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Investment managers, advisers urge European utilities to phase out coal by 2030


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Investment managers, advisers urge European utilities to phase out coal by 2030

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One of the largest coal plants in Germany, operated by RWE AG. The country is discussing a phase-out date for coal generation.
Source: RWE AG

A group of 95 investment firms managing or advising on more than $11 trillion of assets under management have called on the European power industry to phase out the use of coal by 2030 citing the changing economics of the energy industry.

The firms, including European investors and two of the biggest U.S. pension funds, warned of "potentially catastrophic" consequences of a global temperature rise above 2 degrees Celsius to the "markets and companies we invest in."

They urged utilities including Germany's RWE AG and the U.K.'s National Grid PLC to set out transition plans in line with the Paris Agreement on climate change. Investors risked exposure "in [the] order of trillions of dollars" to companies "left behind."

"Power companies — including power generators, grid operators and distributors [need] to plan for their future in a net-zero carbon economy," the group of firms, led by the Institutional Investors Group on Climate Change and members of the Climate Action 100+ organisation, wrote in a letter Dec. 20.

"Decarbonization of the power sector, which accounts for around a quarter of global emissions, will define the success or failure of the low-carbon transition since it is fundamental to also decarbonizing heat, transport and industry."

The investors urged utilities in the EU and industrialized countries to end coal use by 2030 at the latest, define how they will manage write-downs from fossil fuel infrastructure and adapt capital expenditure plans to avoid creating stranded assets in the future. Signatories to the letter include European asset managers BNP Paribas Asset Management and Aberdeen Standard Investments, as well as the California Public Employees' Retirement System and California State Teachers' Retirement System.

They wrote to Eurelectric, the sector's trade body in Brussels, and also directly targeted power companies with the largest emissions footprints across the region, among them France's Electricité de France SA, Italy's Enel SpA and Spain's Iberdrola SA, according to Climate Action 100+, an investor initiative that aims to improve climate-related financial disclosures.

Piling on pressure

The call by the 95 firms is one of several initiatives driven by investors bringing inside pressure on industry rather than relying on external regulation. Financial institutions have also moved on the issue, with the European Bank for Reconstruction and Development announcing earlier this month that it will no longer finance thermal coal mining or coal-fired power generation and instead boost its investments in renewables.

In a separate initiative, more than 400 asset managers, representing $32 trillion in assets, have called on governments to ramp up their fight against climate change to avoid serious and permanent economic damage. They warned this month that a long-term temperature rise of about 4 degrees Celsius could cause global economic losses of $23 trillion over the next 80 years and equally called for the phasing-out of coal power worldwide, citing analysis that showed EU and Organization for Economic Co-operation and Development countries specifically needed to end coal-fired electricity generation by the 2030 deadline.

Several countries in Europe have already announced coal phaseout plans by 2025, including the U.K., France and Italy. But new coal power plants are under construction in Eastern European countries, such as Poland.

Companies that will not adapt their own, independent phaseout strategies will not only exacerbate the problem of global warming but also have to face the consequences of delayed action on their operations, Bruce Duguid, head of stewardship at Hermes EOS, the advisory arm of Hermes Investment Management Ltd. said in the Dec. 20 letter by the 95 firms.

"Power companies that significantly rely on coal will be most exposed to stranded assets," he said.

"If applied across the EU, the power sector and investors collectively can avoid up to €22 billion in losses we otherwise face by 2030," said James Bevan, chief investment officer at U.K. charity fund manager CCLA Investment Management Ltd. "Companies such as RWE are still clinging to coal and lobbying against its necessary phase-out in Germany. The message today is this needs to end."

The Carbon Tracker Initiative, a London-based think tank, has said that more than two-fifths of the world's coal-fired power plants are already running at a loss, squeezed by the declining cost of building new wind and solar facilities.

In Germany, a government-appointed commission is currently deliberating on a date for ending coal generation, with a heavy emphasis on providing a future for the thousands of people employed in the lignite mining industry. The commission, which also received a copy of the investor letter, is expected to issue its final report in February next year.