World’s largest investment fund from Norway set to divest from coal

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The Finance Committee of the Norwegian Parliament has issued a unanimous recommendation to divest the country’s sovereign wealth fund from the coal industry. The Norwegian Government Pension Fund Global (NGPFG) is the world’s largest sovereign wealth fund and one of the top ten investors in the global coal industry. Environmental organisations are elated. They expect that many billions of euros will be withdrawn from the coal sector. 

The recommendation adopted by the Finance Committee of the Norwegian Parliament on 27 May asks the government to exclude companies deriving more than 30% of their revenues or their power production from coal. It is expected to be formally adopted by the Parliament on June 5.

MP Torstein Tvedt Solberg from the Labor Party, who helped broker the agreement said: “I am pleased that all parties have agreed to withdraw the Pension Fund from coal. This is a great victory for our climate.”

“Through this decision, Norway is really taking a lead,” said Heffa Schücking from the German NGO urgewald. According to Schücking, the Norwegian exclusion criteria go further than what French Insurer Axa announced last week and set a new standard for investors worldwide.

The Parliament is instructing the Norwegian Government to begin implementing the new criteria from January 2016 onwards. “We expect that billions of euros will be withdrawn from the coal industry, when this happens,” said Truls Gulowsen from Greenpeace. “This is a huge win for the divestment movement and a real sign of hope that investment patterns can be changed.”

NGOs expect that the Pension Fund’s investments in companies like Germany’s RWE, China’s Shenhua, Duke Energy from the Unites States, Australia’s AGL Energy, Reliance Power from India, Japan’s Electric Power Development Corporation, Semirara Mining from the Philippines and Poland’s PGE will all be shed.

Divestment campaign

Bill McKibben, co-founder of 350.org, the organisation spearheading the global fossil fuel divestment campaign says, “If you’d told any of us, three years ago, that the planet’s largest sovereign wealth fund would begin divesting, we would have laughed. The way this idea–that the world has far more fossil fuel than it can burn–has spread is an enormously hopeful sign. There’s much work to be done taking on coal, oil, and gas but the momentum is definitely on our side.”

Since the launch of the divestment campaign in 2012, more than 220 institutions and local governments alongside thousands of individuals representing over $USD50 billion in assets have pledged to divest from fossil fuels. According to a study by Oxford University, the fossil fuel divestment movement is the fastest growing divestment campaign in history. At present there are approximately 500 active campaigns worldwide.

The US-based Institute for Energy Economics and Financial Analysis (IEEFA) estimates the Norwegian divestment move to cover around $5.4 billion, making it the biggest single divestment move to date in the world. Up to now the decision by the Guardian Media Group in April 2015 to sell all its fossil fuel assets in its investment fund of over £800m is the largest known move to pull out of coal, oil and gas companies.

Syracuse University is the biggest university in the world to have committed to remove its endowment from direct investments in coal, oil and gas companies. It aims to make additional investments in clean energy technologies such as solar, biofuels and advanced recycling.

Earlier this month, Axa, one of the world’s largest insurers, has become the first global financial institution to shun investments in coal companies. The French group, which has more than $1trillion in assets under management, will sell €500m of coal assets between now and the end of the year. Axa also said it would put €3bn into green investments between now and 2020, mainly in clean technology, green infrastructure and green bonds.

Coal stocks

Tom Sanzillo, IEEFA’s director of finance, said that “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 these equities in their portfolio any longer.”

A new IEEFA report, “The Case for Divesting Coal from the Norwegian Government Pension Fund Global,” authored by Sanzillo, notes that coal-company stock prices have collapsed in recent years and that the stocks of coal-burning utilities are in decline too. It points out that over the past five years, the Stowe Global Coal Index has lost 71 percent of its value, and that while coal will remain part of the global industrial energy mix, its share of that mix stands to continue to fall over time.

According to IEEFA, the NGPFG’s total coal sector holdings are valued at NOK 85.5 billion (US$11.4 billion). Norges Bank Investment Management, an arm of the Norwegian Central Bank, manages the Fund for the Norwegian Ministry of Finance.

According to Sanzillo, “the leadership of the coal industry has only itself to blame for failing to engage in a constructive manner with investors, governments and regulators and now must bear the brunt of the largest fund in the world looking elsewhere to meet its financial targets.”

(Sources: IEEFA, 350.org)

Comments

  1. says

    At the end of May 2010, RWE’s stock price was 58,08 €. Last week, it closed at 21.26 €. Shares of the world’s largest private coal corporation, Peabody Energy, fell from a peak of $72.71 on March 28, 2011, to $3.11 yesterday. This price spiral evokes a number of questions. Why have the Norwegian pension fund managers neglected to act sooner against this dramatic loss of equity? Are there any investors preparing to sweep up the same coal stocks at bargain prices? Since Norway and other high-latitude countries expect to cash in on new economic opportunities in the melting Arctic, might it not be in their interest to buy back stocks with a high CO2/price ratio? Global coal usage has clearly not been declining in step with corporate valuations. Furthermore, Peter Terium of RWE recently stated that continued lignite power generation will be needed to pay for decommissioning the company’s nuclear reactors and for storing radioactive waste. None of Germany’s power producers has accumulated adequate funds for this purpose. RWE’s dire financial situation, however, now makes nationalization of the company appear possible. As the new owner, the German state could thus be obliged to continue lignite power generation in order to pay for nuclear phase-out. Such a development would likely provide a considerable boost to the coal stocks that have only recently been jettisoned at bargain prices.

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