The Scarabeo-9 drilling rig, owned by the Spanish company Repsol, started deepwater drilling off the coast of Cuba in January.National Journal

President Obama electrified climate-change activists in June with what sounded a lot like an endorsement of fossil-fuel divestment.

But a successful movement for divestment—which urges institutional investors to dump stocks in petroleum and coal companies—will require far more than dog-whistle support from the president.

A new report explains why getting big money out of fossil fuels, especially big oil, is a tall order, even if a growing number of universities, cities, and churches have agreed to shift their investments in recent years.

"Fossil fuels are investor favourites for a reason. Few sectors offer the scale, liquidity, growth, and yield of these century-old businesses vital to today's economy," states the report from Bloomberg New Energy Finance, a London-based research and analysis company.

But not all fossil fuels are alike.

The analysis explains why, for investors, breaking up with coal would be a smoother ride than dumping holdings in oil and gas, where nearly 1,500 companies listed on exchanges are valued at $4.65 trillion. The 275 listed coal companies are together worth about 5 percent of that amount.

"Significant divestment from coal would be much easier than significant divestment from oil and gas. Listed coal companies are small enough in aggregate that investors could divest and re-invest without unbalancing portfolios," the report states, noting that "other large sectors could absorb coal equity dollars, as could clean energy."

In contrast, "Oil and gas companies are too large, and too widely held, for divestment to be easy or fast," BNEF reported.

Exchange-listed coal companies are a much smaller asset class, and their stocks have performed badly in recent years compared with oil-and-gas stocks, which have also done better than other big sectors.

Indeed Stanford University, which in May became the highest-profile school to pledge to divest, said it's getting out of coal but not oil and gas.

The report underscores the challenge that activists face as they try to win large-scale divestment from fossil-fuel holdings, especially given the size of the oil-and-gas holdings of big investors that aren't as easy to pressure as a university board or city government.

For instance, the investment company BlackRock, the largest investor in oil-and-gas equities, holds $140 billion worth of assets, while others in the top 10 include the Russian government, several big U.S. banks such as JP Morgan Chase, and the state-controlled Chinese oil giant CNOOC, according to BNEF.

The report arrives as the divestment campaigns, which take cues from the 1970s and 1980s movement urging divestment from apartheid South Africa, are getting more sophisticated.

Recent months have brought the launch of new indexes (including one that BlackRock's involved with) that track the performance of fossil-free investment portfolios.

The BNEF report underscores the hurdles facing groups such as 350.org and the Energy Action Coalition, but it's not doom and gloom.

"Fossil-fuel divestment is neither imminent nor inevitable. But neither is it impossible for motivated investors," the report states.

For one thing, BNEF says, preliminary analysis shows that "ex-fossil-fuel portfolios have performed on par with those including oil, gas, and coal producers and those companies with high carbon reserves."

The report also looks at various industry sectors where investors could funnel dollars they might yank from fossil-fuel holdings, including growing low-carbon energy markets, but it cautions that right now, "clean energy as an asset class is simply not large enough to absorb substantial amounts of capital divested from fossil fuels."

Advocates of stronger action to confront climate change believe the divestment equation could change if governments crack down harder on greenhouse-gas emissions.

They argue that expensive oil-and-gas projects and companies' reserves could become "stranded" assets if enough carbon is left underground to prevent runaway global warming. BNEF agrees that perceptions of fossil-fuel investments could change in ways that boost divestment.

"Clear-headed investors may look at fossil fuel equities and weight them not just against historical return and yield, but also future prospects, given new technologies, consumption patterns, regulations, and finally, public perception," the report states.

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