Still Dirty, Still Dangerous. The Norwegian Government Pension Fund s Investments in the Coal Industry

Transcription

1 Still Dirty, Still Dangerous The Norwegian Government Pension Fund s Investments in the Coal Industry

2 Published by urgewald, Framtiden i våre hender and Greenpeace Norway Author: Heffa Schücking urgewald Germany Ph Heffa Schücking: heffa@urgewald.org Framtiden i våre hender / Future in our hands Ph: Pia A. Gaarder: pag@framtiden.no Sigurd Jorde: sigurd@framtiden.no Greenpeace Norway Ph: Truls Gulowsen: tgulowse@greenpeace.org Thanks for research to: Katrin Ganswindt, Christina Beberdick, Nils Bartsch, Nick Ebner, Jonas Gardlo, Maike Schmoch, Simon Bau For more information please contact: heffa@urgewald.org We would like to thank the following for their support: grassroots foundation, Goldman Environmental Prize and Olin ggmbh

3 Introduction Over the past two years, a discussion has sprung up in Norway about a possible divestment of the Government Pension Fund Global from the coal industry. While the Norwegian government opposes such a step, a recent opinion poll shows that 63% of Norwegians are in favour of excluding coal from the Pension Fund s investments. 1 This briefing paper aims to contribute to the debate and provides an overview of the Pension Fund s current coal investments. It is an update to the study Dirty & Dangerous, which was published in 2014 by urgewald, Framtiden i våre hender (the Future in our Hands) and Greenpeace Norway. 2 Background While Norwegians are quick to point out that their country is small, its Government Pension Fund (GPF) is the largest sovereign wealth fund in the world. As its capital stems from the country s petroleum revenues, the GPF is commonly referred to as the oil fund (Oljefondet) in Norway. Since 2008, the value of the GPF has tripled and now lies at NOK 7,012 billion ( 837 billion), making it one of the world s largest investors. 3 While only a small percentage of the GPF s holdings are in the coal sector, these nonetheless place the Pension Fund among the world s top ten investors in the global coal industry. Why Divest from Coal? The answer is simple: Coal is the number one source of the CO 2 emissions heating up our planet. Coal emits more CO 2 than oil and more than twice as much as natural gas per unit of energy produced. 4 Investing proceeds that originate from the oil industry into an even more carbon-intensive fuel is therefore a sure-fire recipe for accelerating climate change. More than 3/5 th of the rise in global CO 2 emissions since 2000 is due to the burning of coal. 5 Although the International Energy Agency (IEA) warns that global coal consumption must at the very latest peak by 2020, the coal industry still continues to expand. 6 Over 1,100 GW of new coal-fired power plants are currently planned or under construction 7 this is more than 3 times the size of the United States current coal fleet. If these plans become reality, they will undermine all chances of limiting global warming to 2 C. While hopes are high that the Paris climate summit in December 2015 could usher in a new and binding climate agreement to limit greenhouse gas emissions, the reality is that government action by itself will not be enough. Investors must also change course. As the 1 av- tre- krever- Oljefondet- ut- av- kull- og- kullkraft/ Market value of the GPF on March 31, Understanding CO 2 Emissions from the Global Energy Sector, World Bank, Launch of the Medium- Term Coal Market Report 2013, IEA, December 16, See the 450 Scenario in Redrawing The Energy- Climate Map, IEA, Boom and Bust Tracking the Global Coal Plant Pipeline, Coalswarm and Sierra Club, March 2015

