Windpower Engineering & Development

  • Home
  • Articles
    • Most recent posts
    • News
    • Featured
  • Resources
    • Digital issues
    • Podcasts
    • Suppliers
    • Webinars
    • Events
  • Videos
  • 2025 Leadership
    • 2024 Winners
    • 2023 Winners
    • 2022 Winners
  • Magazine
  • Advertise
  • Subscribe

Fossil fuel divestment is a $5 trillion challenge

By Nic Sharpley | August 26, 2014

  Pressure is starting to build for institutional investors to cut their exposure to fossil fuel stocks, but they will need to find viable alternative destinations for their money.


Pressure is starting to build for institutional investors to cut their exposure to fossil fuel stocks, but they will need to find viable alternative destinations for their money.

Oil, gas and coal companies make up one of the world’s largest liquid asset classes, with a combined stock market valuation of nearly $5trn. In the past two years, dozens of public and private institutions have announced plans to divest their fossil fuel holdings because of environmental concerns, ethical investment strategies, or worries that assets might become “stranded” by emission regulations.

However, a much larger-scale divestment from fossil fuels by institutional investors would be far from easy, according to new research from Bloomberg New Energy Finance.

Oil and gas stocks in particular are at the heart of institutional investor portfolios. ExxonMobil, the world’s largest oil and gas firm, has a market capitalisation of $425bn; BlackRock, the largest investor in oil and gas stocks, holds $140bn just in its top 25 holdings. Governments such as China, Russia, and India are also major strategic investors in fossil fuels.

For some motivated investors, clean energy might be the logical destination for their money after divesting from fossil fuels, but clean energy currently does not yet approach the necessary scale as an investable asset class for institutions. While Bloomberg New Energy Finance forecasts $5.5trn in clean energy investment from now to 2030, much of that will have risk-return and liquidity characteristics suitable for banks, developers or utilities, not for pension funds or institutional asset managers.

Clean energy equities, as captured by the Wilderhill New Energy Global Innovation Index, or NEX, have a free float of $220bn. Issuance of green bonds may top $40bn this year but that would still be less than 3% of the new corporate debt issued in the US. “Yieldcos”, also increasingly popular for investors wanting to get exposure to clean energy assets, have a total market cap of less than $20bn.

Bloomberg New Energy Finance analysed seven other stock market sectors that could accept divested capital, ranging from Information technology to real estate. Companies in these sectors have many of the same investment attributes as fossil fuels firms, but not all of them in one package.

For instance, information technology is a $7trn sector and its biggest firm, Apple, is nearly 40% larger than ExxonMobil – but as a group, IT companies offer relatively low yields, either because their shares are highly rated or because they pay modest dividends as a proportion of post-tax profits. Real estate investment trusts are only $1.4trn in total market cap, although they do have dividend yields of 4%-plus.

Nathaniel Bullard, author of the White Paper, said “Fossil fuels are investor favourites for a reason. Very few other investments offer the scale, liquidity, growth and yield of these century-old businesses with economy-wide demand for their products. Given their scale and performance, oil and gas companies are attractive to institutional investors. Coal firms, smaller and recently underperforming wider markets, are less of a focus for institutions.

“The $5.5trn needed to build out clean energy through 2030 will offer many new opportunities for investors, but a major switch into that and out of fossil fuels would require a massive scale-up of new investment vehicles.”

Bloomberg New Energy Finance
bnef.com


Filed Under: News
Tagged With: bloomberg
 

Related Articles Read More >

US government allows Empire Wind offshore project to resume construction
Richardson Electronics to deliver pitch energy modules to TransAlta wind fleets
Equinor halts work on Empire Wind offshore project after federal government order
ARESCA wants input on offshore wind standards

Podcasts

Wind Spotlight: Looking back at a year of Thrive with ZF Wind Power
See More >

Windpower Engineering & Development Digital Edition Archive

Digital Edition

Explore the full archive of digital issues of Windpower Engineering & Development, presented in a high-quality, user-friendly format. Access current and past editions, clip, share, and download valuable content from the industry’s leading wind power engineering resource.

Windpower Engineering & Development
  • Wind Articles
  • Solar Power World
  • Subscribe to Windpower Engineering
  • About Us/Contact Us

Copyright © 2025 WTWH Media LLC. All Rights Reserved. The material on this site may not be reproduced, distributed, transmitted, cached or otherwise used, except with the prior written permission of WTWH Media
Privacy Policy | Advertising

Search Windpower Engineering & Development

  • Home
  • Articles
    • Most recent posts
    • News
    • Featured
  • Resources
    • Digital issues
    • Podcasts
    • Suppliers
    • Webinars
    • Events
  • Videos
  • 2025 Leadership
    • 2024 Winners
    • 2023 Winners
    • 2022 Winners
  • Magazine
  • Advertise
  • Subscribe