The fossil-fuel-dominated energy sector has been crushed over the past five years and is down almost 20% this year, while the broad market is up around 10%.
Unfortunately, most people still have a large portion of their money invested in these companies through mutual funds and index funds.
My firm is completely divested from fossil fuel companies to avoid the dead weight and so that we can focus on sustainable investments. Here are five other reasons why divestment makes sense.
1) Climate Change – Apparently, consuming 3.8 billion gallons of gas a day isn’t good for the planet. Who would have thought? This is the equivalent of burning an Olympic-sized swimming pool filled with oil every 15 seconds of the day. Not good.
The vast majority of scientists – 97% – believe that man-made global warming is real and that we need to make immediate changes if we don’t want to cook the Earth.
If you have kids or grandkids, do you really want them to inherit a scorched Earth?
The rising sea level will be a major problem over next century – in fact, studies show that close to a billion people live close to the sea and are at risk of being displaced. According to National Geographic, hurricanes are becoming more destructive and intense just as they hit land due to the rising water temperature.
In the US we have seen the devastating effects of hurricanes Katrina, Sandy and just recently Harvey.
As the father of two young girls, I worry about what the world will look like for them unless we take action.
If you went to 100 doctors and 97 of them told you that you had cancer and needed to have a tumor removed, you would probably take action. Why is it any different with global warming?
2) It's Patriotic – Countries that are the least likely to share our values as a nation benefit from oil and other fossil fuels.
Russia, an oil economy, manipulated our election last year and has reignited the Cold War.
Saudi Arabia derives almost all of its GDP from oil. This is a country that exports terrorism across the globe, limits the rights of women, and has a horrifying human rights record.
We’ve all seen the recent chaos unfolding in Venezuela.
Studies show a very strong correlation between government corruption and countries that are solely rich in resources, otherwise known as the “resource curse.” By divesting from fossil fuel, you literally rip away power from dictators and oligarchs who steal their countries’ money for their own economic benefits.
The US learned a tough lesson during the oil embargo of the 70s and vowed to never let an oil shortage happen again. We now spend a staggering amount of money protecting our interests and assets across the globe in the form of military support.
What would happen if oil didn’t matter? It would be difficult for countries dependent on fossil fuel in the short term, but over time, they would be forced to spend more on educating their citizens and diversifying into other economic sectors.
On the other hand, our country already has a strong, diversified economy that isn’t dependent on the energy sector. If we demonetize energy through investments in alternatives, it will be a major blow to those who don’t share our values and will further increase our power and reach across the globe. This would be a major win for the US.
3) Save Lives and Increase Jobs – Solar, wind, hydro, and other alternative energies have been proven to save lives. The World Health Organization estimates that seven million people die each year due to pollution.
In the US, over 200,000 people die prematurely due to the smog in the air. The more money invested in fossil fuel companies, the more firepower these companies have to fight against pro-public policies such as regulating drinking water and air pollution and tightening exhaust standards.
Do these regulations hurt job growth? Not by a long shot. In fact, you could argue that it has the opposite effect. As reported by U.S. News, the solar and wind industries are seeing the fastest job growth in our economy.
One out of every 83 jobs created is now in solar energy.
Over the next decade, the alternative energy sector has the potential to replace all the existing jobs in the declining fossil fuel industry.
4) Save the Whales! – As a swimmer, scuba diver, and novice surfer, I’m obsessed with the ocean. Unfortunately, when you burn oil, natural gas, or coal, the ocean acts as a giant sink, absorbing most of the pollution.
This, in turn, has been acidifying the water. In fact, studies have shown that the ocean water has become 30% more acidic since the industrial revolution.
Enjoy breathing? Most of our atmospheric oxygen comes from the ocean. Sadly, ocean life and the coral reefs, which contain the most diverse ecosystem on the planet, will be in rapid decline until we take action.
5) Decentralize Power – Power tends to corrupt, and absolute power corrupts absolutely. According to The Guardian, the top 25 corporate and state-owned fossil fuel companies are responsible for over half of global emissions since 1988.
There is a massive concentration of power at the top of these companies, and the CEOs only have a fiduciary duty to their shareholders to maximize profits. They don’t have a mandate to worry about global warming or the harm they are doing to Mother Earth.
This doesn’t bode well for the interests of the seven billion people living on the planet. These companies will continue to use their massive treasure chests to fight tooth and nail against any government regulation holding them accountable for the damage they cause.
By divesting from a dirty commodity, you gain the opportunity to put your money to work in companies that are at least neutral or focused on solving tough challenges such as global warming.
How can you make a difference? Every dollar and intention can have an impact. One way is to take a hard look at your investment portfolio and consider a move to a truly sustainable investment portfolio.
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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Patrick Dinan, and all rights are reserved.