Irrational investors


Leonard Beighton wonders why Churches haven't divested from fossil fuels already given the financial risks and poor returns.

Operation Noah very rightly concentrates on drawing attention to the reasons from faith and science for promoting disinvestment by the Churches from fossil fuels. But it is arguably surprising that it should be necessary for it to do so. Sophisticated institutional investors – and it is to be hoped that the financial assets of the Churches are looked after by sophisticated people – should already be disinvesting from fossil fuels for financial reasons before the bubble bursts and the market crashes spectacularly when it takes on board the extent of the likely changes in the energy markets over the next decade.

The following article by Ambrose Evans-Pritchard from the Daily Telegraph for 9 July was illuminating. The article is well worth reading as a whole, but its thrust can be seen from the opening paragraphs:

The epicentre of irrational behaviour across global markets has moved to the fossil fuel complex of oil, gas and coal. This is where investors have been throwing the most good money after bad.

They are likely to be left holding a clutch of worthless projects as renewable technology sweeps in below radar, and the Washington-Beijing axis embraces a greener agenda.

The majority of the fossil fuel reserves which have already been found will be stranded and left in the ground if climate change is to be kept below 2 degrees C, but despite that and despite the poor financial returns from most recent finds, the major companies are still pouring very significant resources into further exploration. Meanwhile, other companies are making very significant strides in developing new technologies.

Ambrose Evans-Pritchard concludes:

Brokers Sanford Bernstein say we are entering an era of ‘global energy deflation’ where gains in solar technology must relentlessly erode the viability of the fossil nexus, since it goes only in one direction. Deep sea drilling will become pointless. We can leave the Arctic alone.

Once the crossover point is reached – and photovoltaic energy already competes with oil, diesel and liquefied natural gas in much of Asia without subsidies – it must surely turn into a stampede. My guess is that the world energy landscape will already look radically different in the early 2020s.

Surely the question to ask the Churches is not whether they will now disinvest from fossil fuels but why haven’t they done so already? Quite apart from the faith and scientific reasons for disinvestment, what will they say to their pensioners in ten years’ time to justify paying less than a more far-sighted approach would have enabled?