Asset Owners Tackle Thermal Coal

The UN-convened Net Zero Asset Owners Alliance (CalPERS is a founding member) recently published a strong position paper on thermal coal that sets targets and timelines for reducing the production and use of this highly-polluting fossil fuel. And in a move that rightly leverages the enforcement power that these large investors should have, the introductory note to the position paper states that divestment is an option for companies that don’t cooperate. “Alliance members will primarily aim to support companies to adopt transition plans … through engagement. Members are able to employ an escalation strategy that may over time result in divestment if the company remains irresponsive to its demands.”

The 30-member Alliance, which represents over $5 trillion in assets, calls for the cancellation of all new thermal coal projects, a phase-out of all unabated existing coal-fired electricity generation and a halt to all new financing, development and planning of further thermal coal power plants.

In its Thermal Coal Position, the Alliance urges coal companies to create transition pathways towards decarbonization, guided by the following principles:

  • Other than coal plants currently under active construction, no further thermal coal power plants should be financed, insured, built, developed or planned;
  • There should be an immediate cancellation of all new thermal coal projects, including thermal coal plant, coal mines and related infrastructure (i.e. supplying products or services to thermal coal-based projects or business models) that are in pre-construction phase;
  • There should be a phase-out of all unabated existing coal-fired electricity generation in accordance with 1.5°C pathways, as provided by the IPCC and referenced by the International Energy Agency (IEA) and Powering Past Coal Alliance (PPCA).

“Participation in activities and projects that are not aligned with these principles is incongruent with our net-zero goals and the aspirations we have in respect to the different decarbonization strategies of the companies we invest in,” the Alliance says in the Thermal Coal Position.

The Alliance’s engagement approach has had limited success. With this paper there is a suggestion that divestment is an option if companies fail to show progress toward net-zero goals or align their businesses with a the 1.5 degree goal of the Paris Agreement.

“Together, investors, governments and companies all have a responsibility to act on global emissions reduction. Additional thermal coal developments for energy generation are ultimately irreconcilable with the exercise of this responsibility,” the Alliance says.

Lucie Pinson, director of the fossil fuel policy research enterprise Reclaim Finance, welcomes the asset owners’ stronger position on thermal coal, but recommends that projects that are at an early stage of “active construction” be terminated, pointing out that “According to the Global Coal Plant Tracker, there are 367 coal power units, representing 189.8 GW of new capacity, under construction. That’s more than 4 times Germany’s current coal fleet.”

She continued, “As the position paper mentions rightly, coal is a money pit and companies building new coal plants are going to lose money. To admit that the projects that are ‘already’ under construction should be canceled is not a pro-climate/health decision; it’s simply the wisest business decision a company could take.”