Divestment Won’t Sacrifice Returns

When I talk about ‘responsible’, ‘ethical’, or ‘sustainable’ investments, people often jump to the conclusion that they will be sacrificing financial returns. It seems there is an inherent psychology that assumes that cheaters, polluters, and exploiters will earn higher profits. Fortunately, this isn’t the case!

I crunched the numbers of my model portfolios (through Jan 31, 2015) and here is a table of the results:

Fossil_Fuel_Free_Performance2.jpg

As you can see, my fossil fuel free model portfolio has performed just as well as a traditional balanced portfolio with the same 60/40 equity-to-bond asset mix. In fact, the fossil fuel portfolio significantly outperformed during the 3-year period.

Looking forward, I expect this trend to continue as governments around the world are consciously moving towards renewable energy sources. Regional carbon pricing, and the potential for a global agreement on climate change later this year will help drive this transition.

As scientists and economists sound the alarm on around climate risk and the stranded-assets scenario, investors should immediately start reducing their exposure to carbon risk and start hedging by investing in renewable energy technologies.

Fossil_Fuel_Free_Potfolio.jpg

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commented 2015-03-12 12:48:14 -0400
Hi Zach,

I did the analysis last year (http://www.sustainableeconomist.com/sustainable_portfolios_outperform_in_2013) but haven’t checked them in awhile. Maybe it’s time?

Cheers,
Tim
commented 2015-03-09 15:34:38 -0400
Thanks for posting this analyis! Just wondering, have you done a similar analysis on your other two model portfolios?
Don't let your money do things you wouldn't