Coal industry faces ‘grim’ outlook, analysts warn
Investors should steer clear of the coal industry for the foreseeable future, according to a new report that warns the sector faces “a grim outlook” as a result of falling demand.
The study by the Institute for Energy Economics and Financial Analysis (IEEFA) reveals how coal company stock prices have collapsed in recent years, with the Stowe Global Coal Index losing 71 per cent of its value.
The report comes as Oxford University is today expected to annouce a decision on whether its should drop fossil fuels from its £3.8bn endowment fund as part of efforts to tackle climate change and buffer itself from the risk of stranded assets.
The Norwegian government is also set to vote on which coal assets to divest its $900bn (£572bn) Government Pension Fund Global from on 5 June, a move which could result in the biggest divestment move to date.
The new report highlights how coal’s share in the global energy mix is expected to decline over time as a result of growing competition from alternative energy sources, as well as tougher climate change and air pollution regulation.
IEEFA director of finance Tom Sanzillo, who wrote the report, said the Norweigan Parliament should aim to fully divest from power companies that get more than 20 per cent of their generation capacity from coal fired plants and companies with more than 20 per cent of their production in coal, or those that mine more than 50 million tonnes of coal per year.
The proposed standards would likely preclude investments in a number of high profile energy companies, such as German energy giant RWE, which the report said gets 61 per cent of its energy production from coal.
“The coal industry is arguably the poorest-performing sector in today’s global economy and is in a state of structural decline,” Sanzillo said. “It is a shrinking industry with little upside potential.”
He added that the market was unlikely to rebound as it may have done in the past, because of new environmental laws. “The high level of risk for both coal-mining and coal-burning companies suggests weak long-term performance and is best avoided altogether,” he added.
Meanwhile, more than 60 Oxford University alumni have threatened to hand back their degrees if the board today rejects a call from campaigners to dump its shares in fossil fuels.
The University Council in March delayed a decision on whether to divest its £3.8bn endowment from fossil fuels, sparking protests among students who believe the university should be doing more to tackle climate change.
Today the final decision is expected after the university took more time to consider “serious issues” involved in the proposed change to its investment strategy.
Oxford has the biggest endowment wealth of any UK university meaning any decision to divest could encourage more universities to follow suit. Oxford has already taken steps to divest directly owned shares from arms manufacturing companies on ethical grounds, and green campaigners now want it to do the same with coal and tar sands assets.
More than 60 alumni have pledged to hand back their degrees and over 800 have pledged not to donate to the alumni fund if the university decides against divestment.
Miriam Wilson campaigner for People & Planet said the university would start to look “incompetent” if it fails to reach a decision today. “It’s time Oxford joined the Church of England and got behind leaving in the ground some of the dirtiest fossil fuel,” she said. “We rapidly need governments to start to phase out coal and with so many world leaders passing through Oxford’s doors their example could be significant.”
However, there are no guarantees the university will meet the campaigners’ demands. Last week, Edinburgh University ruled out divesting around £9m of investments into cleaner energy sources, arguing it would prefer to work with the companies it invests in to tackle climate change. London Mayor Boris Johnson also rejected a motion by the London assembly calling on City Hall’s pension fund to divest from fossil fuels, arguing the UK needs to press ahead with fracking to avoid being reliant on the Middle East and Russia for gas and as such continued investment in fossil fuels are justified.
However, the University of Glasgow, University of Bedfordshire, the University of London SOAS and London School of Hygiene and Tropical Medicine have all pledged to dump investments in coal, oil and gas assets, adding yet more momentum to the global divestment campaign. By the end of today we should know if Oxford University has joined them.