4 fifth IPCC report says: Emission patterns that limit temperature increase to no more than 2 C require considerably different patterns of investment. 8 While the Norwegian government has been one of the leading proponents for a comprehensive and legally binding climate agreement, it has failed to connect the dots when it comes to the country s sovereign wealth fund. The tens of billions of kroner the GPF has sunk into the coal industry make it one of the investment giants in a sector that must urgently be scaled back if we want to avoid catastrophic climate change. Divesting from this industry is thus the most crucial and powerful step Norway can take in the leadup to Paris. Pretend Divestment versus Real Divestment In our previous report, Dirty & Dangerous we put forward 5 criteria for eliminating the most harmful parts of the coal sector from the GPF s investment universe. These criteria were conservative and only included companies that either play a significant role in the coal sector, whose largest business segment is devoted to mining or burning coal or that have ambitious plans to expand their coal business. Based on these criteria, we identified 158 coal companies in the GPF s holdings and total coal investments of NOK 82.6 billion at the end of In February 2015, when the GPF s manager, Norges Bank Investment Management (NBIM) issued its Responsible Investment report, we were therefore pleased to see a chapter highlighting the Pension Fund s divestment from a number of coal companies. This information was reported by the press under headlines such as Oil fund sells out of 49 companies due to sustainability concerns (The Norway Post) or World s biggest sovereign wealth fund dumps dozens of coal companies (The Guardian). 10 And in April 2015, the Norwegian Finance Ministry stated on its webpage: The Bank has in recent years made more than a hundred risk-based divestments, including holdings in coal extraction and coal power companies. These statements created the impression that things were moving in the right direction. When we analysed the GPF s 2014 holdings list (published in March 2015), we found it had, indeed, divested from 51 coal companies in The total sum of its coal industry holdings has, however, grown and now amounts to NOK 85.8 billion, an increase of over 3 billion kroner, when compared to This shows the shortcomings of reports that focus only on divestment actions, but do not mention where funds have been re-invested. They serve to create the illusion that the Pension Fund s coal portfolio has shrunken, while resources have, in fact, only been shifted from one coal company to the next. 8 5th Assessment Report, Chapter 16: Cross- cutting Investment and Finance Issues, IPCC, This is likely still an underestimation as our analysis did not cover specialized coal equipment and coal transportation companies, and because it is reasonable to assume that we overlooked at least some investments that should have been part of this sample. 10 Both of the cited articles were published on February 5, 2015

5 The Pension Fund s Portfolio in 2014 This section analyses some of the GPF s largest regional coal investments as well as the overall changes that took place in its coal portfolio from 2013 to India Most striking is perhaps the Pension Fund s divestment of around NOK 840 million from 13 Indian coal companies. 44% of this sum (NOK 366 million) was, however, re-invested into India s Reliance Group. Reliance Power is one of the biggest developers of coal-fired power plants in South Asia and is therefore on the exclusion list of KLP, Norway s largest private pension fund. Reliance has around 12,000 MW of new coal-fired power capacity under construction and is also developing India s largest coal block with reserves of over 1 billion tons. In addition, its subsidiary, Reliance Coal Resources Limited, is developing 3 coal mines in Indonesia. 11 As NBIM shed investments in Indonesian coal companies in 2013, due to their role in the rampant destruction of Indonesia s rainforests, investing into the Reliance Group seems particularly ill advised. But this investment is also controversial for other reasons. A 2014 NGO fact-finding mission to Reliance s Sasan power plant reported serious environmental and human rights violations, 12 such as the following: - Contamination from ash ponds has poisoned villager s drinking water. - Residents who protested against their relocation for the power plant were abducted and never found. - Houses of local villagers were bulldozed in the middle of the night to force them to give up their land. - Deadly accidents of workers were hushed up and records were falsified to hide the fact that they had died on site. Reliance is just one of many irresponsible investments not mentioned in NBIM s report. China: While there was a net decrease of almost NOK 364 million in the GPF s Indian coal portfolio, the Pension Fund s investments in the Chinese coal sector grew by over NOK 1.7 billion. The GPF s Chinese coal holdings now amount to NOK 7.2 billion in total, an increase of 32% in comparison to From a climate perspective, investing in the Chinese coal sector seems a disastrous choice. China is already responsible for around 20% of the world s CO 2 emissions, and is still expanding its coal-fired power capacity at a breath-taking rate. 13 In 2014, China The US Export- Import Bank s Dirty Dollars, Sierra Club, 350.org, Carbon Market Watch, Pacific Environment and Friends of the Earth US, October Can China Cut Coal?, Scientific American, November 25, 2014

