Shifting from fossil fuels to other assets is a growing investing strategy. How hard is it to make the switch?

A field of solar panels facing to the left are shown in front of two dozen wind turbines, as the sun starts to set in the background.
Investors buying ESG funds might not be helping this solar farm as much as they think.

  • Investors who participate in the divestment movement have capital for other assets.
  • A growing array of assets offer metrics, ESG, to assess financial performance and overall effect.
  • ESG is a fraction of activity in global capital markets, and there’s concern over ESG claims.
  • Subscribe to our weekly newsletter, Insider Sustainability

Last week, we covered why it’s difficult for investors to quit the coal-mining industry, even as more companies sell off their assets. Many investors are moving away from regularly providing capital to coal, one of the major fossil-fuel industries responsible for carbon emissions. This withdrawal is known as the divestment movement.

Some people might not think of themselves as investors, but the title includes anyone with a pension or an independent retirement account managed by a large financial-services company such as Vanguard or Fidelity. If an investor or investment firm participates in the divestment movement and sells off their fossil-fuel assets, they still need to find places to put that capital and continue to generate positive returns. Investing clients are relying on these funds to generate more than what they put in to achieve financial goals, such as having enough money for retirement.

Global climate strikes, such as Greta Thunberg’s Fridays for Future, have drawn significant attention to the growing amount of carbon emissions, as well as to the need for governments and corporations to act. An investment strategy that considers social and environmental benefits, in addition to an asset’s ability to generate returns, is known as socially responsible investing.

The rise of ESG

Investment firms have set up funds specifically focused on companies that consider the environment, social justice, and good corporate governance, or ESG, in their daily operations. Sustainability goals or reduced carbon emissions for the future are considered to be ESG factors, and investment in companies that make these plans explicit have become mainstream and are worth a lot of money. Last year, $51.1 billion flowed into US sustainable funds, and a 2020 survey found that “almost half of investors are currently investing in ESG products,” almost twice as many compared to 2019. In April, the investment-management company BlackRock raised $1.25 billion for its new US Carbon Transition Readiness Fund, the largest launch of an exchange-traded fund ever.

Reasons for skepticism and concern

Critics say the growth in ESG assets might look impressive, but companies in the business of producing clean energy or reducing carbon emissions aren’t getting a windfall in new funding.

“About 85% of the growth in assets managed by sustainable mutual funds and ETFs is attributable to fund rebrandings – existing funds that formally modified their strategies to use sustainable approaches,” Henry Shilling, the founder and director of research at Sustainable Research and Analysis LLC, told CNBC. “It’s not net new money.”

Unlike a solar-panel farm or a hydroelectric dam, whose power output is quickly measured, it’s also difficult to compare ESG investments or evaluate their effects. There are differences in definitions and a lack of clarity about environmental and social credentials, which can lead to larger problems. One investment company, DWS Group, is being investigated by US and German authorities over allegations that it exaggerated claims for some of its ESG-labeled investment products, Bloomberg News reported.

The investment industry’s ongoing pressure for high returns in short periods means widespread internal changes will be difficult, said Tariq Fancy, the first global chief investment officer of sustainable investing at BlackRock. Fancy recently wrote a 40-page essay about his experience and believed governments could make the biggest effect on carbon emissions through new regulations, not the growth in sale of ESG investments. “I don’t think there’s any way to fix that in the way we need it to, at the magnitude we need it to, without government intervention,” Fancy told Insider, citing the example of carbon taxes.

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Coal mining is the most carbon-intensive fossil fuel produced. How hard is it to transition from coal to meet sustainability goals?

coal power plant sunset
A coal power plant.

  • Investors are being encouraged to sell their coal-related assets as part of the divestment movement.
  • Even coal-mining companies have participated in the movement.
  • China and India are increasing their production of coal as part of their growing economies.
  • Subscribe to our weekly newsletter, Insider Sustainability.

There’s a growing divestment movement among investors, including large institutions, to sell off their fossil-fuel assets from businesses and industries responsible for carbon emissions.

A major focus of the social, political, and economic pressure to divest is coal mining, especially thermal coal. The fossil fuel is used to generate 34% of the world’s electricity but produces large amounts of carbon-dioxide and methane emissions during its production and consumption, more than oil or natural gas in 2018.

The recently released Intergovernmental Panel on Climate Change report has put a spotlight the urgent need to move into cleaner energy sources and reduce coal-mining activity. But rising prices of more than $170 per metric ton (nearly four times the lowest price in September) indicate a resurgence in demand.

