Old King Coal, NOT Such a Merry Old Soul

Brendon Pearson, Chief Executive Officer of the Minerals Council of Australia, this week wrote a column in the Australian Financial Review (AFR 6 October) in which he criticised ethical investment funds for divesting from coal, arguing that investors will end up with reduced retirement savings. Coal, according to the Minerals Council of Australia, delivers electricity to the poor and should itself be seen as an ethical investment.

There is no disputing the past role that coal has played in global development. But it is important to understand that the concern about coal is a mainstream investment issue.

In the last week, signatories to the United Nations backed Principles for Responsible Investment met in Montreal. A key discussion was the long term impact that climate change has on investment risk.

A result of the discussions was the launch of the Montreal Carbon Pledge, which commits investors to measure and publicly disclose the carbon footprint of their investment portfolios on an annual basis. Some of the largest asset owners in the world including Dutch PGGM Investments, Californian pension system CalPERS, Norway based Nordea, Swedish pension funds AP1, AP3 and AP4 and French state fund Fonds de Réserve pour les Retraites (FRR) have signed up to the pledge.

The reason that mainstream investors are so concerned about carbon is because of the impact that climate change will have within the timeframe that long term investors operate. Long term asset owners recognise that they do not just invest for today, they invest for tomorrow. Climate change is an issue from a fiduciary perspective that investors simply cannot ignore.

We all understand that transitioning to a low carbon world will not be easy and all sectors of the global economy will need to be involved – including developing countries.

The International Energy Agency expects that the share of global energy demand in OECD non-member countries is expected to rise by over one-third before 2035. This will drive a 70% increase in worldwide demand for electricity. As the IEA state “as a result, emerging economies will hold an increasing share of the worldwide burden to build an environmentally sound future. Efforts to share best practice, knowledge, tools and financing options with emerging economies is an important step to accelerating development and diffusion of clean technologies.”

Making progress to addressing global energy poverty is critical. According to the World Health Organization almost 4,000 people per day die prematurely each year from household air pollution from biomass cooking.

Through innovative technology we are seeing off-grid solar and biomass energy that provides the opportunity to provide low cost power in some of the poorest and remote communities where connecting to energy grids has not been achieved. It is renewable energy – not coal – that is in fact working towards connecting the poorest in the world to energy, providing economic benefits as well as simultaneously addressing health issues from cooking.

China has been the big consumer of coal in recent years, and it has been their consumption that has given the Minerals Council of Australia the confidence to argue that coal is linked to ending energy poverty. However we are already seeing an energy transition amongst developing countries including China. According to analysts China, which has recently moved to block low quality coal imports, may be close to a peak in its use of coal.

The better companies to invest in are those that understand the way that megatrends such as climate change impact. The good news is that there are a number of Australian mining companies that are leading global best practice when it comes to sustainability and carbon management.

By focusing on ethical investment, the Minerals Council of Australia is ‘playing the man’, and not the ball. Using its member’s money to fund research into ethical investment returns is a bizarre way for an industry association to operate. It is time that the members of the Minerals Council of Australia questioned whether their industry association is actually representing their interests.