6 brought 3 coal-fired power plants on line each month. 14 The Norwegian Government argues that the Pension Fund should not be used a climate tool, but its investments in the Chinese coal sector are arguably a climate change tool. Photo: Chang Qiang/Imaginechina The GPF is invested in 21 Chinese companies that mine or burn coal or convert it to gas (an incredibly polluting process that creates more CO 2 than if the coal were simply burned). If we add up the annual coal consumption of the 11 Chinese utilities and coal-to-gascompanies in the GPF s portfolio, we see that they collectively burn around 424 million tons of coal annually. Burning this amount of coal creates CO 2 emissions that are 19 times as high as Norway s total annual greenhouse gas emissions! 15 And if we add up the expansion plans of the Chinese utilities in which the GPF hold shares, they amount to a staggering 134,000 MW of additional coal-fired capacity. The inconvenient truth is that Norway s and everyone else s future is being undercut by such investments. According to Norwegian Finance Minister Siv Jensen, Active ownership and dialogue shall remain the key tools for addressing climate issues in the management of the fund. 16 One doesn t have to be an expert in international affairs to realize that this strategy will have no impact whatsoever on Chinese coal companies. 14 New Coal Power Plants in China a Carbon Bubble Waiting to Burst, Lauri Myllyvirta, Greenpeace, February Burning 21.5 million tons of bituminous coal generates CO 2 emissions as high as Noway s total greenhouse gas emissions. These amounted to 52.8 Mt CO 2 equivalent in Webpage of the Norwegian Finance Ministry, April 10, 2015

7 There are, of course, a multitude of other reasons why investments in the Chinese coal sector can be considered dirty and dangerous, especially for people living in China. A 2014 study by researchers from Tsinhua and Peking universities found that coal pollution is responsible for 670,000 premature deaths annually in China. 17 The country s coal industry uses up vast amounts of water, and already accounts for over 15% of China s annual water withdrawals. 18 This water grab leads to immense conflicts with rural populations who depend upon scarce water resources for their livelihoods. Coal is therefore at the center of many protests in China: Tibetans demonstrating against coal mining, 19 Mongolian herders trying to defend their water resources 20 or urban residents protesting the construction of new coal-fired power plants and chanting Give me back my blue sky. 21 Japan: In Japan, the GPF s coal investments have grown by 21% in comparison to The Pension Fund now has investments of over NOK 3.8 billion in Japanese coal-fired utilities and coal mining companies like Electric Power Development Corporation (also called J- Power) and Itochu. Japan has plans for 21,200 MW of new coal-fired capacity at home, 22 and its companies are among the most active players when it comes to building new coalfired power plants in other countries. One of these countries is Indonesia, where Itochu and J-Power are planning to build one of Asia s largest coal-fired power plants, the 2,000 MW Batang coal project in Central Java. For 5 years now, thousands of Batang residents have protested against this power plant, as it would destroy rich fishing grounds and one of Java s most productive agricultural areas. 23 Their peaceful protests have been met with a wave of threats and violence, culminating in attacks on local landowners by the army, police and hired thugs to force them to relinquish their lands. Indonesia s National Human Rights Commission and the country s Environment Minister have recommended that the project be scrapped, but Indonesia s President has promised Itochu and J-Power that he will deliver the Batang project into their hands. 24 Although the International Energy Agency has warned that the rapid expansion of Indonesia s coal-fired power capacity is threatening the country s climate goals, this hasn t stopped the GPF from investing in companies that are at the forefront of this expansion. 25 And the additional coal demand of these power stations will make it even harder to protect Indonesia s remaining rainforests from being destroyed for coal mining. 17 Reported in China s Lethal Coal Dependency: 670,000 Deaths linked to Air Pollution in 2012, Lindsay Abrams, November The Water- Related Challenges of China s Coal and Power Industries, HSBC, June Tibetans Protest Against Coal Mining in Nangchen County, Radi Free Asia, August 7, In China s Inner Mongolia, Mining Spells Misery for Traditional Herders, Washington Post, April 7, ,000 Protest In Chinese City Over Planned Coal- Fired Power Plant, South China Morning Post, April 13, Immediate Action Must be brought to New and Existing Japanese Coal- Fired Power Plants, KIKO Network, April 9, Activists Call on Jokowi to Extend Forest Moratorium, Jakarta Globe, March 23, Indonesia s Widodo Stakes Can- Do Image on Overdue Power Plant, Bloomberg, March 24, Dash for Coal Threatens Indonesia Climate Goal, Warns IEA, RTCC, February 18, 2015

