A Smarter Approach to Fossil Fuel Divestment – Watch Video
As the volatility and chaos continues, I would like to reassure you that our factor and strategies have performed in line with our expectations over the recent drawdown period.
Resource Efficient portfolios deliver quality style exposures, so if one could find a reason to smile, Trump’s tariff incoherence, and the predicted slowing of the global economy, could well make sustainability great again as the quality factor starts to perform. While busy with upending the global economic order, Trump has also managed to find the time to sign executive orders to revive the U.S. coal industry (anyone for black lung ?) – including measures to extend the life of aging coal-fired power plants and boost coal exports – the contrast between political momentum and economic reality has rarely been more stark.
Amid this “coal-first” agenda, Osmosis is proud to release our new video which showcases our $1.5 billion ex-fossil fuels strategy, a forward-thinking investment solution built for resilience in a rapidly evolving energy landscape.
You might be forgiven for questioning the timing and think we are being contrarian, but in our view, the long-term risks associated with fossil fuel investments may remain unchanged – and are unlikely to reverse. Investors are thankfully better informed than politicians, and are not focused on the next election cycle.
With record temperatures being set worldwide, climate disasters increasing in strength and frequency, we remain optimistic that investors will continue to hold corporations accountable for climate mitigation. Of course we have seen roll backs from some of the larger asset managers, that lack conviction, and banks that have just dialled down their 1.5 degree commitments through the NZBA – but again we have been encouraged to see investors stand their ground and walk away from these relationships. Greed is a powerful emotion, and if investors maintain pressure on these fair weather friends, come the next election cycle we will no doubt see the roll back of the roll back from these organisations.
The Case for Fossil Fuel Divestment
The structural decline of coal is well-documented. Once the cornerstone of U.S. electricity generation, coal now accounts for just 17% of domestic power production, down from over 50% two decades ago. This shift is not ideological; it is economic. Cheaper, cleaner, and more efficient alternatives – like natural gas, wind, and solar – have reshaped the energy cost curve. Even with federal support, coal is unlikely to regain competitiveness.
Beyond cost dynamics, the fossil fuel industry is increasingly challenged by regulatory, societal, and environmental pressures. It is responsible for over 75% of global greenhouse gas emissions. Climate regulation, carbon taxation, and subsidy reform continue to erode the industry’s long-term demand outlook. At the same time, aging infrastructure and the growing threat of stranded assets pose significant risks to investors.
Current Conditions Reinforce the Shift
Recent market movements reinforce this structural transition. As of writing, Brent crude has fallen to $64 per barrel, its lowest level since 2020. This decline follows increased production from OPEC+ countries and a renewed wave of tariffs introduced by the U.S., which have fuelled concerns over global recession and weakened demand. In tandem, the International Energy Agency (IEA) has downgraded oil demand forecasts for 2025 and 2026 and anticipates a peak in global oil demand by 2030.
Our Strategy: Built for a New Era
The Osmosis Resource Efficient ex-Fossil Fuels strategy was created to address these structural challenges directly. It was designed to insulate investors from the volatility of fossil fuel commodity cycles while offering a defensive position against the longer-term risks of value destruction from stranded assets and climate-related regulation. Our approach is not speculative – it is grounded in capital preservation, stability, and resource efficiency.
Innovative Portfolio Construction
The Osmosis Resource Efficient (ex-fossil fuels) Strategy uniquely addresses both the supply side of fossil fuel energy generation through divestment and the demand side through the over and underweighting of Resource Efficient companies.
Active risk from divestment is reallocated to the most highly correlated resource efficient companies across the broader economy, moving away from the traditional market cap-weighted approach which increases the concentration risk in the largest companies and sectors.
The strategy also employs a unique re-inclusion policy to ensure our clients don’t miss out on the long term growth potential of companies that are leading the transition to a more sustainable economy. Many fossil fuel companies, particularly in the utilities sector, are investing heavily in renewable energy and other sustainable initiatives. By divesting completely, investors might forgo the chance to support and benefit from companies that are actively transitioning toward cleaner energy.
We are seeing increasing momentum behind this philosophy. Asset owners around the world – including pension funds, insurers, and sovereign wealth funds – are accelerating capital reallocation away from fossil fuels in recognition of the risks outlined above. In the past month, we welcomed the University of Adelaide to our expanding list of forward-thinking institutional clients, the third university endowment to invest in the strategy.
You can read further about our ex fossil fuels approach, and our other strategies in our quarterly investment reports. Again, I would like to reassure you that our factor and strategies have performed in line with our expectations over this challenging period.
We wish those who celebrate it a very happy Easter and hope that everyone has a lovely and restful weekend break from the madness, and in the meantime, lets not make coal great again!
Best regards,
Ben