In February, it was revealed that the City of Seattle had lost $65 million in the last ten years—and $53 million in the last 3 years—by investing in fossil fuel corporations.
Download that full financial analysis by the UBS Former North American Director of equity trading, Gang Chen.
Since then fossil fuels have continued to under perform against the general market, and a updated analysis, shows that fossil fuel investments have cost Seattle's pension fund $35 million this year alone. In a little over ten years, fossil fuel investments have now cost Seattle $100 million. You can download the full updated financial analysis here.
Fossil Fuel Divestment: Protect Your Pension and the Climate
The losses felt by the Seattle pension fund as a result of its investments in fossil fuels are concurrent with wider market trends: in February 2017 Exxon-Mobil, the world’s largest oil corporation, was forced to write off over $2 billion worth of assets, while study after study after study has now shown that fossil fuel-free portfolios often outperform those that include companies like Energy Transfer Partners, Exxon-Mobil and Shell.
Also in February 2017, Mercer Investments, the world’s largest human resource consulting firm, and the Center for International Environmental Law published two reports concluding that—owing to their fossil fuel investments—the average U.S. public pension fund is exposed to losses of billions of dollars should action be taken to limit global warming to 2°C, the baseline goal of the 2015 Paris Climate Agreement—and that pension funds could face legal liabilities if they do not start to factor climate-risk into their investment decisions.
The Mercer report draws heavily on the logic of the carbon bubble.
“The stock value of fossil fuel companies reflects expectations of their future profits which are based on their known reserves and the assumption that those reserves will be fully exploited. But the survival of human society depends on most of those reserves being left in the ground. When this fact becomes clear to the market, the value of fossil fuel stocks will crash. Smart investors will have already divested.”
Dr. Bruce Flory, principal economist, Seattle Public Utilities
The carbon bubble is the understanding that up to 80% of the world's known fossil fuel reserves must never be burned if we are to curtail catastrophic climate change—which means that many trillions of dollars’ worth of fossil fuel reserves currently listed as assets could become worthless "stranded assets" if the world’s governments take action on climate change in line with current international commitments.
"We must not be complacent about the risks of carbon exposure in the world economy. Financial stability could be threatened if shares in fossil fuel companies turn out to be overvalued because the bulk of their oil, coal and gas reserves cannot be burnt without further destabilizing the climate [...] The transition to a low-carbon economy will be much more painful if we wait until there is a climate crisis before recognizing that more than half of the world's fossil fuel reserves will have to remain in the ground,"
Report on the carbon bubble by UK Parliament
According to estimates by John Fullerton, director of the Capital Institute, the current market value of the fossil fuel reserves that stand to be potentially stranded represents a $22 trillion bubble—by point of comparison the housing bubble of 2005-2006 that wiped tens of millions for the City of Seattle pension fund was estimated to be around $4 trillion
While another Kepler Chevereux’s, Mark Lewis, prices the potential unburnable carbon of the fossil fuel industry at $28 trillion -- thus meaning that $28 trillion of the fossil fuel industry current market valuation is at risk.
When this knowledge is coupled with the studies that point out that fossil free portfolios have higher returns 73% of the time, that carbon-free tracking portfolios index received higher annualized returns from 1997-2013 than non-carbon free portfolios and that carbon-reduction strategies offer better returns than a portfolio which did not screen out carbon risk, it becomes clear that divesting from fossil fuels is
not only the right thing to do, it is the financially prudent thing to do.
To learn more about why divesting from fossil fuels is the financially responsible thing to do please see the following reports:
- A GUIDE TO CLIMATE CHANGE INVESTMENT RISK FOR US PUBLIC DEFINED BENEFIT PLAN TRUSTEES, MERCER INVESTMENTS
- FIDUCIARY DUTY, DIVESTMENT, AND FOSSIL FUELS IN AN ERA OF CLIMATE RISK, MERCER INVESTMENTS AND CENTER FOR INTERNATIONAL ENVIRONMENTAL LAW
If you have any further questions about the financial implications of fossil fuel divestment,
please get in touch: info@350Seattle.org