8 Photo: Greenpeace USA In 2014, NBIM shed most of the GPF s investments in U.S. coal mining companies, citing in at least two cases their involvement in mountaintop removal, an especially barbaric mining practice that destroys entire mountain ranges in Appalachia. Little was won by this divestment, however, as NBIM simultaneously upped the Pension Fund s stakes in companies like FirstEnergy and Duke Energy, that are among the main buyers of mountaintop removal coal. While NOK 80 million was divested from coal mining, the GPF s investments in coal-based utilities in the U.S. grew enormously and now total NOK 20.6 billion. 26 Among the Pension Fund s investments are 8 of the ten top coal-burners in the United States, also known as the Filthy Ten. Together, the 13 coal-based U.S. utilities in the GPF s portfolio burn 335 million tons of coal annually, an amount that generates CO 2 emissions 15 times as high as Norway s own. One of the GPF s biggest investments NOK 5.2 billion is in Duke Energy, a company that is charged with numerous criminal violations by federal prosecutors and is among the worst polluters in the Unites States. 27 Environmental organizations were already suing Duke Energy for the negligent handling of its waste, when in February 2014, 40,000 tons of coal ash from one of Duke s coal-fired power stations spilled into North Carolina s Dan River. For 70 miles the river was coated with toxic gray sludge from 60 years of burning coal. 26 Some of this growth is due to an increase in ownership of individual companies, but changes in the exchange rate between US$ and NOK were also a significant factor. 27 Duke Energy is Charged in Huge Coal Ash Leak, New York Times, February 20, 2015

9 This is what a coal ash spill looks like. Photo: Amy Adams Coal ash is the waste material left after coal is burned. It contains arsenic, mercury, lead, thallium, chromium and many other heavy metals that pose grave risks to human health. When released into the environment, these substances can cause cancer, neurological damage, heart and lung diseases, kidney disease, reproductive problems, birth defects, asthma and many other illnesses. Every year, coal-fired power stations in the U.S. generate 140 million tons of coal ash, making it the largest industrial waste stream in the United States. The coal ash spill into the Dan River was symptomatic for Duke Energy s negligent handling of waste from its coal-fired power plants. The company simply dumps much of its coal ash in un-lined earthen pits next to waterways, and as Frank Holleman from the Southern Environmental Law Center, says: You don t have to be a rocket scientist to figure out if you dig an unlined hole in the earth next to a river, and you put toxic substances in it, that these will leak. 28 Duke Energy stores more than 150 million tons of coal ash in 32 dumps in North Carolina, and according to State environmental officials, all of Duke s unlined waste pits are contaminating groundwater at these sites. 29 The company estimates that cleaning up its coal ash sites in North Carolina alone can cost up to US$ 10 billion. 30 Unfortunately, Duke Energy is not alone when it comes to this deplorable practice. In total, there are over 1,400 unlined coal ash ponds in the US. While they virtually all leak, many 28 energy- on- coal- ash- waste- at- dan- river/ 29 More People Near Coal Ash Pits told Not to Drink their Water, AP, May 6, energy- sets- aside- 3-4b- for- coal- ash- cleanup/ /

10 have also been rated as structurally unsafe and are at high risk of causing new spills. Among the owners of these ash ponds are Ameren, Dominion Resources, PPL and several other utilities the GPF is invested in. 31 Investments in European Lignite Companies Lignite, also known as brown coal, is a low-grade coal that results in the highest CO 2 emissions per unit of energy generated. Brown coal is the fuel that is most damaging to our climate. This has, however, not stopped the Norwegian Government Pension Fund from investing NOK 4.1 billion in major lignite miners and burners, such as PGE and Tauron Polska in Poland, CEZ in the Czech Republic, RWE in Germany and Sweden s Vattenfall (which has huge lignite operations in Germany). Almost ¼ of the world s annual production of lignite is mined and burned by these companies. According to the European Union, the Bełchatów power station owned by PGE is Europe s dirtiest power plant. Bełchatów alone emits over 37 million tons of CO 2 annually, an amount that equals 70% of Norway s total greenhouse gas emissions per year. 32 The company RWE has long been Europe s largest CO 2 emitter and its annual CO 2 output is 3 times higher than Norway s. Protest against coal pollution in Poland. Photo: Mateusz Wojton But lignite is also controversial because of the enormous scale of destruction its mining operations entail. Huge bucket-wheel excavators strip away the soil, turning hundreds of square kilometers of fertile farmland into desolate wasteland. In Germany alone, over 31 Dangerous Waters: America s Coal Ash Crisis, Sierra Club and Earthjustice, May Europe s Dirty 30 How the EU s Coal- Fired Power Plants are Undermining its Climate Efforts, CAN, 2014

