Quest for cooler investment makes a coal compromise

THE biggest names in mining have so far found themselves immune to a rapidly expanding campaign that is seeking to curb the use of the most polluting fossil fuel.

From Norway’s $900-billion (about R1.1-trillion) sovereign wealth fund to France’s biggest insurer, Axa SA, and the Church of England, investors are starting to turn the screws on coal producers by selling down their holdings.

However, the criteria they use to select candidates for divestment exempts some of the biggest producers. That is because those companies are large, diversified miners and get only a small part of their revenue from coal.

Dodging the divestment bullet, at least for now, are companies such as Glencore, the world’s biggest exporter of coal used in power stations; BHP Billiton; Rio Tinto Group; and Anglo American. Between them, they mine more than 350 million tons, about a third of the world’s coal trade.

“There’s a view that if they stop investing in it, or take a stance, that coal will go away,” said Mick Buffier, chairman of the World Coal Association and an executive at Glencore. “Our view is different. Coal will continue to be needed. It’s going to be used by these developing nations.”

Last week, Norwegian lawmakers agreed to ban the country’s fund from investing in companies that make 30% of their sales from coal, while Axa said it would divest from mining companies that get more than 50% of their revenue from it. The Church of England has vowed not to invest in any business that gets more than 10% of its revenue from it.

“I definitely think that’s a valid starting point,” said Philip Ripman, an environmental, government and social analyst at Storebrand ASA, referring to the 30% benchmark. The Norwegian fund manager started divesting from coal, power utilities and oil-sands companies in 2013.

Storebrand, which has $64-billion under management and does not set a revenue metric for coal investments, has so far excluded 41 companies including miners, utilities and oil-sands producers.

The pragmatic approach has allowed the investors to land a symbolic blow against coal without having to risk dropping companies that make up a significant part of investment indexes. The four miners have a combined market value of about $280-billion.

The Church of England said it could constructively engage with the biggest miners because they were not so dependent on coal for their future. The major miners “have the possibility of playing a constructive role in public policy on climate change in a way that is more clearly against the interests of pure-play or less diversified companies”, the church said in a statement.

The addition of mainstream investors such as Axa has added fresh impetus to the coal divestment campaign, which has been dominated by churches, universities and socially conscious funds such as the Rockefeller Brothers. Last month, Oxford University joined Stanford in saying it would halt investments in coal.

Key to the movement is the concern about rising temperatures caused by burning fossil fuels.

The UCL Institute for Sustainable Resources in London says 80% of coal should stay in the ground and not be used before 2050 to limit temperature increases to 2°C, the maximum scientists say is safe.

Glencore, led by billionaire and former coal trader Ivan Glasenberg, mines coal from Australia to Colombia, producing almost 150 million tons a year.

Its revenues from the fuel are dwarfed by its commodity-trading operations that shift wheat, cotton, oil and zinc across the globe.

Its coal business accounts for a mere 6% of sales.

Glasenberg is a vocal proponent of coal and, sitting atop 4.3 billion tons of reserves of the fuel, says he expects efforts to keep fossil fuels in the ground to fail in the face of world energy demand.

BHP, the world’s biggest miner, produced about 70 million tons of thermal coal last year, while Rio mined 25 million tons, accounting for less than 10% of sales at both companies. Anglo American made about 11% of its sales from thermal coal last year, meaning it would fall short of the Church of England’s investment criteria.

“Our key message is if you really want to address climate change you must provide more support on an impartial basis to the reducing of emissions from coal-fired generation and other uses of coal,” said Buffier. — Bloomberg