Betting Against Oil: The Implications of Divesting from Fossil Fuel Stocks

19 Pages Posted: 6 Dec 2021 Last revised: 7 Jan 2022

See all articles by David Blitz

David Blitz

Robeco Quantitative Investments

Date Written: December 2, 2021


We examine how divesting from fossil fuel stocks, as announced by several large institutional investors, affects the systematic risk exposures of an equity portfolio. We find that fossil fuel stocks exhibit a highly significant positive exposure towards changes in the oil price. Consistent with this result we observe that fossil fuel stocks outperform strongly during oil bull markets and underperform strongly during oil bear markets. For bull and bear scenarios concerning the energy sector itself we find even more pronounced results. Within the equity market the materials sector appears to offer the best hedge for fossil fuel stocks, but this sector also tends to have a high carbon footprint and environmental issues. Oil futures could be a direct hedge, but may be even less acceptable to investors who do not want fossil fuel exposure. Altogether we conclude that excluding fossil fuel stocks comes down to an active bet against the oil price, which makes a portfolio vulnerable to significant underperformance in the short and medium term.

Keywords: Fossil fuel, divestment, exclusion, sustainable investing, ESG, oil, asset pricing

JEL Classification: G11, G12, G14

Suggested Citation

Blitz, David, Betting Against Oil: The Implications of Divesting from Fossil Fuel Stocks (December 2, 2021). Available at SSRN: or

David Blitz (Contact Author)

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3014 DA

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