11 110,000 people have been displaced for lignite strip mines. And the German term Ewigkeitskosten ( eternity costs ) aptly describes the irreparable damage these mines impose on the landscape and water tables of the affected regions. The impacts of the German utilities in which the Pension Fund holds stakes, however, go beyond lignite mining in Europe. RWE and E.ON are among Europe s largest importers of hard coal from countries like Colombia and South Africa, where coal mining has severe impacts on local communities access to water. E.ON and RWE also source coal from Appalachia in the U.S. where entire mountaintops are blown up, an especially controversial mining method that would be termed illegal in Norway and the rest of Europe. Although Germany is known as the country of the energy transition and over one quarter of the country s electricity production now stems from renewables, the large utilities in which the GPF holds stakes have actively opposed this transition. A case in point is RWE, which still has less than 5% renewables in its energy mix and is ill positioned to compete in the new energy market. Accordingly, the company s share price has dropped by 75% since Vattenfall s lignite mine in Jaenschwalde, Germany. Photo: Daniel Rosenthal / Greenpeace Multinational Miners The GPF currently has investments of NOK 27 billion in the 3 big multinational mining companies Glencore, BHP Billiton and Anglo American. While these are diversified companies for which coal only accounts for 10 20% of their earnings, they nonetheless play a central role in global coal production. Collectively, these 3 companies produce 364

12 million tons of coal annually, and when burned, this coal generates CO 2 emissions that are over 16 times as high as Norway s annual greenhouse gas emissions. In early February 2015, NBIM sent a letter to the 3 multinational miners emphasizing climate concerns and asking them to consider divesting their coal assets. As subsequent public statements by the companies indicate, this letter had little or no impact. In March 2015, BHP Billiton CEO Andrew Mackenzie lashed out publically at the oil and gas industry, telling it to stop claiming to be better for the climate than coal, 33 and in the same month, Anglo American stated in its annual report: The demand for coal is forecast to continue to grow a demand which has to be met and we believe that responsible mining companies, such as Anglo American, need to be part of the solution. According to the long-term perspective laid out in its report, Anglo American, in fact, aims to triple its earnings from coal in the future. 34 The Cerrejon coal mine. Photo: Steve Morgan / Greenpeace These companies don t care what NBIM, or, for that matter, what the UN s Intergovernmental Panel on Climate Change (IPCC ) says. The latest IPCC report a document approved by 195 governments warns that 80% of coal reserves must stay in the ground if we want to limit global warming to 2 C. But as Ivan Glasenberg, CEO of Glencore bluntly stated in April 2015: we do not believe that the global energy reality will economically support carbon measures that would prevent us from fully utilizing our fossil fuel reserves. 35 Which is just a polite way of saying: Screw the Paris climate 33 BHP Chief: Stop Saying Gas is Cleaner than Coal, Financial Times, March 22, Annual Report 2014, Anglo American, March Biggest Coal Exporter Says Climate Change Won t Strand Assets, Bloomberg, April 28, 2015

