When it comes to fossil fuel divestment, ethical investing could save you a fortune.
For example, back in October last year, the Australian National University took the decision to listen to its staff, students and alumni, and as a result, it sold its shares in a number of fossil fuel companies, one of which was Santos Limited (ASX: STO). In response, mining companies, the Australian Financial Review, and even our much loved Treasurer and our universally lauded Prime Minister launched an all-out campaign, condemning the decision.
But it turns out that ignoring the ideologues has saved the ANU millions of dollars.
Just take a look at the share price of Santos since the divestment decision was announced — it's down a whopping 57% in less than a year.
Now, I'm not claiming the decision was made for financial reasons. It wasn't. It was made for moral reasons.
However, it's worth noting that as a group, the companies divested by ANU have performed poorly. Since we don't know the exact shareholding of each company, it's impossible to know how much money the divestment decision has saved the uni. But the size of the ANU's $1.1 billion fund certainly suggests it was a small fortune.
The group included another oil company, Oil Search Limited (ASX:OSH), which is down about 20% but also non-fossil fuel mining companies, such as Sandfire Resources NL (ASX:SFR), which is more or less flat since then.
Of course, it's too early to tell if the divestment decision will ultimately pay off financially, but you can be sure if Santos' share price was up 50% in less than a year, certain parties would be crowing about it. However, the share price has tanked, and the future isn't looking particularly bright either.
But one thing that is looking bright is the future for ANU. By becoming the first Australian university to divest, it put itself in good company internationally (think Stanford, Oxford, etc) but also proved that it's a leading institution in Australia.
While it is too early to say definitively that ANU's first round of divestment saved it money, it's certainly beginning to look that way.
The bottom line is that fossil fuel divestment might hurt returns sometimes, but it can also save you a fortune, whilst also improving the social and environmental impact of your investments.
In my view, superannuation funds that aren't developing a divestment plan risk falling short of their duties, since trustees are bound to consider risks. One major risk to all fossil fuel companies is that the world may choose to ensure that future generations can not just survive, but also thrive. That will mean slowly and steadily moving away from fossil fuels.
That's inconsistent with the current valuations of fossil fuel companies, particularly Australian coal mining companies.
I'd prefer bet on a better world.
