Norway’s US$900bn sovereign wealth fund, the world’s largest, will divest most of its investments in firms that mine or burn coal after a vote in the Norwegian parliament last week, a move that could prove a major victory for the global divestment campaign.
The vote in favour of divestment was a formality after a finance committee of Norwegian MPs agreed in a cross-party motion in late May that the country’s so-called oil fund should sell stakes in companies that generate more than 30% of their output or income from producing the fuel or burning it in power stations.
This would amount to major tightening of investment criteria that many critics say have been far too slack.
Campaigners has disputed claims by Norges Bank Investment Management (NBIM), which runs the fund, that investment in coal has been falling over the past few years.
A recent report from German NGO Urgewald, Norway-based Future in Our Hands, and Greenpeace, says that the true extent of the fund's involvement in coal is much higher because NBIM has only been measuring a tiny portion of the fund’s investments in the coal sector.
The ‘Dirty and Dangerous’ report said coal-based utilities, the coal-to-gas industry, the coal-to-liquids sector, diversified mining companies that are major coal producers – such as BHP Billiton – coal transportation, and specialised coal technology companies were all excluded from NBIM’s definition.
The joint report claims that if these types of companies are included, the oil fund held assets of over NOK 82 billion (US$10.4 billion) in the coal industry (including equity and bonds) at the end of 2013, around 40 times the NOK 2.5 billion (US$318 million) NBIM cites for the fund’s investments in coal miners.
Taking those figures into account, Norwegian Labour MP Torstein Solberg says a decisive withdrawal from coal by the country’s oil fund is “a great victory in the battle against climate change.”
In the past few years, banks, insurance companies and institutional investors have joined universities, religious institutions and public sector pension funds in agreeing to restrict or end their involvement in financing coal, the fuel blamed most for climate change and a major source of air and water pollution in fast-growing developing countries.
Weak economic case for coal
Although most private sector institutions have so far refused to commit to ending their financing for coal, last week major French insurance company Axa said it would dump its investments related to the fuel.
Campaigners have not only highlighted coal’s contribution to a warming climate and the need to keep most of the remaining supply in the ground, but have also targeted the increasingly weak economic case for investing in new mines, export terminals and power plants, pointing out that coal-related infrastructure are becoming "stranded assets".
The Stowe Global Coal Index has lost around 70% of its value in the past five years amid a global supply glut and structural shifts towards renewables and cleaner-burning gas.
However, the coal industry and some analysts say that growing demand from India and fast-growing economies in southeast Asia could help prices recover in the 2020s.
But in the nearer term, few disagree that exports of coal from Australia and the US to China are increasingly uneconomic as the world’s largest energy consumer turns to domestic supply to feed its power stations, many of which may operate less regularly as the central government tries to cut down on toxic smog.
One key question for the divestment campaign is whether most of the world’s major financial institutions will eventually ditch coal, either for economic or ethical reasons, or whether less risk-adverse, longer term investors in developing countries will be happy to replace western asset managers if they withdraw from coal.
Campaigners say they will now target the Netherlands' state pension fund because of its investments in fossil fuels.
The ‘Dirty and Dangerous’ report on Norway highlighted new entrants into coal projects, such as Indian utility GVK. A major focus could be on whether coal companies are able to tap into an easy flow of finance from developing country lenders.
In countries such as India, investors may take the view that the world’s most polluting fuel will power their economies – and some developed ones such as Japan – for decades to come.
But for divestment campaigners, cutting off funding in many parts of the world will mean that miners and power companies will have no choice but to scale back their output, giving the world a better chance to shift to cleaner alternatives.