13 negotiations; we are certain we ll get to mine and sell all the black stuff we want. This is why the multinational miners still have plans to expand their coal output and spend millions each year exploring for new coal reserves. Should Norway s sovereign wealth fund really be invested in companies that are betting against effective climate regulations? The appalling impacts of Glencore s, BHP Billiton s and Anglo American s coal operations are nowhere more evident than in the Province La Guajira in the north of Colombia. Here the 3 companies jointly operate the Cerrejón mine, Latin America s largest coal mine. For the Wayuu Indians and the Afro-Colombian communities who live here, the mine is like an insatiable monster. It has taken over tens of thousands of hectares of fertile land, destroying farms, water sources and towns. The Ranchería River which served many communities with drinking water, turned foul and brown with toxic run-off from mining. There is coal dust everywhere including in people s lungs and widespread contamination of water, air and soils. Thirst and hunger have become a fact of life here: 50% of Wayuu children are severely undernourished and childhood mortality is high. 36 The mine is stealing our future, says Oscar Guayiru, one of the leaders of the Wayuu communities. The GPF s Coal Portfolio as a Whole The figures NBIM presented to the Finance Committee of the Norwegian Parliament on May 4 th 2015 indicate that the GPF s investments in coal mining are only around NOK 500 million, an almost negligible amount. 37 However, as we pointed out in Dirty & Dangerous, the definitions NBIM uses to measure coal mining investments are so narrow that they exclude many of the largest coal producers in the GPF s portfolio. The Pension Fund, for example, holds investments of almost NOK 2.5 billion in RWE, a company that produces over 100 million tons of lignite annually, making it the world s largest lignite producer. As RWE is a utility and happens to also burn the coal it mines, the company doesn t show up in this calculation. The same goes for South Africa s Sasol. Although Sasol s feedstock is coal and the company mines over 40 million tons a year, it is classified as an oil company by NBIM in the GPF s holdings. The picture is therefore very different, when one simply asks how much coal do the companies produce that the GPF is invested in. The answer is 1.8 billion tons, which is equal to 23% of world coal production. 38 This is a much more substantial number than NBIM s figures would suggest and clearly shows that the GPF is still a significant investor in coal mining. That being said, we do see a large reduction in comparison to the 2013 holdings, when the GPF was invested in companies that collectively accounted for 42% of the world s coal production. Although many coal mining assets were shed in 2014, this has not led to an overall decrease of the GPF s holdings in the coal industry. Instead, investments were simply 36 La carta de una escritora Wayúu a Santos, El Espectador, bank.no/pages/103220/040515_charts.pdf 38 The World Coal Association estimated global coal production at 7.8 billion tons in 2013.

14 moved up one level in the coal chain: from mining to utilities and from extraction to emissions. Photo: Anthony Weller From a climate perspective, this is clearly counter-productive. And what makes things worse, is the fact that many companies in the GPF s holdings are making massive investments into new coal-fired power capacity, which will lock-in emissions for decades to come. If Norway is serious about combatting climate change, its sovereign wealth fund must stop investing in companies building new coal infrastructure that the world cannot afford. Resistance Against Coal While the coal industry argues that coal is needed to provide energy to the poor in emerging economies, the reality is that there is widespread popular resistance against coal projects in both developed and developing countries. In January 2015, after years of struggle, Chilean citizens movements celebrated the suspension of plans by AES to build a coal-fired power station on Chile s scenic Maules coast. 39 In the same month, plans for the 800 MW coal plant in Ploce, Croatia were defeated after 90% of the city s voters turned it down in a referendum. 40 At a congress in 39 los- robles- chilean- citizens- movement- celebrates- coal- plant- victory/ 40 More than 90% say No to Coal- Fired Thermal Power Plant in Ploce, Dalje.com, January 26, 2015

15 Kolkata, India in February 2015, the world s public health organizations called for a rapid phase-out of coal to limit global warming and prevent illnesses and deaths associated with air pollution. 41 In March 2015, Mauritius Prime Minister cancelled plans for a coalfired power plant due to massive public opposition. 42 In the same month, the Environmental Impact Statement for a coal port and coal-fired power plant in Krabi Thailand was rejected after 44,000 residents had spoken out against the projects in a petition. 43 In April 2015, thousands of Vietnamese risked arrest by blocking the country s main national highway for 30 hours to protest against pollution from the Vinh Tan coalfired power station. 44 And in May 2015, 6,000 Burmese villagers and monks protested in Ye township against plans by the company Toyo-Thai to build a coal-fired power plant in their district. 45 This was just days after a huge prayer rally led by 300 catholic priests against the construction of a proposed coal power station in Batangas City in the Philippines. Philippine Archbishop Ramon Arguelles nailed the issue in all of these struggles, when he asked, Why the need for a coal plant, when solar and wind energy abound? 46 Protest against coal-fired power plants in Thailand. Photo: Athit Perawongmetha / Greenpeace In April 2015, the Dutch development bank FMO, which specializes in emerging 41 The Kolkata Call to Action, 14th World Congress on Public Health, February 15, coal- power- plant- in- mauritius- canceled/ 43 Krabi Coal Plant Environmental Impact Assessment Rejected, Phuket Gazette, March 14, What Big Coal s Happy- Clappers Missed About Vietnam s Growing Coal Headache, Reneweconomy, April 27, No Coal, No Toyo- Thai: Mon Villagers Rally Against Plant, Myanmar Times, May 6, Batangas Priests Lead Fight vs Coal- Fired Power Plant, Inquirer Southern Luzon, May 1, 2015

