Norwegian pension fund advised to divest its coal investments

THE Institute for Energy Economics and Financial Analysis has urged the giant Norwegian Government Pension Fund Global to reduce its exposure to fossil-fuel risk by divesting more of its coal-related holdings.

Lou Caruana

A new IEEFA report titled “the case for divesting coal from the Norwegian Government Pension Fund Global” argues that prudent investors will steer clear of coal holdings now and for the foreseeable future.

The report says 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% of its value, and that while coal will remain part of the global industrial energy mix, its share of that mix will continue to fall over time.

The report notes also that the Norwegian Pension Fund includes Germany’s RWE AG among its top utility holdings although the company derives 61% of its energy production from coal and is one of the poorest performers on the GPFG utility list.

The report, by IEEFA’s US-based Director of Finance Tom Sanzillo, offers core guidelines for GPFG divestment and says the Fund should build promptly on its earlier divestment of “pure-play” coal companies by divesting utilities and companies that rely on coal for more than 20% of their activity.

“The coal industry is arguably the poorest-performing sector in today’s global economy and is in a state of structural decline,” Sanzillo said.

“It is a shrinking industry with little upside potential. Normal cyclical recoveries that have seen coal stocks and coal demand rebound in the past are most likely a thing of the past. Coal faces obsolescence due to the combination of new market competition, new concerns over climate and air pollution leading to more restrictive policies, and new waves of public opposition.

“The high level of risk for both coal-mining and coal-burning companies suggests weak long-term performance and is best avoided altogether.”

GPFG is the largest pension fund in the world. Its total coal sector holdings are valued at NOK85.5 billion ($US11.4 billion). Norges Bank Investment Management, an arm of the Norwegian Central Bank, manages the Fund for the Norwegian Ministry of Finance.