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Determinants of fossil fuel divestment in European pension funds

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  • Egli, Florian
  • Schärer, David
  • Steffen, Bjarne

Abstract

Divestment from fossil fuel companies could help align financial flows with climate targets and reduce the related risk exposure of investors. Yet, investors reach different conclusions whether to divest. In this article, we derive hypotheses for financial and non-financial divestment motives to explore the determinants of divestment. Using a newly compiled data set on the 1000 largest European pension funds, we find that 129, or 13%, of these funds, representing USD 2.6 trillion in assets under management (33%), have divested from fossil fuels. Most of these funds (n = 75, AUM = USD 2.1 trillion) have committed to divesting from coal only, while some have committed to divest from all fossil fuels (n = 16, AUM = USD 109 billion). We find that divestment is more likely among larger and publicly owned pension funds. Among privately owned pension funds, we find that open funds competing for clients are more likely to divest compared with company funds restricted to employees. Hence, we identify size, ownership and market competition as key determinants for divestment decisions. Furthermore, we find weaker evidence for sectoral differences (e.g., higher likelihood in financial sector), albeit independent of carbon intensities, and a positive effect of climate policy stringency.

Suggested Citation

  • Egli, Florian & Schärer, David & Steffen, Bjarne, 2022. "Determinants of fossil fuel divestment in European pension funds," Ecological Economics, Elsevier, vol. 191(C).
    • Handle: RePEc:eee:ecolec:v:191:y:2022:i:c:s0921800921002962
    DOI: 10.1016/j.ecolecon.2021.107237
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    Cited by:

    1. Farah Durani, 2024. "Time-varying Relationship between Fossil Fuel-Free Energy Indices and Economic Uncertainty: Global Evidence from Wavelet Coherence Approach," International Journal of Energy Economics and Policy, Econjournals, vol. 14(1), pages 663-672, January.
    2. Anupam Dutta & Kakali Kanjilal & Sajal Ghosh & Donghyun Park & Gazi Salah Uddin, 2023. "Impact of crude oil volatility jumps on sustainable investments: Evidence from India," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(10), pages 1450-1468, October.
    3. Wilson, Christian & Caldecott, Ben, 2023. "Investigating the role of passive funds in carbon-intensive capital markets: Evidence from U.S. bonds," Ecological Economics, Elsevier, vol. 209(C).
    4. Bogmans, Christian & Pescatori, Andrea & Prifti, Ervin, 2024. "The impact of climate policy on oil and gas investment: Evidence from firm-level data," European Economic Review, Elsevier, vol. 165(C).
    5. Rob Bauer & Dirk Broeders & Annick van Ool, 2023. "Walk the green talk? A textual analysis of pension funds’ disclosures of sustainable investing," Working Papers 770, DNB.
    6. Lo, Huai-Wei & Lin, Sheng-Wei, 2023. "Identifying ESG investment key indicators and selecting investment trust companies by using a Z-fuzzy-based decision-making model," Socio-Economic Planning Sciences, Elsevier, vol. 90(C).
    7. Yiping Zhang & Olaf Weber, 2022. "Investors’ Moral and Financial Concerns—Ethical and Financial Divestment in the Fossil Fuel Industry," Sustainability, MDPI, vol. 14(4), pages 1-12, February.
    8. Diego P. Guisande & Maretno Agus Harjoto & Andreas G. F. Hoepner & Conall O’Sullivan, 2024. "Ethics and Banking: Do Banks Divest Their Kind?," Journal of Business Ethics, Springer, vol. 192(1), pages 191-223, June.

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