Fossil fuel divestment and energy prices: Implications for economic agents

The last decade witnessed a wide expansion of a fossil fuel divestment movement. Fossil fuel free (FFF) financial products—which are portfolios that exclude companies involved in the production of oil, gas, and coal—have proliferated, initiating a debate on their financial and ecological implications for economic agents. This paper examines whether and the extent to which these financial products are immune to fluctuations in the price of fossil fuels. To do so, we empirically assess the daily effects of changes in oil, gas, and coal prices on returns on fossil fuel free indices provided by S&P. While we find no evidence that the FFF indices underperforms their conventional counterparts on average, the results from our model further show that the returns on FFF portfolios have more exposure to movements in fossil fuel prices than those on mainstream portfolios. The insights from our estimations have important implications for investors and other economic agents.