Danish pension scheme threatens to blacklist coal companies
Businesses that rely on coal for at least a quarter of their revenues face being blacklisted by one of Europe’s largest pension funds amid fears that high-carbon investments could end up being worthless.
PKA, Denmark’s fourth-largest pension fund, with €35.5bn in assets, has asked 53 companies that generate between 25 and 50 per cent of their revenues from coal to provide plans on how they will reduce their exposure to the fossil fuel.
Pelle Pedersen, responsible investment analyst at PKA, said the pension fund will pull money from businesses that lack plans or provide inadequate proposals “for the shift to a low-carbon future”.
The move comes just months after a landmark agreement on climate change in Paris, where governments around the world committed to tackling global warming. This is expected to lead to regulation that hurts fossil fuel companies.
Senior officials such as Mark Carney, the governor of the Bank of England, also warned that action to tackle global warming could turn fossil fuel companies into worthless stranded assets and trigger large writedowns or devaluations.
Mr Pedersen said: “We certainly believe there is a financial risk [when it comes to investing in coal companies], otherwise we wouldn’t have taken [these] steps. At the end of the day, we are here to provide the best possible returns for investors.”
PKA has already divested from 31 coal-only companies last year, including Whitehaven Coal in Australia, Indonesia’s Bumi Resources and the UK’s Peabody Energy, the coalminer that filed for bankruptcy protection in April.
The pension fund also recently divested from four other companies where coal accounted for more than half of their revenues, after the businesses failed to present a plan to reduce exposure to the fossil fuel.
However, PKA has remained invested in some businesses where coal is responsible for between 50 and 90 per cent of revenues, including Drax, the UK energy company, after they set out proposals to move away from fossil fuels.
“We want to support that transition [away from coal] rather than simply divesting from these types of companies,” said Mr Pedersen.
Other big investors are also moving to reduce their exposure to fossil fuel companies. Norway’s $860bn oil fund, the world’s largest sovereign wealth fund, said in April that it would no longer invest in 52 businesses that were too reliant on coal. Nordea Asset Management has also blacklisted coal companies.
The Asset Owners Disclosure Project, a non-profit organisation, recently found that almost half of the world’s largest investors are ignoring climate risks in their investment decisions.
Ben Caldecott, director of the sustainable finance programme at the University of Oxford, said: “The vast majority of asset owners do not take account of long-terms risks, such as climate change, despite having liabilities many decades into the future.”
This is despite warnings from Mr Carney last September that investors faced “potentially huge” losses from “stranded” coal, oil and gas assets. The Financial Stability Board, an international body monitoring the global financial system, has echoed his concerns.
Three of the largest coal companies in the US have already filed for bankruptcy, as tightening environmental regulation and competition from cheaper fuels hurt their business model.