A highly relevant research into the implications of fossil fuel divestment for investment portfolios by FEB researchers Arjan Trinks, Bert Scholtens, Machiel Mulder and Lammertjan Dam has been selected as the Best published Academic Article, as part of the FIR-PRI European Research Finance & Sustainability Awards. The prize has been presented in Paris, on Tuesday 8 October.
The FIR-PRI Awards are aimed to foster academic research on subjects in Finance and Sustainability. By building bridges between the academic and finance communities and their stakeholders, the French Sustainable Investment Forum (FIR) and Principles for Responsible Investment Initiative (PRI) promote practically relevant academic research and encourages broader disciplinary development of responsible investment scholarship.
Trinks and his colleagues looked into the implications of fossil fuel divestment for investment portfolios. While cutting ties with fossil fuel suppliers could be worthwhile for ethical reasons, it might not be so for financial ones. In fact, putting a constraint on an investment portfolio reduces the opportunities to diversify the portfolio and as such can be expected to increase risk for a given level of return.
The researchers find that fossil-free investing doesn’t seem to impair financial performance. These findings can be explained by the fact that fossil fuel companies fail to show any extraordinary (above-market) performance and provide relatively limited diversification benefits as their returns and risks closely mimic the market as a whole.
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