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Coal seen as ‘new tobacco,’ sparking investor backlash

Bloomberg News

By Jesse Riseborough

and Thomas Biesheuvel

About $8 trillion of known coal reserves lie beneath the earth’s surface. The companies planning to mine and burn them are being targeted by a growing group of investors concerned with the greenhouse gases that will be made.

Storebrand ASA, which manages $74 billion of assets from Norway, sold out of 24 coal and oil-sands companies since July including Peabody Energy Corp., the largest U.S. coal producer, citing a desire to cut fossil-fuel industry holdings. Norway’s opposition Labour Party has proposed banning the country’s $800 billion sovereign wealth fund from coal investments.

“Maybe we’ve hit some kind of nerve in the debate,” said Christine Torklep Meisingset, Storebrand’s head of sustainable investments in Oslo. “Hopefully, other investors will be acting along the same lines. There could be an interesting parallel to tobacco.”

The movement is an offshoot of a campaign by more than 70 investors to pressure all fossil-fuel industries on climate change. It recalls the 1990s anti-tobacco push and is gaining help from unlikely partners. The International Energy Agency, a 28-nation group promoting energy security, is lobbying increasingly to limit the release of heat-trapping gases.

“Investors make decisions every day on buying and selling stock and we’re confident that the strong long-term outlook for coal and Peabody’s specific investment appeal will carry the day,” said Vic Svec, a spokesman for Peabody Energy. “Coal has been the fastest-growing major fuel around the world for the past decade and is expected to surpass oil as the world’s largest energy source.”

Coal, whose burning spews about twice the greenhouse gases as natural gas, is not in retreat. In 2011, coal was used to generate 30.3 percent of the world’s primary energy, the highest level since 1969, according to the World Coal Association, an industry trade group. That share slipped only to 29.9 percent last year.

Investors cite both ethical and financial concerns with carbon-bearing fossil fuels. The Norwegian fund, the largest of its kind in the world, owns shares in some of the biggest coal producers including a $2 billion holding in BHP Billiton Ltd., the biggest mining company and stakes in Glencore Xstrata Plc, the largest coal exporter, and Anglo American Plc.

The call to divest coal holdings is a political issue that the fund won’t comment on, said Thomas Sevang of Norges Bank Investment Management, which manages Norway’s sovereign wealth fund. “We’re investing according to the mandate that we have at any given time.”

Future curbs on carbon emissions beyond 2020 may cut valuations on coal assets by as much as 44 percent, according to HSBC Holdings Plc.

“There is the beginnings of divestment out of pure play coal by some investors,” said Nick Robins, head of HSBC’s climate change center of excellence in London. “There’s been a very marked rise in concern about this issue. There’s a recognition that as you move to a low-carbon economy that coal is potentially most vulnerable.”

Coal remains a “good story” with demand from China and India estimated to grow almost 4 percent a year through to 2020, said Godfrey Gomwe, chief executive officer of Anglo American’s thermal coal unit, in an email.

“We believe that fossil fuels will continue to play a significant role in the global energy mix,” wrote Ivan Glasenberg, CEO of Glencore Xstrata, in the company’s sustainability report last week.

Globally, share prices of thermal coal producers have slid over the past two years on declining demand for the fuel and fears of oversupply. U.S. producer Patriot Coal Corp. filed for bankruptcy last year while Arch Coal Inc. has dropped 71 percent and Peabody 44 percent over the past two years. China Shenhua Energy Co., the nation’s biggest producer, is down 27 percent over the same period while Indonesia’s biggest exporter PT Bumi Resources is off about 80 percent.

“There’s a pretty plausible case that this is the beginning of the end,” said Craig Mackenzie, investment director and head of sustainability at Scottish Widows Investment Partnership, which manages 145 billion pounds ($233 billion) in assets. Scottish Widows divested from pure-play coal producers last year on the prospect that demand for the fuel will continue to wane amid a booming U.S. natural gas market.

Even so, Mackenzie said the divestment campaign has had little to no effect to date, and the sell-off in coal stocks has been driven by fundamentals.

“It’s quite easy to paint a scenario where coal demand never recovers,” Mackenzie said. “Gas prices are the biggest short-term driver. Over the longer term climate and clean air polices are the structural drivers.”

Like tobacco companies, coal producers may move to paying high dividends to attract investors amid an uncertain longer term future for the fuel, Meisingset said.

A group of 70 investors including California’s two largest public pension funds and F&C Management, holding more than $3 trillion in combined assets, wrote to the world’s top 40 oil, gas, coal and electric power companies in September urging them to assess the risks climate change poses to their business.

International Energy Agency Executive Director Maria van der Hoeven recently described coal as the “biggest elephant in the room” in the debate about how to shift away from fossil fuels to help manage climate risks. Coal-fired power stations remain the cheapest form of energy for developing nations, she said. The agency has said coal demand would need to fall by 3.5 percent a year in the 2020s to meet the 2-degree target.

The World Coal Association, which represents producers including Glencore and BHP, says coal-fueled energy is essential to lift people out of poverty and is calling on governments to increase the efficiency of power plants and for development banks to help fund clean-coal technologies.


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