Yet another investor has made the decision to sell out of its fossil fuel investments, following moves by many around the world.
In October 2014, the Australian National University (ANU) took the decision to sell a number of its fossil fuel investments, including Santos Limited (ASX: STO). The ANU was widely criticised at the time for its decision, but its investment returns have probably increased markedly since then, with Santos' share price crashing more than 50%.
Now Newcastle City Council has taken a similar decision, voting to dump its fossil fuel investments. According to ABC News, the council has even told its major banks they need to divest portfolios of assets that include resources such as coal and oil.
Newcastle and the Hunter Region in NSW are well known for coal mines and coal exports with the Port of Newcastle exporting more than 159 million tonnes worth close to $14 billion in 2014.
The City of Newcastle has $280 million in investments and the change in strategy has been driven by councillor Declan Clausen.
It's about ensuring that where we have the choice – where investments are going to provide equal returns to the city, where the investment opportunities we're seeking has the same credit rating – we're going to preferentially invest in activities that are environmentally and socially productive," Mr Clausen has told the ABC's AM program.
He also says that the switch away from fossil fuels to ethical investments must match a number of criteria, including comparably stable rates of return and high credit ratings. Potential options include renewable energies, health and aged care products, affordable housing and in companies that support indigenous communities.
Mr Clausen says many jobs are emerging in other industries while the region has the highest unemployment in Australia.
Coal prices have slumped to record lows and coal miners in Australia have been frantically cutting costs and in some cases production to lower their expenses. The move away from coal has also led to concerns over stranded assets – where new coal mines become virtually worthless or even worse, liabilities for the companies that own them.
At some stage, we may reach a tipping point where divestment of fossil fuel investments gathers pace, forcing companies to alter their business models or governments to enact legislation, such as a carbon tax. That's a big headwind for coal and oil companies to face – something the tobacco industry knows a lot about.
