Analysis published ahead of a vote in Norway’s parliament argues coal is a financial and climate liability to be avoided
By Megan Darby
Norway has been urged to fully divest its US$900 billion state pension fund from coal.
Its parliament will decide on 5 June whether to give the fund a mandate to shed its coal holdings.
The move would improve the fund’s financial performance as well as addressing environmental concerns, according to the Institute for Energy Economics and Financial Analysis (IEEFA).
“Norway’s leadership is to be applauded for its efforts to rid itself of a losing financial proposition and the threat coal poses to the environment and climate,” author Tom Sanzillo told RTCC.
“They are willing to expand the dialogue and are serving as a model of openness and transparency.”
The fund sold its stakes in 49 companies last year, mainly in coal and gold mining, on sustainability grounds.
Coal is the worst performing sector in the world’s economy, the IEEFA report argued, and best avoided altogether.
In mining, he noted the Stowe Global Coal Index lost 71% of its value over the past five years.
And one of the Norway fund’s top utility holdings, RWE, is nosediving. The German firm, which gets 61% of its energy from coal, has seen its market capitalisation plummet from €50 billion in 2007 to €13.7bn today.
While energy demand is surging in countries like China and India, Sanzillo said pressure to cut air pollution was denting enthusiasm for the black stuff.
“Emerging economies will continue to burn coal. They will also shift rapidly toward renewable-energy models.
“The net result will be slow or no coal growth, chronic low prices, constrained profits and an oversupply.”
IEEFA recommended dropping any company that mines more than 50 million tonnes of coal a year or gets 20% of power generation from the polluting fuel.
Full divestment by Norway’s pension fund would be the boldest move on climate risk yet by an institutional investor.
Major asset owners – insurers and sovereign wealth funds as well as pension providers – are starting to consider the impact of climate action on their portfolios.
More than 80% of coal, half of gas and a third of oil needs to stay in the ground to avoid unacceptable climate effects, scientists estimate.
Coal mining companies Peabody and Glencore have dismissed concerns their assets could be “stranded” by climate action.
They insist demand for low cost energy trumps efforts to prevent runaway global warming.
Sanzillo rejected that analysis: “In the last few years Peabody has written off well over a billion dollars in reserves that are no longer economically recoverable.
“Shareholders for both companies have lost considerable value. Perhaps they are the ones who are stranded.”
And regulators are taking seriously warnings that the “carbon bubble” could burst, triggering wider financial instability.
G20 countries are to follow the Bank of England in investigating the market implications of the traditional energy sector losing value, it emerged last month.
Some investors are already putting pressure on fossil fuel companies to drop their more carbon-intensive projects. That might mean shelving costly tar sands and Arctic oil ventures, for example.
The “Aiming for A” coalition last month persuaded BP to analyse and disclose its exposure to carbon risk. Shell is expected to agree to a similar shareholder resolution at its AGM on Tuesday.
“Given the level of risk it would be prudent for all funds to develop scenarios based on zero fossil fuels and then consider their options,” said Sanzillo.
“Those who do not undertake such planning processes will be poorly equipped to address broader market changes as they take place.”
With duties to spread their money across all major economic sectors, including fossil fuels, institutional investors are limited in how radical they can be.
But a growing number of universities, cities and charities are pulling funds out of polluting sectors to focus attention on the contradiction with climate goals.
The University of Oxford is due to decide today whether to divest its £3.8 billion endowment from tar sands and coal, after a two-year student campaign.
More than 60 Oxford alumni have pledged to hand back their degrees if the administration does not agree to change its investment policy.
Among them is solar entrepreneur Jeremy Leggett. “I don’t think universities should be training young people to craft a viable civilisation with one hand and bankroll its sabotage with the other,” he said.
The University Council had been due to consider the issue in March but deferred it in order to gather more information.
“It needs to go to a vote this time otherwise they’ll start to look incompetent,” said campaign coordinator Miriam Wilson, of People & Planet.
“It’s time Oxford joined the Church of England and got behind leaving in the ground some of the dirtiest fossil fuel.”