The Impact of Divestment Announcements on the Share Price of Fossil Fuel Stocks

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Abstract

Several prominent institutional investors concerned about climate change have announced their intention or have divested from fossil fuel shares, to limit their exposure to the industry. The act of fossil fuel divestment may directly depress share prices or stigmatize the industry’s reputation, resulting in lower share value. While there has been considerable research conducted on the performance of the fossil fuel industry, there is not yet any empirical evidence that divestment announcements influence share prices. Adopting an event study methodology, this study measures abnormal deviations in stock prices of the top 200 global oil, gas, and coal companies by proven reserves, on days of prominent divestment announcements. Events are analyzed independently and in aggregate. The results make several notable contributions. While many events experienced short-term negative abnormal returns around the event day, the effects of events were more pronounced over longer event windows following the New York Climate March, suggesting a shift in investor perception. The results also find that divestment announcements related to campaigns, pledges, and endorsements all have a significant effect over the short-term event window. Finally, the results control for the general underperformance of the industry over the estimation window, attesting that the price change is caused by divestment announcements. Several robustness tests using alternate expected returns models and statistical tests were conducted to ensure the accuracy of the result. Overall, this study finds that divestment announcements decrease the share price of the fossil fuel companies, and thus, we conclude that ‘divestors’ can influence the share price of their target companies. Theoretically, the result adds new knowledge regarding the efficacy of the efficient market hypothesis in relation to divestment.

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Greenhouse-gas emission targets for limiting global warming to 2 degrees C.

Malte Meinshausen, Nicolai Meinshausen, William Hare … (2009)

More than 100 countries have adopted a global warming limit of 2 degrees C or below (relative to pre-industrial levels) as a guiding principle for mitigation efforts to reduce climate change risks, impacts and damages. However, the greenhouse gas (GHG) emissions corresponding to a specified maximum warming are poorly known owing to uncertainties in the carbon cycle and the climate response. Here we provide a comprehensive probabilistic analysis aimed at quantifying GHG emission budgets for the 2000-50 period that would limit warming throughout the twenty-first century to below 2 degrees C, based on a combination of published distributions of climate system properties and observational constraints. We show that, for the chosen class of emission scenarios, both cumulative emissions up to 2050 and emission levels in 2050 are robust indicators of the probability that twenty-first century warming will not exceed 2 degrees C relative to pre-industrial temperatures. Limiting cumulative CO(2) emissions over 2000-50 to 1,000 Gt CO(2) yields a 25% probability of warming exceeding 2 degrees C-and a limit of 1,440 Gt CO(2) yields a 50% probability-given a representative estimate of the distribution of climate system properties. As known 2000-06 CO(2) emissions were approximately 234 Gt CO(2), less than half the proven economically recoverable oil, gas and coal reserves can still be emitted up to 2050 to achieve such a goal. Recent G8 Communiqués envisage halved global GHG emissions by 2050, for which we estimate a 12-45% probability of exceeding 2 degrees C-assuming 1990 as emission base year and a range of published climate sensitivity distributions. Emissions levels in 2020 are a less robust indicator, but for the scenarios considered, the probability of exceeding 2 degrees C rises to 53-87% if global GHG emissions are still more than 25% above 2000 levels in 2020.