If you wanted to understand the future of fossil investing, you could do worse than consider the case of Robert Murray, friend to President Donald Trump. Murray Energy is the largest privately-owned coal miner in the United States, mining 76-million tons last year and employing 7000 people.
Murray, a deep sceptic of climate change, praised Trump for being “very courageous and very prudent” for pulling out of the 2015 Paris climate accord. Murray Energy benefited whenTrump slashed environmental regulations and installed a former coal lobbyist to lead the Environmental Protection Agency.
But in August 2017 the self-styled Coal King asked Trump for help. CNN reported that Murray wrote to the Trump administration requesting an urgent emergency order to prevent coal-fired power plants from being closed. He warned that failure to issue the order would spark the immediate bankruptcies of his company and a major customer.
Two years later Murray Energy has failed to make payments to lenders and entered into a forbearance agreement to buy time to negotiate a restructuring, with a grace period expected to expire this week, CNN reported.
“The cash crunch at Murray Energy, one of the most powerful and well-connected companies, underscores the enormous pressure facing the coal industry. Countless coal companies have already filed for bankruptcy,” CNN said this week.
Likewise, The Wall Street Journal reported that despite Trump’s promise to boost coal, at least seven large coal producers have filed for bankruptcy since October 2018.
Coal is being killed in favour of cleaner alternatives at a rapid pace. CNN reported that US power plants are expected to consume less coal next year than at any point since President Jimmy Carter was in the White House — 42 years ago.
King Coal will no doubt survive the collapse of his company, but his employees may not. Phil Smith, a spokesperson for the United Workers of America union, told CNN:“Murray Energy is the last major company contributing to the pension plan of the United Mine Workers of America.
“This is a crisis situation for us,” he said, noting that the average pension is now less than $600 a month.
If you are worried about how your pension may be exposed to the drop-off in fossil investments, you’d do well to listen to Mark Carney, the governor of the Bank of England.
Companies and industries that are not moving towards zero-carbon emissions will be punished by investors and go bankrupt, Carney warned in an interview with The Guardian last weekend.
The Bank of England has said that up to $20-trillion in assets could be wiped out if the climate emergency is not addressed effectively.
Carney said the longer action to reverse emissions was delayed, the more the risk of financial collapse would grow.
He has led efforts to address the dangers the climate emergency poses to the financial sector, from the costs associated with increasing extreme weather disasters to a potential fall in asset values of fossil fuel companies as government regulations bite.
A renewables record was set in the United Kingdom in the third quarter this year, with more electricity from wind farms, solar panels and renewable biomass plants being provided than from fossil fuels, a first since the first power plant fired up in 1882, The Guardian reported, adding that “it is a marked change from only 10 years ago, when gas and coal generated more than 70% of the UK’s electricity”.
The shift from fossil fuels has been enabled by the rapid fall in cleaner energy prices, according to Bloomberg New Energy Finance. It reported that renewable energy is not only cheaper than building a new gas or coal plant, but it would soon also be more cost effective than using existing thermal plants.
South African analysts concur. The only difference, they say, is this is already the case in this country.
This economic tipping point, The Guardian said, means it would save money to shut down coal-fired plants and build new renewable energy projects from scratch. (Abundant clean electricity could help remove the emissions from the world’s transport and heating systems too.)
This means South Africa can continue to protect and support Eskom’s belching emission and pollution megafactories, or switch to technologies that harness natural resources such as solar and wind.
Carney told The Guardian that disclosure by companies of the risks posed by climate change to their business was key to a smooth transition to a zero-carbon world, because it enabled investors to back winners.
“There will be industries, sectors and firms that do very well during this process, because they will be part of the solution,” he said. “But there will also be ones that lag behind and they will be punished.”
Carney, who earlier in the year warned that “companies that don’t adapt will go bankrupt without question”, said US coal companies had already lost 90% of their value, adding that banks were also at risk. “Just like in any other major structural change, those banks overexposed to the sunset sectors will suffer accordingly.”
Shareholder activist Tracey Davies, of JustShare, says the overall investment picture regarding fossil investments in South Africa has changed, particularly in the past year. She says, though, the extent to which asset managers assess climate as a risk varies.
By first putting pressure on banks to account for these risks, government has been forced to acknowledge the issue. Government leaders are now “talking about a just transition [to a climate resilient economy]”, she says.
“But this doesn’t mean they are doing anything about it. Both the public and private sectors are very good at words, less good in action.”
Changing investor sentiment to fossil investments has seen Anglo American and South32 exit their South African thermal coal interests, but global asset managers are not universally divesting these interests.
Just three such managers —Black Rock, the largest such manager globally, State Street and Vanguard — have a combined $300-billion in fossil investments, using money from people’s private savings and pension contributions, The Guardian reported.
Are SA asset managers taking risk out of your pension?
South African asset managers collectively invest R7.8-trillion in savings, about 40% of which is held by pension funds. The Mail & Guardian invited fund managers to explain their investment philosophy regarding fossil fuel industries.
Futuregrowth’s position on climate risk incorporates our belief that global warming is a real factor affecting investments (risks and returns) and sustainability for all citizens.
We have a strong bias against new-build coal fired plants that don’t address the full range of concerns (for example, carbon emissions, particulate emissions and water use).
We have a bias towards renewable energy and remain an active and substantial funder of the renewable energy independent power producers programme (for example, wind and solar).
Futuregrowth has integrated environmental impact into our investment process for a while now. For example, during September 2016 we announced that we would not invest clients’ funds into the mooted coal-fired independent power plants (Thabametsi and Khanyisa).
As a responsible investment manager focused on protecting and growing wealth for our clients, we support the global transition to a more environmentally sustainable society.
Weintegrate environmental, social and governance (ESG) factors into our investment decision-making process and use active ownership, such as frequent engagements with senior management and the board of investee companies, as well as proxy voting, to hold companies to account.
We invest time and resources into understanding the environmental and social considerations of the energy transition, and how this affects financial risk and return.
We think carefully about how climate change considerations affecta company’s long-term sustainability. Carbon intensive companies will face greater regulation, costs and social pressure, and many more face potential physical climate change risks.
Old Mutual is a signatory of the United Nations-backed Principles for Responsible Investing.
As a long-term investor, we understand the sustainability imperative and its role in changing the competitive landscape of every industry. We believe that companies that are able to respond to this trend and innovate early will reap the benefits of stronger growth prospects, enhanced operating efficiencies, stronger social license to operate, enhanced staff retention, lower cost of capital and, ultimately, stronger and longer competitive advantage.
We believe that incorporating ESGfactors into our investment and ownership decisions supports the pursuit of superior risk-adjusted returns for our clients.
We expect all companies that we invest in to be good corporate citizens. This requires that they take their ESG obligations as seriously as they do their financial objectives.
We expect all companies to disclose their carbon footprint as well as other emissions.We expect them to disclose plans to reduce their emission intensity in a sustainable and just manner.
We believe these commitments should be included in key performance indicators used to remunerate and assess the performance of executive management. We track progress in meeting these plans and hold them to account where they are not delivering.