Getting off coal: Orderly exit or last-minute stampede

I’m one of 10 000 Australian academics who signed an open letter to Unisuper (our industry superannuation fund) calling for a policy of divestment from carbon-based fuels. The first step in such a policy has to be divestment from thermal coal. Purely on fiduciary grounds, getting out of thermal coal is now a matter of cashing out before the assets are completely unsaleable. Just in the last week, here’s a list of investors, ranging from small institutions to financial giants that have made announcements along these lines

  • JP Morgan
  • Moody’s (saying that insurance companies should divest to reduce climate litigation risk)
  • The Royal College of Psychiatrists
  • The Jesuit Order in the UK
  • Creighton University (Jesuit University in the US)
  • Bristol University (UK)
  • Danish pension fund APG (selling its holding in KEPC)

That’s certainly a partial list, indicating that divestment decisions are now being announced on a daily basis, with many more happening quietly.

As the Wall Street Journal reported today, the exodus has reached the point where many coal companies have only a handful of institutional shareholders. These institutions, are too put it mildly, exposed to a lot of risk. And, for any other investors, a divestment decision by one of the remaining institutional shareholders would imply a big drop in the share price and therefore a capital loss.

Part of this flight is the toxic reputational risk associated with coal. As coal industry magazine CoalZoom has observed, reporting a study by Alva Group the bushfire catastrophe has had a huge impact in this respect to the point that

public awareness and a latent activist momentum which may only take one more high-profile incident to trigger concerted action have been built.

Sooner or later (as Moody’s notes above) that concerted action will include attempts to recover the damage caused by carbon dioxide emissions first from emitters, and then from their financiers and insurers.

16 thoughts on “Getting off coal: Orderly exit or last-minute stampede

  1. I assume that concerted selling equity holdings in a disliked firm have some effect on the firm’s cost of capital but I wonder if it is much. If enough anti-coal people sell then the price of coal equities will fall and it will be harder to raise capital in equity markets. My guess is, though, that the higher dividend yields will just create pure profit opportunities for less moral investors. I remember that Philip Morris sold at a low P/E ratio and an attractive yield for years because of anti-smoking sentiment. Gains were transferred from moral to less moral investors and, I guess, firms like this had to rely more on more expensive debt and less on equity raisings. You don’t need many less-than-moral investors to capitalize on moral concerns.

    If many have already sold their holdings in anticipation of legal actions and other harmful problems then I guess remaining investors by selling out will crystallize their capital losses. If the future was completely bleak then vendors would find it difficult to get anything for their assets.

  2. I am glad this is happening, not least because I wrote a similar note to UniSuper when I switched to them quite some time ago. Hopefully they are more inclined to obey an internationally respected economist such as the Honourable Professor Quiggin than a mere peon such as myself.

  3. Harry Clarke: Distinguo. Cogarettes are ab addictive consumer product. The fall in demand is steady, but quite slow. Amoral investors are pretty safe. Coal is under muktiple threats, of which ethical and prudential disinvestment is only one. The others include renewables falling below price parity in more and more countries, and public protests driven by justified health concerns. The perfect storm will gather strength.

  4. John – if the question (or wager) is “Orderly exit or last-minute stampede”, where can we put our money on the second? Presumably in this country, public funds will be used to prop up stranded private assets for as long as possible, or at least until the various energy companies have done deals to ticket-clip renewables. And, as the energy minister will be pointing out today I think, some more public funds will go into almost any alternative to renewables, presumably to protect jobs of a certain sort (executives in energy companies, financial managers …)

  5. Andrew: I posted a link to an Indian coal analys’s prediction that coronavirus will cut Chinese coal priduction by 200mt this year and demand by 200mt, leaving total seaborne coal miraculously unchanged after the expected fall in European imports. A guess, but a better one than the IEA’s. It also assumes, wrongly, that the virus won’t spread.

    Coal plants are now pretty much at the bottom of the merit order, and take much of the hit when demand craters, as it will in 2020.

  6. I have often wondered why there are no ‘unethical’ investment funds. The ‘Dark’’ fund or something like it. You could have addictive substances, gambling, guns, thermal coal etc. Or male chauvinist funds which only invest in companies with male CEOs (or better yet short female led companies).

