Skip to main content

You are here

Blog Listing Page

The greening of the Emerald Isle: Dublin’s divestment decision

By: David Harris, head of sustainable investment

Ireland has become the first nation state to ban its sovereign wealth vehicle, the $8 billion Ireland Strategic Investment Fund, from investing in companies with significant exposure to fossil fuels. Norway, with its $1 trillion SWF, has been considering similar moves, and others may not be far behind. Further, a number of large pension funds including CalSTRS and CalPERS have been taking action to divest from thermal coal, and New York City’s pension fund has also committed to become fossil fuel free. The World Bank, meanwhile, has also decided to cease financing upstream oil and gas, in addition to thermal coal, after 2019.

In the case of Ireland, the divestment will happen “as soon as is practicable” rather than immediately. Some fossil fuel exposure will continue in the fund—which had already begun reducing exposure to some fossil fuel-heavy companies before the law was passed—through hedge funds and exchange traded funds.

The divestment route is an intuitive way to address carbon exposure in portfolios, but it’s not the only option and represents the end of a spectrum. Through our work with asset owners around the world we are seeing a range of other approaches being adopted by investors seeking to minimize carbon exposure.

More asset owners are engaging with companies in carbon intense industries, such as oil and gas, to catalyze changes to their business models and consider the transitions required to address climate risks. For example, one leading effort has been the Transition Pathway Initiative, a global initiative of asset owners in collaboration with FTSE Russell (as TPI's expert data partner) working alongside the Grantham Institute of the London School of Economics, and the Principles of Responsible Investment. Since the launch in January last year, the TPI has now grown to have over £7 trillion in AUM behind the initiative.

FTSE Russell has also seen clients adopting more nuanced and holistic approaches that alter weights by tilting exposure to climate risks, and seek to capture the broader industrial transition to a green economy such as the rise of new green industrial sub-sectors.

The performance of indexes aligned with both the divestment approach and the divest-invest approach show that each of these approaches has outperformed their respective parent indexes over the past five years. 

Ireland’s decision, along with the growing numbers taking action, indicate that for many asset owners, the divestment dilemma is no longer about whether to address the investment implications of climate change, but how to do so.

For more information on FTSE Russell's integrated approach to climate change risk, please see our FTSE Global Climate Index Series.

 

--------------- 

© 2018 London Stock Exchange Group plc and its applicable group undertakings (the “LSE Group”). The LSE Group includes (1) FTSE International Limited (“FTSE”), (2) Frank Russell Company (“Russell”), (3) FTSE Global Debt Capital Markets Inc. and FTSE Global Debt Capital Markets Limited (together, “FTSE GDCM”), (4) MTSNext Limited (“MTSNext”), (5) Mergent, Inc. (“Mergent”), (6) FTSE Fixed Income LLC (“FTSE FI”) and (7) The Yield Book Inc. (“YB”). All rights reserved.

FTSE Russell® is a trading name of FTSE, Russell, FTSE GDCM, MTS Next Limited, Mergent, FTSE FI and YB. “FTSE®”, “Russell®”, “FTSE Russell®”, “MTS®”, “FTSE4Good®”, “ICB®”, “Mergent®” , “WorldBIG®”, “USBIG®”, “EuroBIG®”, “AusBIG®”, “The Yield Book®”,  and all other trademarks and service marks used herein (whether registered or unregistered) are trademarks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, FTSE GDCM, Mergent,  FTSE FI or YB. “TMX®” is a registered trademark of TSX Inc. FTSE International Limited is authorised and regulated by the Financial Conduct Authority as a benchmark administrator.

All information is provided for information purposes only. All information and data contained in this publication is obtained by the LSE Group, from sources believed by it to be accurate and reliable. Because of the possibility of human and mechanical error as well as other factors, however, such information and data is provided "as is" without warranty of any kind. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the accuracy, timeliness, completeness, merchantability of any information or of results to be obtained from the use of the FTSE Russell Indexes or the fitness or suitability of the FTSE Russell Indexes for any particular purpose to which they might be put. Any representation of historical data accessible through FTSE Russell Indexes is provided for information purposes only and is not a reliable indicator of future performance.

No responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for (a) any loss or damage in whole or in part caused by, resulting from, or relating to any error (negligent or otherwise) or other circumstance involved in procuring, collecting, compiling, interpreting, analysing, editing, transcribing, transmitting, communicating or delivering any such information or data or from use of this document or links to this document or (b) any direct, indirect, special, consequential or incidental damages whatsoever, even if any member of the LSE Group is advised in advance of the possibility of such damages, resulting from the use of, or inability to use, such information.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing contained in this document or accessible through FTSE Russell Indexes,  including statistical data and industry reports, should be taken as constituting financial or investment advice or a financial promotion. No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group data requires a licence from FTSE, Russell, FTSE GDCM, MTSNext, Mergent, FTSE FI, YB and/or their respective licensors.

Blog Listing Page