Bill McKibben has an op-ed at Rolling Stone on “The case for fossil fuel divestment“.
I have made a similar case in comments at Seeking Alpha and in a long comment which the editors of the Financial Times chose not to publish (*) in response to a letter from Lord Andrew Turnbull (“Evidence counts against climate change alarmists”). Namely, while investing in fossil fuel companies may have once appeared like a good, sensible thing, the inflation of their stock prices now seems more like a bubble.
My rationale is simply that few other industries value themselves as fossil fuel companies do, where they can place the value of unextracted reserves of minerals on their balance sheets. The assumption is glaring: They are pricing these reserves at amounts comparable to what the market delivers today or higher. In a situation where a commodity is inelastic in price, not fined, or not made illegal, perhaps may have some justification. But to the degree that future prices — or at least profits — from these reserves are smaller, owners of fossil fuel stocks have an extraordinary exposure to collapsem, setting aside the ethical questions of supporting poisoning our grandchildren’s futures.
What other business can build in future profits in their stock price in such an explicit manner?
Worse, by insisting upon this accounting trick, fossil fuel companies are incentivized to pursue unbounded exploration and development, irrespective of demand. And they get investors to pile on and provide the capital to do so, simply because, at least using these accounting principles, such companies are indeed worth ever increasing amounts.
Or at least hedge.
(*) To their credit, the editors of the Financial Times did publish excellent letters from Mr Anthony Hobley, Esq, Mr Abyd Karmali, President of the Climate Markets & Investment Association, and Professor Chris Rapley, Department of Earth Sciences, University College London, UK.