Investors boycotting gas, oil and coal stocks must choose between sacrificing an annual return of 0.68 per cent or exposing themselves to 20 per cent more risk.
A £1,000 investment in 2002 in the FTSE All-Share index would be worth £200 pounds less in 2014, according to the research, funded by the fossil fuel industry.
“If you hold oil stocks, then when oil prices are high and it hurts the rest of the economy, you avoid making losses. You expose yourself to much greater volatility by boycotting oil stocks,” Andrew Lilico, executive director of Europe Economics, told City A.M.
Individuals and institutions worth $2.6 trillion (£1.7 trillion) have committed to fossil fuel divestment, including Norway’s sovereign wealth fund.
Environmentalists argue we need to keep two thirds of fossil fuels in the ground to minimise climate change and divestment reduces the influence of fossil fuel companies.
“Divestment is deeply misguided. At best, it has no effect on share prices. At worst, it transfers wealth to less scrupulous investors who benefit by paying less for oil stocks,” Sam Bowman, deputy director at free market think tank the Adam Smith Institute, told City A.M.