Choosing to reduce one’s investment in fossil fuels (divestment) has been a hot topic for the last five years, at the time when uni students started calling out their institutions on using fossil fuels in their portfolios.
Arguments about divestment often focus on the investment morality, however the recent economic advantage of divestment is becoming increasingly hard to ignore.
Just last month Advisor Partners, a portfolio planner, released that in the time between 2014 and 2015 the biggest pension fund in New York lost approximately $135m because of their holdings in fossil fuels.
Additionally, environment finance activist group Market Forces reported that 15 of the top funds in Australia lost around $5.6bn due to fossil fuel investments.
Definitely hard to ignore, right?
For many years, sustainability’s corporate case has focused primarily on Public Relations rather than profit. Companies that practiced sustainable policies were regarded highly in the eyes of consumers and were exempt from many revealing scandals.
These companies were also seen as attractive job options and highly sought after workplaces by younger generations joining the work place.
However, the age of profitable sustainability is now here, especially in terms of renewable energy. Fossil fuel holding value is rapidly dropping whilst renewables are growing, and intuitive companies and investors are moving towards ‘clean’ investments to benefit them in the long run.
When looking at straight profits and losses at the UN Investor Summit on Climate Risk, it was made clear that companies and investors not in favour of low carbon and sustainable assets will end up losing a lot of money.
Renewables a game changer for investors
Renewable energy is a trend rapidly gaining popularity, and it doesn’t seem to be slowing down. Large scale investors such as a the ones who attended the UN Summit will likely see the game change quite drastically.
The dropping price of renewable power is knocking down fossil fuels and pricing them out of the market.
Former US Vice President Al Gore said that the price of solar power has been dropping by 10 per cent every year, recently at the UN Investor Summit on Climate Risk.
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According to Gore if the price continues to drop in a similar fashion, the price will “fall significantly below the price of electricity from burning any kind of fossil fuel in a few short years,”.
In some locations this is already evident. Electricity was offered from a Dubai solar project at just $0.058 per KwH, “the solar equivalent of the shot that was heard around the world,” said Bloomberg New Energy Finance chairman Michael Liebreich.
“In the Middle East, a solar project was producing electricity more cheaply than you could produce it using natural gas,”.
In addition to opening the world’s largest solar plant, Morocco recently announced they will produce electricity for $0.03 per KwH at an offshore wind farm, and Liebreich dubbed this “the cheapest new electricity that you could build anywhere in the world,”. Not only does it benefit consumers, but send a strong message to utility companies to invest, he said.
More on global investment
While it’s clear investors with fossil fuel holdings are in for a bad time, you might be wondering about those who wish to invest in renewables.
As a number of UN Summit attendees indicated, the initial investment of construction of a solar or wind farm is significant but thereafter there are little or no maintenance costs as the wind and sun take over and they basically take care of themselves. In comparison to fossil fuels this is vastly different, which require a large initial investment and continued expenditure following.
Renewable generation has recently grown significantly. According to Al Gore, “A dozen years ago, the best predictors in the world told us that the solar energy market would grow by 2010 at the incredible rate of 1 GW per year. By the time 2010 came around, they exceeded that by 17 times over. Last year, it was exceeded by 58 times over. This year, it’s on track to be exceeded by 68 times over. That’s an exponential curve,” he said.
Ban Ki-Moon, UN secretary general, says that the COP21 summit has signaled to companies and investors that the time for renewable investment is here, and hopes it will encourage them to do so.
“It marks the beginning of the end of growth built solely on fossil fuel consumption… The once unthinkable has now become unstoppable,” Moon said.
Photo courtesy of stockergy