Fossil fuel investments are losing our public employees’ money, supporting pollution in our communities, and threatening our climate. Simply put, coal, oil and gas stocks are becoming increasingly risky and for the most part are underperforming the rest of the market on a year over year basis going back nearly a decade.

Forty years ago, traditional energy stocks made up 28% of the Standard & Poor’s 500-stock index, and seven of the top 10 S&P stocks were oil and gas companies. Ten years ago, they made up 10.89%, five years ago 6.84%. Today, those stocks now account for less than 2.5% of the S&P’s value, and none are now listed among the S&P’s top 10. In April 2020, after 92 years, ExxonMobil was dropped from the Dow Jones. This was described by financial services firm Raymond James as a “sign of the times”.

It is abundantly clear that global energy systems are shifting, favouring renewables over fossil energy. A seismic shift in the energy sources for transportation is also under way. While new fossil fuel infrastructure projects continue to be proposed and built, the pace of this expansion is facing headwinds as the cost of cleaner alternatives continues to drop and in many jurisdictions is less expensive to build and maintain than fossil energy systems.

Recently the International Energy Agency, long a proponent of oil and gas expansion, released their new Net Zero, Paris-alignment energy pathway that clearly states:

Beyond projects already committed as of 2021, there are no new oil and gas fields approved for development in our pathway, and no new coal mines or mine extensions are required.

This is significant as the IEA pathways have been used by many oil and gas majors to justify expansion projects and increasing production and used by many institutional investors, banks and insurance companies as justification to stay invested in fossil fuel companies.

As more governments step up and raise their ambition to reduce emissions, the impact on fossil fuel companies continues to grow. Many of these companies are unable or unwilling to adjust to the growing change in energy systems and as a result their financial outlook, particularly in the long term, the same time horizon most pension funds take, is dimming.

Pension fund decision makers have a fiduciary obligation to consider risk when making decisions regarding their funds and investments. Given the growing financial risk facing fossil fuel companies, it is within one fiduciary responsibility, indeed obligation, to consider investments in fossil fuels as a sector and individually. To not do so, could be deemed a violation of trustees or custodians fiduciary duty.