  7. Andrew PS: It turns out that the analyst works for a commodities trader, Noble, thst has been accused of bribing a testing lab in Australia. If the company is shady, it could be starting a rumour to make money from speculation. But since their overall prediction is no change, the hypothesis is unconvincing.

    I mistyped: it was for a 200 mt fall in production, 180 mt in consumption in China. On the whole, I’d back a knowledgeable shady trader against the honest but always wrong IEA.

  8. Mark Carney, surprisingly appointed to a high-level advisory position on climate by Boris Johnson (surprising because he’s competent, committed and Canadian), has come up with a terrific phrase on private investors and climate: “fifty shades of green”.
    This is exactly right. Green investors range from the committed, like Ikea and Musk, who want to do the right thing provided they can make it pay, to amoral businessmen like the Waltons and Warren Buffett, who pick green because it pays, to cynical grifters just trying to do the minimum to escape pariah status (BP?). You also have schizophrenic companies like News Corp., which makes its operations green while publishing denialist propaganda. All steps in the right direction should be welcomed, with judicious discrimination.

  9. James W.,

    Then you have massive companies like Koch Industries which have actively and successfully fought against emissions controls, climate science and fair governance. They torpedoed the American Clean Energy and Security Act of 2009 (ACES) in the Senate via various means of influence, stopping it from ever being brought to the floor of the Senate. They spread disinformation about climate science through various front organizations, foundations, endowments and donations. The amount of fossil fuel money in general in US electioneering and lobbying (including from Super PACS, some heavily funded by Koch) prevented both the science and the popular democratic demand having any worthwhile effect on the governance and regulation of CO2 emissions. Believing that the capitalist system and capitalist markets will work to alleviate CO2 emissions is like believing that endless mouthfuls of sugar will cure dental caries, diabetes and obesity.

    Old, entrenched fossil fuel capital, with many times the financial mass of new entrepreneurial renewable capital, has effectively delayed action on CO2 emissions until it is all but too late. Without a change in our political economy system, we cannot address this crisis. Of course, we do not want to go down the authoritarian path of Russia and China who historically implemented state capitalism and party dictatorship (not democratic socialism) which systems have now mutated into crony capitalism with Russian and Chinese characteristics receptively. Globally, we are now in the crony capitalism phase of history. The USA runs on crony capitalism with American characteristics. The EU runs on crony capitalism with (mainly) German characteristics.

    The coming collapse. from pandemic and financial crises impacting on an environmentally unsustainable system of production will lead to socialism or barbarism. There seems little chance that democratic socialism will triumph. This leaves the collapse into barbarism. I hope it doesn’t happen and I argue against things which I think will make it inevitable (like more capitalism) but I hold little real hope.

  10. Iko: I wasn’t talking about the completely bad guys, and nor was Carney.

    American coal companies are almost all bankrupt and their political influence is disappearing. Trump has stopped mentioning coal. The Kochs are not succeeding in slowing the switch to electric cars. Bad news is coming for the American fracked gas industry – it can’t lose money forever.

  11. Thermal coal use by generators is supposed to be down by half in China, but Wuhan hasn’t had as large a drop in air pollution as I’d expect. It is still cold there and, despite the streets looking dead, there is still some industry turning its gears. This means coal for building heat and industrial process heat is probably still being burned and that may be contributing to it. Also, the local weather has a large effect. There were clear, or rather, clean skies a couple of weeks ago.

  12. James Wimberley,

    Fair enough, but if we can’t get off coal, oil and gas real soon then we are still doomed. I think we need to reduce our expectations. All grey nomads and silver surfers I know still expect to own some or all of the 4WD, the caravan or camper-trailer, the outboard or sail boat, the home swimming pool, the big home, the pets (very emissions expensive actually), the aircon and to have regular, almost yearly O/S holidays, cruises and flights as well.

    I used to sometimes gently suggest to people at social gatherings that we should not aspire to have all these things because it is unsustainable. I remember getting some really angry responses. It was as if I had questioned something that was totally sacrosanct; their RIGHT to have lots of stuff.

    I think being in academic circles or frequenting a blog like this one gives a false sense of what most people think. Most people still believe that growth and high consumption can go on forever.

  13. “I think being in academic circles or frequenting a blog like this one gives a false sense of what most people think.”

    You reckon?

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