend towards a greater allocation to “green” industries and technologies. CalSTERS, for example, has recently announced that it plans to double its investment in renewable energy to $3.7bn. Several big European investors including Norges and APG have also announced similar moves.

FTSE launched the FTSE Developed ex-Fossil Fuel Index Series in response to the growing number of market participants who believe that the likelihood of greater regulation for the fossil fuels sector could impact on that sector’s performance. Such recent headlines covering the UN Climate Summit, People’s Climate March and large institutional divestment from fossil fuels suggest this possibility may in fact be increasing. As such, the index series represents an option for market participants looking for an index which removes fossil fuel constituents..

Developed World Stock Market Index Weighting of Companies’ Revenues/Reserves directly linked to Carbon 

 

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