Following the decision of several investment funds to terminate their exposure to coal stocks, now comes news that more investors are set to exit the sector.
It's truly bad news for the coal sector – both metallurgical and energy (thermal) coal.
According to the Financial Times, around 2,000 investors and 400 institutions controlling funds worth more than $3.7 trillion (US2.6 trillion) have made commitments to cut back or sell out of their holdings in fossil fuel companies.
But some of the largest investors have only committed to divest coal companies while keeping their large investments in oil and gas companies. Among those funds are Norway's Government Pension Fund, French insurance group AXA, Nordea Asset management – the largest Nordic fund manager and the University of California. Newcastle Council plans to exit a number of fossil fuel investments too, as we covered in August 2015.
British insurer Aviva recently told 40 coal companies that it will sell shares in their companies unless they prove they are serious about tackling climate change – and could be another to join the divestment movement.
The movement is also targetting banks that lend to coal miners, which will add even more pressure onto coal miners.
From a small-scale, localised movement to ban coal mining, the trend has become a global phenomenon, with actor Leonardo Di Caprio joining the campaign.
Investors pledging to exit their fossil fuel investments have cited 2 major reasons for the move. An ethical decision because of the damage coal mining and burning of coal does to the planet, and, secondly, a financial one with coal mining and oil & gas stocks likely to underperform as new climate change policies are adopted around the globe.
Peabody Energy, the largest US coal producer has seen it shares plunge 98% since April 2011, thanks to sliding commodity prices, competition from cheap natural gas, environmental regulations and falling demand from China.
China has recently taken steps to reduce the amount of pollution it produces, including closing down heavily polluting coal-fired energy plants.
Fortune estimates the cost of China's dependence on coal as causing around 670,000 premature deaths in one year alone. The publisher says a study by Tsinghua University has found that 70% of China's 1.4 billion population are exposed to pollution levels above national regulatory reforms.
The study also suggests that taxes on coal need to be raised between 5 and 10 times to reflect the real cost of burning it.
While coal is one of the cheapest forms of energy, it is also one of the highest polluting forms.
Foolish takeaway
The lesson here is that an investment in coal and coal mining firms – such as BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO), Whitehaven Coal Limited (ASX: WHC), New Hope Corporation (ASX: NHC) could be an easy way to lose money.