Divestment targets the investment capital required to finance the production, distribution, and sale of coal mining. Despite its polluting reputation, coal-fired power has been attractive to investors because of the generating capacity of the largest plants (5 gigawatts), the often cheap price, and the relative stability of its supply in high-use countries like China, India, and the US.

Coal, both the kind for heating (thermal) and the manufacturing of steel (metallurgical), also makes up about 50% of the world’s mining market. And the industry continues to grow, with 432 new mine developments and expansion projects announced or under development worldwide, according to a survey by the Global Energy Monitor published in May.

China and Australia are the leaders in two kinds of coal used in steel production, coking, and metallurgy. Both are among the more than 191 countries that have signed commitments for net-zero emissions by 2050. But to achieve the goal of limiting global warming to 1.5 degrees Celsius, which was set by the Paris Climate Accords, the amount of coal used to manufacture steel would need to decline by 80% in the next three decades compared with current levels, according to analysis by the consulting firm McKinsey.

Companies across several industries have been moving away from coal, and insurers like Allianz have publicly released policies restricting coal or investments in coal-related assets.

“Ideally, companies close coal power plants and do not sell them,” the insurance company wrote in a statement published in May on coal-based business models.

The pressure to sell off coal assets has existed for years and has reached coal companies themselves, including the global mining giants BHP and Rio Tinto. But while global coal consumption and production fell worldwide in 2020, and hit a 60-year-low in the US, developing countries are leaning into coal for their economic recoveries.

Last year, China increased both its output and its use of coal to more than half the world’s coal-fired power. Despite the country’s plans to reach carbon neutrality by 2060, China added 38.4 gigawatts of coal-fired power capacity last year – more than three times the amount built anywhere else worldwide, Reuters reported, citing international research.

The increase in coal-fired electricity generation in India for this year is expected to be three times higher than renewables. This increase in demand is expected to push carbon-dioxide emissions from coal in 2021 to 640 million metric tons, the highest levels since 2011.

For divestment of coal to be successful and global climate goals to be met, it will require greater regulations, economic disincentives, and a true understanding of how carbon emissions do not care about national borders.

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West Virginia Gov. Jim Justice is reportedly on the hook for $700 million in loans from collapsed lender Greensill

WV Gov Jim Justice
Jim Justice has been governor of West Virginia since 2017.

  • West Virginia Gov. Jim Justice is reportedly on the hook for $700 million in loans from Greensill, the collapsed financial firm.
  • Justice personally guaranteed loans Greensill made to his coal companies, The Wall Street Journal reported.
  • Credit Suisse is trying to claw back cash for people who invested in its Greensill-linked funds.
  • See more stories on Insider’s business page.

West Virginia Gov. Jim Justice is personally liable for around $700 million in loans that the collapsed financial firm Greensill Capital made to his coal companies, according to a report.

Justice and his wife guaranteed the loans from Greensill to his coal businesses, the Wall Street Journal reported, citing people familiar with the issue and documents.

Greensill, which collapsed into bankruptcy in March, had packaged the loans and sold them to Credit Suisse, The Journal reported. Now, Credit Suisse is in talks with Justice’s Bluestone Resources and other major borrowers from Greensill to recoup the money and repay investors, per The Journal.

The Swiss bank told investors in a recent notice that Bluestone owes nearly $700 million, the WSJ reported.

Bluestone said in a lawsuit brought in March that it had not expected to start repaying the loans until at least 2023.

The personal liability of Justice, who has been governor of West Virginia since 2017 and is a Republican, adds to his financial pressures. Forbes knocked the politician and businessman off its billionaires list earlier this year, due in large part to Greensill’s collapse.

Justice’s companies are also in legal disputes with other companies over payment contracts and coal deliveries, The Journal reported said. They have settled a number of disputes in recent years over alleged non-payment of bills, according to news outlet ProPublica.

Bluestone, Credit Suisse, and a representative for Justice did not immediately respond to requests for comment. Bluestone and Justice’s representatives declined to comment to The Journal.

As well as the guarantees from the governor and his wife, Justice’s son James C. Justice III guaranteed loans up to a certain limit, The Journal reported.

The collapse of Greensill has heaped pressure on Credit Suisse, which is frantically trying to recoup its losses. It said in April that it was focused on three main borrowers: Bluestone, British-Indian steel magnate Sanjeev Gupta’s GFG Alliance, and SoftBank-backed construction company Katerra.

