What portfolios may miss by divesting from fossil fuels
An actively managed approach could provide investors exposure to best-in-class companies while supporting the climate transition.
- A divest-and-exclude approach toward carbon-intensive companies and industries may be overly focused on mitigating perceived risk in the shorter term and could instead remove return opportunities in actively managed investment strategies over the longer term.
- While some segments of the transition economy will be new, we expect decarbonization to resemble the Industrial Revolution more closely than the advances of the Digital Age—and expect the heavy carbon-emitting companies of today to be key players in the long-term solutions of tomorrow.
- Allocating capital to companies (including fossil fuel companies) investing in new technologies and industries focused on decarbonization, while providing scale capital to remake the economy, may be more financially rewarding over the long term.
- Rather than avoiding carbon-intensive businesses altogether, a sector-relative approach focused on best-in-class companies positioned to win over the long term provides active portfolio managers with a broader investment universe for identifying best ideas.
- Fidelity’s actively managed sustainable investment strategies pursue investment opportunities across sectors and rely on robust research and analysis to identify diamonds in the rough.
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Diversification and asset allocation do not ensure a profit or guarantee against loss. Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk.