Fossil fuel groups hit extra hard by divestment pledges that go viral

Fossil fuel divestment pledges by investors including sovereign wealth funds, trusts and foundations which gain traction on social media have an outsized impact on carbon-intensive companies, wiping billions off their market value, new research has found.

A study by academics at Solvay Brussels School of Economics, Stockholm School of Economics and Harvard Law School revealed that when a divestment tweet went viral, the market value of big carbon emitters fell significantly more than the value of the holding that was due to be sold.

The rising number of funds pledging to dump investments in carbon-intensive companies has led to more market participants grappling with the risks of holding fossil fuel assets, the research suggested.

In Ireland, for example, the researchers found that in the three days around the 2018 news that the country’s parliament voted to divest from fossil fuel companies, $14bn, or 3.1 per cent, was wiped off the collective market value of the biggest US oil, gas and oil companies.

The news went viral, but at the time, the Irish Strategic Investment Fund, the sovereign wealth fund, only had positions in 38 fossil fuel companies with a portfolio value of €72mn.

“It is inconceivable that the anticipation of ISIF’s sale caused this price reaction, especially since ISIF only held 16 of these 40 stocks,” the academics said.

Instead they argued the fall was a sign that in light of the social media coverage, investors were revaluating their estimates of stranded asset risk taking the Irish divestment pledge “was a lead indicator of social and political change”. 

The researchers said they looked at the days immediately around the Irish divestment news, which was tweeted and retweeted thousands of times, to see if anything else could have driven the share price fall, but found nothing significant.

Marco Becht, one of the authors of the report, said Ireland’s decision to dump fossil fuel holdings was particularly important and “path-breaking” because it moved beyond religious groups and universities, which so far have been the main drivers of fossil fuel divestments.

The researchers looked at the 20 days with the most tweets and retweets about divestments between 2014 and 2021 and then examined the share prices of big carbon-intensive companies. More than 1,550 institutions and other groups with $40tn in assets have pledged to divest from at least some fossil fuels, according to a database tracking such announcements.

Mark Carney warned when he was Bank of England governor that some assets were at risk of being stranded — or hard to sell — as the world moves to limit climate change.

Celebrities such as US actor Mark Ruffalo have added their voices to campaigns that have long called for investors to dump highly polluting stocks. But many investors have been reluctant to sell out, with some arguing it is better to hold on to investments and influence fossil fuel companies to change their operations instead.

The research found that on average share prices of big US carbon emitters — drawn from an annual list known as the Carbon Underground 200 — fell by about 1 per cent in the days after a viral divestment tweet. This amounted to losses of about $1.5bn on average per company over the three-day period.

Richard Brooks, climate finance director at Stand.earth, an international environmental advocacy organisation, said the fossil fuel divestment movement “has become a force that is now material risk for fossil fuel companies”.

He added: “This is big money moving big money out of fossil fuels.”