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Big banks are propping up the coal industry as it keeps on pumping out toxic emissions in some parts of the world

People protest Standard Charter Bank's ties to global warming.
People protest Standard Charter Bank’s ties to global warming.

  • Standard Chartered just helped fund the giant Indonesian coal company Adaro with US$ 400 million.
  • Adaro’s business models are in line with 5-6ºC of global warming, far above the 1.5ºC Paris Agreement limit that Standard Chartered claims to support.
  • Standard Chartered’s climate policy allows them to continue funding destructive coal companies whose business plans are consistent with the Paris Agreement failing.
  • Binbin Mariana is an environmental campaigner from Indonesia.
  • This is an opinion column. The thoughts expressed are those of the author.
  • See more stories on Insider’s business page.

It’s been six years since the world’s governments adopted the Paris Agreement. But in many parts of the world, including my country of Indonesia, the coal industry rampages on, aided and abetted by banks from around the world.

Coal is the single most significant source of global temperature increases to date. Scientists say if we want to meet the Paris Agreement’s 1.5°C target, coal needs to be phased out globally by 2040.

As important as political action is on climate change, banks must end their financing of coal too. Through their lending and investing activities, many banks are funding companies opening new coal mines and building new coal power plants, despite the UN saying that all new coal projects should be cancelled immediately to meet climate goals. If financial institutions phased out funding for coal-dependent companies, the transition from polluting power to clean would be vastly accelerated.

Dirty money

In the UK, public and investor outcry on coal is mounting. Barclays has been targeted for the second year in a row by shareholder resolutions calling on the bank to phase out financing for fossil fuels. HSBC was recently forced into committing to a global coal phase-out by 2040. Polling shows a majority of customers in both banks don’t want them to fund fossil fuels.

But one major UK bank has escaped scrutiny for its poor coal policies: Standard Chartered.

Best known for sponsoring Liverpool FC, Standard Chartered is a major bank in Asia. It’s climate policy allows them to continue pumping billions into destructive coal companies, including in Indonesia.

Standard Chartered is funding one of Indonesia’s giant coal companies, Adaro. Since 2006, the bank has funded over US $400 million to Adaro and its subsidiaries. Last month, Standard Chartered helped provide another US $400 million for Adaro’s coal mining, as part of a syndicate of banks. This new loan underlines how weak Standard Chartered’s coal policies are.

Despite the bank’s internal analysis showing that Adaro’s business plans are in line with 5-6°C of global warming, it has decided to support Adaro anyway. Adaro is a major supplier of coal to Europe, Asia and America. It controls at least 31,380 hectares of land, an area bigger than Birmingham, producing 54 million tonnes of coal in 2020 alone.

Adaro estimates its coal reserves at 1.1 billion tonnes. Burning all of these reserves – as Adaro intends to do – would release 2.2 billion tonnes of CO2-e, almost the equivalent of the annual emissions of India. The company has no plans to produce any less coal. And yet, Standard Chartered continues to fund Adaro, whose business plan is consistent with the Paris Agreement failing.

Like the fallout of climate change in general, Adaro causes much suffering in my country. The company has deprived villagers of their livelihoods for the sake of the coal that lies beneath their homes. When all the coal has been extracted from a mine, it leaves behind desolate open-mining pits, which coal companies are obliged by law to restore and rehabilitate to the previous ecosystem. To date, only 18% of Adaro’s post-mining pits have been rehabilitated.

Adaro coal mining operations tear down forests, degrading the land. Early this year, at least 24 people were killed, and more than 113,000 people were displaced due to a massive flood in South Kalimantan, on the island of Borneo. The immense suffering from the floods has been linked to degraded land in the water catchment area. Adaro is one of the mining companies that operate its coal mines near the river catchment area.

We have been paying the price for pollution from coal combustion with our health. In 2015, research estimated existing coal-fired power plants in Indonesia cause 7,100 premature deaths every year. Adaro is a part-owner of the controversial 2,000 MW Batang coal-fired power plant, which will add to the horrible degradation of air quality for our communities and could cause additional 30,000 premature deaths over an operating life of 40 years.

So Standard Chartered isn’t just funding a perennial coal mining company. It’s funding a company building new dirty coal power plants. And yes, we’re talking about a UK bank in the year 2021.

Standard Chartered’s slogan, “Here For Good”, means nothing if it means continuing to provide hundreds of millions to a company ripping the heart out of communities in my country and making global climate change worse.

Binbin Mariana is an energy finance campaigner living in Indonesia, campaigning with environmental group Market Forces. A former banker, she believes that financial institutions must stop contributing to the climate crisis.

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