When it comes to analysis of return on investment within the energy field, the smart money is on renewables and alternative energy sources. We all know that fossil fuel availability is set to decline, but just how far that decline is reflected concerning return on investment in fossil fuel – based energy businesses has remained something of a gray area. Until now, that is.

A major blow to fossil fuel industries across the world has been delivered in the form of the decision of AMP Capital to reduce their financial exposure to fossil fuel investments, for more ethical, ‘greener’ forms of energy. AMP Capital has decided that funds under their control will no longer invest in companies that gain more than 20% of their revenues from thermal coal, coal-fired power generation, oil sands and the conversion of coal to liquid fuels. The move has attracted widespread support and has prompted calls for a more substantive effort to prevent and discourage investment of wealth in fossil fuel consuming businesses.

Analysts have noted AMP’s decision to be a microcosm of much bigger worldwide trends, as evidenced by the ruling of the Norwegian government to conduct a major review into whether their Sovereign Wealth Fund should continue to invest in fossil fuel producers. The global trends appear to be driven by a growing concern among governments, banks and NGOs about the long-term impact of climate change and the need to support investment in energy that causes less damage to the environment.

Other analysts have warned however that the trend towards limiting investment in fossil fuel consuming industry will harm developing countries, who lack the infrastructure to form much dependence on renewable, ‘greener’ forms of energy. Some experts have even suggested that continuing to use thermal coal for power generation is a high factor influencing levels of poverty in the developing world, for example in some parts of Africa and Asia. The argument is that reducing the bargaining power and leverage of fossil fuel consuming industries will force some poor people ‘off the grid’ and limit their ability to make money.

The debate on whether investments should be funneled according to ethical factors is continuing, however, what is undeniable is the impact that the AMP decision is likely to have on the proliferation of fossil fuel consuming industries. There is no doubt that this is liable to affect return on investment significantly and change the constitution of future investment portfolios. What remains unclear is the future unfolding of the trend we have seen manifested in AMP’s decision to support more ethical energy providers, and whether this is likely to gather pace or whether it is more of a short-term ‘flash in the pan’ event that will eventually be stifled by advocates and supporters of fossil fuel industries.