March 19, 2018 Read More →

IEEFA Update: The Divestment Movement Gains Steam

A Fast-Growing Issue, Especially for the Coal Sector

Fossil fuel divestment took center stage during a good part of IEEFA’s annual conference last week in New York, with experts and government officials weighing in in detail on the burgeoning movement.

Among them: Representatives from both the city and the state of New York, which operate some of the biggest pension funds in the country.

Dan Zarrilli, chief resilience officer for New York Mayor Bill de Blasio, said during one conference session that the city’s goal is to be fully divested from fossil fuels by 2022, a move that would involve substantial holdings. The city’s five pension funds, worth roughly $190 billion, have fossil fuel investments worth about $5 billion, Zarrilli said.

Questions around why divest from fossil fuels has evolved to why invest in them at all?

At the state level, discussions are evolving, said Adam Zurofsky, New York’s deputy secretary for energy and financial services. Gov. Andrew Cuomo wants to divest the state’s $210 billion common fund of fossil fuel holdings, which are worth a little less than $4 billion. But the fund is controlled by the state comptroller, Thomas DiNapoli, so the governor cannot act unilaterally. A state advisory panel is working to frame the issue and move the process forward.

Zarrilli and Zurofsky stressed how attitudes toward such moves have changed in just the past couple of years, noting that divestment conversations were largely nonexistent two or three years ago. Now, the topic feeds a spirited public debate.

As Zurofsky described it, the question for an increasing number of investment officials and political leaders is changing from “Why divest from fossil fuels?” to “Why invest in them at all?” Zurofsky pointed out that the investment rationale behind fossil fuels is that they have long-term growth potential, an increasingly perilous proposition.

Speaking on a separate panel, Heffa Schuecking, whose group, urgewald, is dedicated to coal-sector divestment, said significant due diligence is required for divestment to capture all of the holdings in question in any given portfolio. Many existing standards miss the mark, Schuecking said.

She pointed, for example, to how the two largest pension funds in the U.S., CalPERS (the California Public Employees’ Retirement System) and CalSTRS (the California State Teachers’ Retirement System), which manage assets totaling $326 billion and $224 billion, respectively, have existing rules requiring them to divest from companies that earn 50 percent or more of their revenue from coal mining. However, of the 30 largest coal mining companies worldwide, which together account for half of the world’s current coal production, only 11 get 50 percent or more of their revenue from mining. The two California pension funds could have holdings in 19 of the largest producers and not be in violation of their investment rules.

Similarly, several institutional investors have rules against investment in companies that get 30 percent or more of their revenue or their power generation from coal. This restriction, which is followed by Allianz and Norges Bank Investment Management (Norway’s global investment fund manager), among others, is also flawed, Schuecking said. Of the 30 top mining companies, 10 fall below the 30 percent threshold.

Schuecking proposed a more comprehensive way for investment managers to evaluate coal holdings, taking into account what she called the entire value chain.

Urgewald guidelines for divestment or exclusion include companies where:

  • 30 percent or more of their power production or revenues are coal-based;
  • annual coal production or consumption exceeds an absolute threshold of 20 million tons annually;
  • investments are being made in new coal mines, new coal power plants or other new coal infrastructure.

Urgewald, all told, has 775 companies on its Global Coal Exit List (GCEL), of which just over 500 are actively involved either in planning new coal-fired generation or new mines.

The group’s efforts are paying off, with France’s AXA, the world’s third-largest insurance company, announcing in December that it would use the GCEL to guide its investment decisions and that it would be divesting 2.4 billion euros worth of coal holdings and 700 million euros of existing tar-sands investments. The AXA announcement follows an initial divestment program started in 2015.

Dennis Wamsted is an IEEFA editor.

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