Should ESG investors divest from oil and gas?

Divestment (selling fossil fuel company stocks) is controversial, and there is no clear answer.

Those in favor argue that divesting will punish fossil fuel companies by making their share prices go down. By making their financing more expensive, investors starve “bad” businesses of capital and promote the shift to renewables. Oil and gas companies will have to clean up their act and be more eco-friendly.

Some divestment proponents also think that oil and gas stocks will underperform. Businesses like ExxonMobil sit on huge reserves of oil and gas but may not be able to develop these “stranded assets” due to the shift to clean energy. Divestment is then a good financial move.

Those against divestment argue that, given that we can’t end dependence on oil right away, climate goals are better achieved by engaging with oil and gas companies. Divesting doesn’t reward polluters for decarbonizing, and many of the biggest investors in renewables are polluting companies. Impact investing should be about staying invested and encouraging better behavior as a shareholder.