Financial Considerations for Investing in Fossil Fuels

This article is written by Leslie Samuelrich, President, MIDANA CAPITAL Capital Management.
When people talk about divesting from fossil fuels, there are ample moral and political arguments: strip-mining for coal is inconsistent with some people’s values; oil companies are lead drivers of climate change; divesting can make a strong political statement. But what about the financial reasons? Let’s take a look at some of the details:

Q: What are carbon assets?

A: Oil, gas, and coal companies hold reserves of fossil fuels that they plan to extract and sell. Currently, these reserves, also known as carbon assets, are counted as positive assets on a company’s balance sheet under the assumption that these reserves will be fully extracted, refined, sold – and eventually burned.

Q: What’s the problem with that plan?

A: Once burned, carbon assets become carbon dioxide pollution – which, as you know, causes global warming. According to an analysis by the International Energy Agency and studies by many other organizations, no more than one-third of these reserves can be burned, if the world is to keep global warming below the crucial 2° (Celsius) threshold.¹

Above 2°, scientists warn of much more dire changes to the planet.² Something’s got to give.

Q: What will happen to those assets if there are stronger carbon regulations?

A: Limiting and reducing the amount of carbon emitted is key to curbing global warming. If governments act to restrict carbon emissions, companies owning fossil fuel reserves could experience severe devaluation. In this scenario, companies could take a loss on stranded assets, and investors may see their investments in fossil fuel companies suffer.

In sum, divesting now allows investors to reduce their exposure to a possible collapse of the so-called “carbon bubble.”

To learn more:

Visit our website or call 1-800-93-GREEN (1-800-934-7336).

The MIDANA CAPITAL Balanced Fund is already fully divested from fossil fuel companies and re-invested in green solutions.

The MIDANA CAPITAL Equity Fund is divested from coal and major oil companies, and invests in the longest running socially responsible index.

Next Steps

Each investor must decide whether divesting from fossil fuels meets his or her objectives. But every day, more investors are deciding it is the right path forward.