16 economies, announced that it will no longer finance any coal-fired power plants or coal mining projects. In the explanation for its new policy, FMO writes: Taking into account all costs related to negative environmental and social impacts caused by mining, processing, transportation and use, coal must be regarded as an expensive source of energy; including all costs when calculating economic performance, many countries would show a negative growth for years. 47 Investors Turning Against Coal FMO s decision is part of a turning tide against coal, with more and more financial institutions, universities, churches, foundations, pension funds and private investors blacklisting coal companies. In Norway, the first mover was the pension fund and insurer Storebrand which divested 23 coal miners and coal-based utilities from its portfolio in It was soon followed by KLP, which manages pension funds from most of Norway s municipal employees. KLP s step was even more significant as it set forward transparent criteria (50% of revenues from coal) and committed to re-investing funds in the renewables sector. In its statement KLP gives the following reasons: ( ) consumption of coal at today s volumes is not compatible with achievement of the 2-degree target. Exclusion of coal companies as part of KLP's capital management strategy supports the IPCC s recommendations. 48 Next in line was the largest Nordic fund manager Nordea, which announced in January 2015 that it would exclude companies with a large and sustained exposure to thermal coal mining. 49 And in March 2015, the city of Oslo became the first capital in the world to divest from coal mining and coal power generation companies. We pull out of coal companies, because power production based on coal is some of the most environmental damaging there is within the energy sector, said Oslo s finance commissioner, Eirik Lae Solberg from the Conservative party. 50 Will the Norwegian Government Pension Fund be Next? Not if Siv Jensen, Norway s Finance Minister has her way. In April 2015, Jensen said, I have noted that the expert committee says the use of the fund as a climate political tool will be both unfortunate and ineffective. The Government s actions build on the broad agreement of the fund as a financial investor, which has contributed to the robust and long term management of our common assets. 51 This argument truly seems misplaced. KLP and Storebrand are after all, also financial investors and not activists. And if divesting from coal is a political action, then surely investing in coal is also a political action. Jensen also fails to take note of the fact that many parts of the coal sector are not doing well financially, and may do even worse in the long-term. As the Economist writes in its issue of March 28 th, 2015: Growing energy efficiency, rising pollution worries and stiffer competition from other fuels mean that in most countries the tide is turning against coal. 47 FMO Position Statement on Coal- Power Generation and Mining, April Decision to Exclude from Investments, KLP, December Nordea to Blacklist Coal Mining Companies, Financial Times, January 18, sier- nei- til- kullkraft klimakriterium- for- utelukkelse- av- selskaper/id /

