Is Divestment still a sound strategy?
Genus Capital releases Divestment Report with findings supporting the long-term success of divestment strategies
Source: Genus Capital
VANCOUVER, BC, March 22, 2022 /CNW/ - Divestment is not a new concept, but it has been especially topical in recent weeks. The Russia-Ukranian war has recently brought into question the effectiveness of divesting from fossil fuel focused stocks as investors watch energy prices soar. While the short-term effects of these events have had a negative effect on the performance of divestment strategies, Genus' research challenges this, suggesting that over the long-term, divesting is still a sound approach to effective investing with the goal of sustainable growth.
Today, Genus Capital released its 2021 Divestment Report, with eight-year fossil free investment data. The report shows that divesting from fossil fuels not only has a positive effect on returns, but also mediates volatility and increases portfolio resiliency. Investors who divested from fossil fuels from April 30, 2013 to September 30, 2021, using Genus Capital's Fossil Free CanGlobe Equity Fund generated a 13.54 per cent annualized return1,2,3 while at the same time making a positive contribution towards climate-focused initiatives. Genus' Fossil Free CanGlobe Equity Fund outperformed the returns of its benchmark4 (12.48 per cent) and the S&P/TSX Composite (9.07%), both of which include coal and major carbon-producing industries.
"In previous years, uptake of divestment among investors has been clouded with misconceptions that reducing exposure to the fossil fuel value chain, negatively impacts annualized returns. But, this view is outdated. Our Fossil Free fund data continues to show that divestment pays over the long-run.
Due to the pandemic, we have also captured in our report the increased resilience of investments that consider environmental, social and governance (ESG) factors.
Canadian investors are becoming increasingly attuned to the fact that divestment is not just a socially or environmentally conscious decision, it's a smart one too.
The report shows definitively that divestment is still viable. This position is supported by the 13.54% average annual returns of the Genus flagship sustainable fund over the last 8 years.
"Sustainable investing's popularity continues to accelerate; not only do Canadian investors want reliable returns, but an increasing number will also consider climate change an important priority to factor into investment decisions." said Genus' Chief Sustainability Officer, Mike Thiessen.
Here are some additional takeaways from the research:
- Genus found that optimized portfolios without exposure to companies involved in extracting, refining or transporting fossil fuels can do better than those with investments in energy companies that create mass carbon pollution. The assumption of a return penalty is not consistent with its research.
- Genus' research shows divestment of fossil fuel stocks and prudent, well managed reinvestment in cleaner and more efficient energy solutions, coupled with active stock selection, can be a sound strategy for investors looking to avoid climate-related risks and capitalize on investment opportunities.
- Genus believes fossil fuel divestment has the potential to reduce overall portfolio risk (because of energy sector volatility and stranded asset risk) with the transfer of assets from the energy sector to companies in climate-friendly sectors highly correlated with it.
Genus' fossil free equity funds combined Canadian and global stocks into a single optimized strategy that emphasized top industries in each region, helping to fill the energy gaps with strong companies in other economically sensitive sectors with the potential to achieve energy sector-like stock price exposure.
To obtain a copy of the Genus 2021 Divestment Report, contact Mike Thiessen at [email protected]
About Genus Capital Management Inc.
Genus Capital Management is a Certified B Corp asset manager that has been involved in sustainable investing for over 30 years. Impact and sustainable investing have grown to become the core of Genus' offerings after decades of evolution designed to meet the needs of investors who are passionate about climate action. Genus Capital is a strong proponent of Canada's Divest-Invest movement with a complete suite of fossil fuel free funds that are tailored to meet the needs of investors who wish to invest in a sustainable, clean energy future.
Footnotes
1 The Genus Fossil Free CanGlobe Equity Fund (25% Canada, 75% Global) generated a 13.54% annualized return from April 30, 2013 to September 30, 2021. The equity fund's benchmark, against which performance is measured, generated 12.48% for over eight years ended September 30, 2021.
2 Fund Returns are presented gross of management fees and include the reinvestment of all income
3 Past performance is no guarantee of future performance
4 Fossil Free CanGlobe Equity Benchmark: 25% S&P/TSX Composite, 75% MSCI World (04/01/2015 - Present). Previous Benchmark 35% S&P/TSX Composite, 65% MSCI World (03/31/2015 – 06/30/2020) 40% S&P/TSX Composite, 30% MSCI EAFE, 30% S&P 500 (04/30/2013 – 03/31/2015)
This information should not be considered a substitute for specific professional advice. It is not intended to be construed as the provision of investment, legal, accounting, tax or other professional advice or recommendations of any kind and is not an offer to sell or buy any entity or security cited. With all investments there is a potential for loss. No such decisions should be taken without seeking specific advice.
SOURCE Genus Capital Management
contact Graham Farmer, (Marketing Associate at Genus Capital Management), at [email protected]; To obtain a copy of the Genus 2021 Divestment Report, contact Mike Thiessen at [email protected]
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