This morning I read that the Rockefeller Family Fund was divesting from fossil fuels.
Ironically, it was John D. Rockefeller’s Standard Oil that launched the Rockefeller fortune.
Of course, times change. And while many still equate Rockefeller with this …
The U.S. -based charity with the same name is now looking to disassociate itself from an industry that has aggressively denied the existence of climate change for decades.
From coal to Canadian oil sands, the Rockefeller fund is quickly eliminating its fossil fuel holdings, including its small stake in ExxonMobil (NYSE: XOM).
Following up on the news, a spokesperson from the fund released this quote …
There is no sane rationale for companies to continue to explore for new sources of hydrocarbons.
Of course, some investors might disagree with such a statement, noting that the world will always need oil, and even at these depressed levels, there’s plenty of money to be made in the black stuff for decades to come. And this is true. But to what extent?
The reality is that much of the fossil fuel divestment movement has just as much to do with fiscal responsibility as it does with social and environmental responsibility. At least if you find the data on the so-called Carbon Bubble to be sound.
The Carbon Bubble
The theory behind the carbon bubble suggests that there is a bubble in the valuation of fossil fuel companies because the true costs of carbon dioxide related to a rapidly changing climate are not taken into account when looking at a fossil fuel company’s market valuation.
When shares of fossil fuel companies are calculated and valued, it’s under the assumption that all fossil fuel reserves will be consumed. This is an assumption that investors should not take lightly. Just take a look at the coal industry.
The coal industry in the United States is dying because of three things:
1.) Dirt cheap natural gas
2.) Rapid cost reductions in renewable energy production
3.) New policies designed to penalize the dirtiest forms of energy
The death of coal, however, has nothing to do with the industry running out of coal. And as we start to see more and more climate change-related policies put in place, and more and more renewable energy alternatives become integrated due to major advances in technology and massive decreases in cost, fossil fuel companies will lose market share. It’s actually already happening.
The truth is, as this energy transition continues – moving us away from fossil fuels and towards cleaner alternatives – investors need to question just how valuable these fossil fuel companies really are.
We know that some oil companies can have enough reserves to easily get us through the next 100 years. But in just 20 years, electric cars delivering 300 to 500 mile ranges will be ubiquitous, and fewer and fewer drivers will ever need to pull into a gas station.
All that oil is NOT going to be consumed.
In fact, the only internal combustion vehicles folks will see in 100 years will be the ones being towed to museums and junkyards.
The point is, from a fiscal responsibility standpoint, I completely understand why the Rockefeller Family Fund is dumping its fossil fuel holdings. This is a fund that has to think long term. Just like colleges, universities, and retirements funds, which really have taken the lead on fossil fuel divestment.
The folks running these funds aren’t concerned about some random company’s next quarter. These folks are concerned about long-term safety and steady growth. And this, dear reader, is no longer something that can be found in the fossil fuel game. It can, however, be found in clean energy.