17 Prices have been sliding, political opposition growing and demand drooping. The Dow Jones Total Coal Market index has fallen by 76% in the past five years. Jensen argues that active ownership and engagement should be the primary tools to address climate issues. For many companies in the GPF s portfolio, this is, however, a doomed strategy. Engaging with companies like Poland s PGE, which generates 91% of its electricity through coal-fired plants, or with American Electric Power, which produces 83% of its power through firing coal, will lead nowhere. As an analogy: when the GPF took a stance on tobacco, it excluded these companies, it didn t first try to convince them to begin peddling health food instead of cigarettes. That being said, there is a place for engagement, but this strategy is only worth pursuing in cases where companies have a limited exposure to the coal sector, and can conceivably change without having to reorient a large share of their business. And it will only be effective in cases where companies management is open to such change. The possibility of exclusion therefore gives weight to what is otherwise a toothless engagement policy. NBIM itself is also quick to acknowledge that engagement is a time-intensive process and is for capacity reasons therefore limited to the larger investments in the GPF s holdings. To give just one example of how this plays out: In 2014, NBIM added the Vietnamese company Pha Lai Thermal Power to the GPF s holdings. As this investment is relatively small and only amounts to about NOK 27 million, Pha Lai Thermal Power is clearly not a case for engagement. From a climate perspective, the investment, however, seems particularly bad. Vietnam is the third largest builder of coal-fired power plants worldwide 52 and 100% of Pha Lai Thermal Power s business is coal. There are quite a few of such small, but particularly destructive investments in the GPF s portfolio and they will continue to pile up, unless definitive exclusion criteria for the coal sector is introduced. Instead of opting for such a sector-based exclusion, the Norwegian government has instead proposed a new criteria for the GPF s ethical guidelines to exclude companies whose conduct to an unacceptable degree entail greenhouse gas emissions. This is akin to other conduct-based provisions in the ethical guidelines such as serious human rights violations or severe environmental damage, which are purposely meant to only exclude a small number of players. Accordingly, these two criteria have led to the exclusion of only 16 companies over the past 10 years. The proposed new climate criteria would thus also exclude only a small number of companies, and fails to address the fact that the coal industry as such is the biggest contributor to global greenhouse gas emissions. Without a more far-reaching sector-based exclusion, the Pension Fund will continue to be what it is now: One of the largest asset-holders of the global coal industry. 52 Boom and Bust, Coalswarm and Sierra Club, March 2015

18 Divestment is Not Difficult The good news is that divesting from coal is not difficult. In Dirty & Dangerous, we put forward 5 criteria that would exclude the most harmful parts of the coal industry from the GPF s holdings. In our view, companies should be excluded if: 1) 30% or more of their business is coal-related. 2) in the case of utilities, over 30% of their power production is coal-fired. 3) they produce more than 22 million tons of coal annually. Burning this amount of coal generates CO 2 emissions that are as high as Norway s annual greenhouse gas emissions. 4) they are involved in particularly damaging activities like mountaintop removal, coal-toliquids and coal-to-gas. The latter two technologies are more CO 2 intensive than any other part of the coal sector. 5) they are building new capacity for coal production or coal power. As Christiana Figueres, the Executive Secretary of the UNFCCC says, The science is very clear, there is no space for any new coal. 53 These criteria embody a common-sense approach, and are by no means radical. According to our analysis, implementing these criteria would lead to the divestment of 114 companies with an investment value of NOK 85.8 billion, which is equal to little more than 1% of the Pension Fund s total holdings. In the course of our research, we identified 70 additional companies that have some coalrelated business, but stay beneath the thresholds defined in the above criteria. These companies are prime candidates for an engagement strategy. Ideally, they would be put on a watch list so that NBIM can react accordingly if their business shifts more strongly towards coal. Time for a Change Each step in the coal chain from mining through combustion to waste disposal has a dire impact on the environment, human health and the communities living near mines, power plants and waste areas. Coal investments bolster an industry that disrupts ecosystems, contaminates water supplies, shortens lives and emits more greenhouse gases than our climate can handle. This industry is at odds with the values embraced by Norwegian society and nearly 2/3 of Norwegians are ready for a change. According to an opinion poll commissioned by Greenpeace in April 2015, 62% of the population supports a divestment from coal, 23% disagree, while 15 % have not made up their mind. 54 The public s opinion is mirrored in the Norwegian Parliament, where 5 parties that together hold a majority, have stated their wish to pull the Pension Fund out of coal companies. 53 Quoted in Australia will Have to Move Away from Coal, UN Climate Head Says, Sydney Herald, May 7, av- tre- krever- Oljefondet- ut- av- kull- og- kullkraft/

19 Suspense is therefore building whether a majority in the Norwegian Parliament will seize the moment to turn this wish into reality on June 5th Norway may be a small country, but it can lead the world by moving away from investments that jeopardize everyone s future. Investment is all about the future. Child from the small island state Kiribati. Photo: Caroline Penn