There is growing argument that portfolio investors should exclude fossil fuel producers from their portfolios. MSCI has undertaken a ten year simulation as to what that investment strategy would look like.
That is a comparison of the MSCI All Country World Index Investible Market Index compared to the same index excluding a list of carbon-reserve owning companies provided by the California State Teachers Retirement System.
Two things to note – first the fossil fuel firms are obviously tracking the broader index. Hardly surprising given the relaince on the general economy on energy. The more important observation is that a portfolio tracking the broader MSCI index would underperform if it excluded fossil fuel stocks.
Then there is the argument that portfolio managers should exit fossil fuel stocks and invest in ‘green stocks’. Would that be a good strategy? Well not if recent past trends are any guide.
So too the MSCI Global Climate Index Report (January 31, 2014):
Given numbers like that (i.e. quite poor performance on a risk-adjusted basis) I would expect portfolio managers to have very good reasons for being overweight in green stocks.