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To achieve the ambitious aims of the Paris climate agreement, the majority offossil-fuel reserves needs to remain underground. As current nationalgovernment commitments to mitigate greenhouse gas emissions are insufficient byfar, actors such as institutional and private investors and the social movementon divestment from fossil fuels could play an important role in puttingpressure on national governments on the road to decarbonization. Using astochastic agent-based model of co-evolving financial market and investors'beliefs about future climate policy on an adaptive social network, here we findthat the dynamics of divestment from fossil fuels shows potential for socialtipping away from a fossil-fuel based economy. Our results further suggest thatsocially responsible investors have leverage: a small share of 10--20\,\% ofsuch moral investors is sufficient to initiate the burst of the carbon bubble,consistent with the Pareto Principle. These findings demonstrate thatdivestment has potential for contributing to decarbonization alongside othersocial movements and policy instruments, particularly given the credibleimminence of strong international climate policy. Our analysis also indicatesthe possible existence of a carbon bubble with potentially destabilizingeffects to the economy.

Divestment may burst the carbon bubble if investors' beliefs tip to anticipating strong future climate policy