Market reaction to fossil fuel divestment announcements: Evidence from the United States

Fossil fuel divestment movements have gained momentum since 2011, aimed at ending fossil fuel use and a move toward a cleaner, affordable, and sustainable energy system, for business and society. The present study investigates the direct impact of fossil fuel divestment announcements on stock prices of firms listed on the United States' stock exchanges. Using an event study and guided by the United Nation's sustainable development goals (SDGs), we test the effects of 116 divestments announcements between 2014 and 2019 on 51 publicly traded fossil fuel companies. Our results suggest that there is a negative effect of these announcements on fossil fuel firm stock prices. Also, we find that the type of fossil fuel firm (coal or oil and gas), the type of divestment (partial, coal only, or full), the timing of the announcement, and the size of the divesting investor have some explanatory power in relation to the (cumulative) abnormal returns following the divestment announcements. While the negative impact on stock prices is not surprising, the reaction from the divested firms after such large divestitures is not consistent with what may be expected, given past reactions to divestitures seeking to achieve different social goals. Given the SDGs, it seems clear why investors are divesting themselves from fossil fuel firms, but why has the reaction to the 116 divestments led to very little change in the way these publicly traded fossil fuel firms do business given their direct and growing impacts on society? We conclude the study with some suggestions for future research.