Investors with $5T pressure portfolio companies to shun thermal coal

Last modified November 6, 2020. Published November 6, 2020.
A bucket-wheel excavator works in the Garzweiler surface coal mine, in Germany, Sept. 24, 2020. (AP Photo/Martin Meissner)

A bucket-wheel excavator works in the Garzweiler surface coal mine, in Germany, Sept. 24, 2020. (AP Photo/Martin Meissner)

An alliance of global investors managing $5 trillion in assets sharply cautioned portfolio companies against involvement in thermal coal projects Friday, noting possible divestment as its members decarbonize their investments.

Companies should create individualized plans to transition away from thermal coal, including by ceasing financing, insuring, building, developing or planning any such power plants that aren’t already under active construction, said the Net-Zero Asset Owner Alliance, which includes some of the world’s biggest insurance companies and pension schemes and is chaired by an executive from .

The group further said there should be “an immediate cancellation” of all new thermal coal projects in the pre-construction phase, including plants, mines and related infrastructure such as products supplied to coal-based business models. 

Convened by the United Nations and Principles for Responsible Investment, the alliance says it has a fiduciary duty to decarbonize members’ portfolios to avoid global temperature rise in excess of 1.5 degrees Celsius, in alignment with the 2015 Paris Agreement. 

To that end, the group also called for a phaseout of “all unabated existing coal-fired electricity generation” in accordance with that goal, noting that it would require industrialized countries to get off most thermal coal assets by 2030, while a global phaseout is needed by 2040.

“We believe that all companies in our portfolios should have a firm understanding of the wider implications for the activities, operations and projects that they are engaged in,” the alliance said. “Participation in activities and projects that are not aligned with these principles is incongruent with our net-zero goals and the aspirations we have in respect to the different decarbonization strategies of the companies we invest in.”

The Net-Zero Asset Owner Alliance unveiled itself in September 2019 with a handful of members including Swiss Re, Folksom and Caisse de dépôt et placement du Québec. It has since grown to include AXA, Zurich Insurance, Alecta, Nordea Life & Pensions, Aviva and Munich Re, among others.

Last month, the alliance revealed its 2025 Target Setting Protocol as members promised to cut their portfolios’ greenhouse gas emissions by up to nearly one-third over the next five years, raising the bar for climate-conscious companies and sending a strong signal to the rest. 

The alliance prepared its Thermal Coal Position for next week’s Green Horizon Summit, a virtual event from the City of London Corporation, Green Finance Institute and World Economic Forum to explore the role of green finance in the recovery from COVID-19. That event will wrap up with a discussion on actions and commitments financial firms should make in the lead-up to the 26th UN Climate Change Conference, which is scheduled for next November in Glasgow, Scotland.

Several financial institutions have pushed net-zero initiatives in anticipation of the event, which was postponed by one year because of the pandemic.

Coal has been a particular area of focus for some companies. 

Noting “high risk” in the sector, last month Royal Bank of Canada moved to limit financing for coal-related projects and clients, part of a policy update that also made the country’s largest bank the first one there to prohibit direct lending for oil drilling in the Arctic National Wildlife Refuge.

Meanwhile, in Europe, French financial companies Société Générale and CNP Assurances promised in July to work toward eliminating their exposure to coal. 

That closely followed Deutsche Bank, Standard Chartered, BNP Paribas and others pledging to align their portfolios with the Paris Agreement.

Those banks and about 30 of their global peers financed $2.7 trillion worth of fossil fuel projects between 2016 and 2019, according to the Rainforest Action Network.

Power generated by thermal coal is responsible for two-thirds of energy sector emissions globally, according to the alliance, making the burning of thermal coal for energy the largest contributor to man-made global temperature rise.

At the same time, the sector is increasingly loss-making, the alliance noted: nearly three-quarters of global thermal coal capacity is expected to be unprofitable by 2040, and even if the world is only able to limit global temperature rise to 2 degrees Celsius, investors and governments will likely still face more than $267 billion in stranded assets.