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Where Norway Leads on Coal Divestment, Others Will Follow

May 28, 2015
Tom Sanzillo

It was a coal-divestment shot heard ’round the world yesterday when the finance committee of Norway’s parliament agreed in bipartisan fashion to have the country’s $900 billion public pension fund pull billions of dollars out of coal sector holdings.

Of course the motion must still be put to the entire membership of the unicameral parliament on June 5, but the momentum is in place.

What we’re watching unfold in Norway are the actions of a fiduciary—the Norwegian parliament—as it debates, deliberates, and now makes a decision on coal investments. The Norwegian Government Pension Fund Global has exhausted its efforts to constructively engage coal companies, and divestment is the logical next step. The fund is one of the most active investors in the world on matters of public health and the environment, and it is not shy about making its positions known. Norway will no doubt continue to rely on the tools of persuasion to encourage responsible corporate behavior, but in the case of coal, the die is now cast. Fund managers elsewhere should take note.

Norway’s move makes financial sense and protects the GPFG from further losses in its coal-mining and coal-burning utility investments. Coal markets globally are in the midst of a wrenching structural decline. No investment fund in the world—be it university, pension or institutional—can make a compelling financial case to hold coal equities in their portfolio any longer.

The Norwegian fund represents one of the biggest concentrations of wealth on earth and one whose moves every other investor studies. When the GPFG talks, people listen.

Developments in Norway follow publication earlier this month of our report “The Case for Divesting Coal from the Norwegian Government Pension Fund Global” that explains some of the how and why prudent investors can and should steer clear of coal holdings now and for the foreseeable future. Coal-company stock prices have collapsed in recent years, and stocks of coal-burning utilities are in decline too, both for good reason. These trends have deepened even as the global economy has made modest gains.

The leadership of the coal industry bears the responsibility for its current malaise. It has refused, after all, to engage in a constructive manner with investors, political leaders and regulators who see coal for what it is—a threat to the ecological balance of the planet. Industry leaders are simply not succeeding with their strategy of stonewalling regulation and blocking international climate agreements.

As energy markets continue to transform rapidly, the coal industry remains out of step, failing to compete with other fast-growing energy resources, particularly wind, solar and simple energy efficiency. Various export and trading schemes have only resulted in further deterioration of share value. Coal stocks are losing money every day, and there is no respite in sight.

No intelligent investment policy I know of holds stocks in an industry with catastrophic losses and with no realistic case for an upside for the foreseeable future.

Norway has led. I suspect they will not be alone for long.

Tom Sanzillo is IEEFA’s director of finance.

Tom Sanzillo

Tom Sanzillo is Director of Financial Analysis for IEEFA. He has produced influential studies on the oil, gas, petrochemical and coal sectors in the U.S. and internationally, including company and credit analyses, facility development, oil and gas reserves, stock and commodity market analysis, and public and private financial structures.

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