The Guardian Media Group (GMG), which owns the Guardian and Observer newspapers, has decided to divest its entire investment fund, estimated to be worth over £800m, of fossil fuel assets.

But the divestment will not be total, warned Neil Berkett, GMG chair. Coal would be the first in the firing line, while natural gas assets appeared to be exempt from the planned sell-off – potentially including investments in the highly controversial process of ‘fracking’ for gas:

“We cannot divest unilaterally from all segments that might contribute, one way or another, to climate change. Some hydrocarbons, particularly natural gas, will remain vital for energy needs in the medium term. But a transition to cleaner energy will allow us to make a firm stand on the worst offenders: coal-based fossil fuels.”

Berkett also warned that the sell-off of fossil fuel assets “will not happen overnight”, blaming inflexibility in the financial system. “A fundamental issue is that fund managers operate co-mingled funds and cannot (or will not) screen out fossil fuel securities within them”, he explained.

“Currently there is a scarcity of high-quality managers that offer non-fossil fuel options. Of the 17,400 public equity managers, fixed income managers and diversifiers in the institutional quality manager ‘universe’, only a few dozen are fossil free in their asset allocation. This means that it will take time and require flexibility to divest gradually from fossil fuel companies.”

He estimates that GMG’s fossil fuel holdings are currently in low single digit percentage points. Direct holdings of fossil stocks and bonds would be sold off within two years, while ‘co-mingled’ funds would be divested over a longer five year period.

Guardian divestment campaign

The decision to divest was probably inevitable to avoid charges of hypocrisy given the Guardian‘s strong campaigning stance on fossil fuels. Its ‘Keep it in the Ground campaign‘ is calling on the world’s two biggest charitable funds – the Bill and Melinda Gates Foundation and the Wellcome Trust – to entirely divest their endowments from fossil fuels. The petition has so far been signed by over 145,000 readers.

Bill McKibben of 350.org, a leader of the global divestment movement, welcomed the decision: “The Guardian understands there’s an argument and a fight about climate change. The argument – as its reporters have chronicled – we have long since won; everyone knows by now the planet is in peril. But the fight with the fossil fuel industry has become a pitched battle, and now the Guardian lends its weight here as well.”

The Guardian is following where over 180 organizations have led, including Syracuse University, which yesterday committed to divest its $1.18bn (£799m) endowment and the UK’s Glasgow University. Last year the Rockefeller Brothers Fund, valued at $860m (£582m) also committed to divest, while Norway’s sovereign wealth fund, the largest in the world, divested from coal companies.

The Guardian’s editor-in-chief Alan Rusbridger said: “I’m really delighted that GMG, having independently considered all the evidence, has decided to divest out of fossil fuels. What was a trickle is becoming a river and will, I suspect, become a flood. I’m glad that GMG is ahead of the trend – and believe this decision will be strongly influential on other companies and foundations.”

Driven by ‘good business sense‘

Berkett made it clear that the decision was motivated primarily by commercial considerations: “We are not doing this because it makes good headlines. We are doing it because it makes good business sense … it became clear that GMG can prudently work towards allocating more funds to socially responsible investments without jeopardising our overall returns.”

Oil and coal investments had already fallen, he explained, and probably had further to go: “The returns from fossil fuel companies could be further compromised, fully justifying divestment, as it becomes clear that many of their resource reserves are over-valued.”

With the UNFCCC estimating that proven fossil fuel reserves are more than four times greater than what can safely be burnt, he added, “sooner or later, fund managers should begin to discount the potential returns from such companies, and reconsider their exposure to them.

“At the same time, we anticipate rising demand for renewables – and the technologies that supply them – opening up an alternative sector in which to invest.” The FTSE Environmental Technology 50 Index had returned 6.9% annually over the last ten years, he pointed out, “producing superior absolute and risk-adjusted returns to commodity futures.”

“Already, one of GMG’s largest active holdings is with a manager that puts environmental, social and governance issues at the core of its principles. It has been a stellar performer, which gives us confidence that this is the right course of action for the rest of the portfolio. We aim to increase such holdings significantly over the next two years.”