By Alistair MacDonald
Two of the world's largest funds have begun selling down stakes
in coal miners citing environmental concerns, leaving some of the
companies' shares concentrated in the hands of a few large U.S.
investors.
As big fund managers quickly shift what they call their ethical
investment policies, analysts say more selling could follow.
A few large funds, including Vanguard Group and Dimensional Fund
Managers, now have outsize holdings in many smaller coal-mining
companies.
In recent weeks, Norway's trillion-dollar sovereign-wealth fund,
Norges Bank, and French giant BNP Paribas Asset Management have
sold shares in companies that mine thermal coal, including Anglo
American PLC.
Other large investors are assessing their own policies for
thermal coal or extending current ones. Thermal coal is considered
one of the biggest contributors to climate change by many
scientists.
"Even if funds don't have these restrictions today, do they want
to have these problems going forward?" said Ben Davis, a mining
analyst at Liberum.
Norges Bank now won't invest in companies that extract more than
20 million metric tons of thermal coal a year or have a coal-power
capacity of more than 10,000 megawatts. On Monday, it sold another
large slice of Anglo's shares, taking its stake down from 2.42% at
the end of 2019 to 1.38%, according to FactSet.
BNP Paribas Asset Management, which has more than $490 billion
under management, recently began selling shares in companies that
derive more than 10% of their revenue from mining thermal coal, a
spokesman said.
Larry Fink, the chief executive of BlackRock Inc., said the
world's largest money manager will also exit thermal coal by the
middle of this year as the sector's exposure to increased
regulation makes it less economically viable. BlackRock is one of
the largest investors in thermal-coal miners and utility
companies.
Still, the impact will be muted by the fact that BlackRock's
index-tracking funds can still hold such stocks and its smaller,
active management business will only exit companies that generate
more than 25% of their revenue from thermal-coal production.
Diversified giants such as Anglo and Glencore PLC should be exempt
from the firm's limitations.
BlackRock also isn't divesting from coal-powered utilities. It
owns over 5% in American Electric Power Co., Duke Energy Corp. and
Southern Co.
Coal miners such as Arch Coal Inc. and Whitehaven Coal Ltd. --
in which BlackRock owns 7.4% and 5%, respectively -- are less
secure.
But BlackRock also said it would closely scrutinize other
businesses that are heavily reliant on thermal coal as an
input.
The danger for miners and utilities, analysts say, is that fund
managers with no current restrictions on coal won't want to risk
owning such companies in case their firm's environmental, social
and governance policies change.
U.K.-based Aviva PLC has already sold its shares in 17 companies
that made more than 30% of their revenue from thermal-coal power
generation or mining. But the fund is looking at going further by
focusing on how much coal companies mine or use, rather than just
contribution to revenue, according to a spokesman.
There are currently a small group of funds that own outsize
positions in coal miners and utilities. Vanguard, BlackRock and
Dimensional together own almost 24% of the share capital of Arch
Coal, for instance. A unit of Invesco, another fund that cites its
environmental credentials, owns a further 21% of the St.
Louis-based miner.
A spokeswoman for Invesco said the company supports the move
away from carbon-based fuels to more sustainable forms of energy
but declined to comment further.
"Vanguard is deeply concerned about the long-term impacts of
sustainability risks, such as thermal coal producers," a
spokeswoman said.
A spokesman for Dimensional said that some of its funds take
into account environmental factors such as climate change.
It is unclear how much of Vanguard and BlackRock's stakes in
coal companies are in index trackers.
Coal miner Peabody Energy Corp. estimates that much of the near
12% these funds own in the company is in index trackers.
Dimensional owns a further 5.3% of Peabody, while activist
investor Elliott Management Corp. owns 30%.
For every fund selling stock citing environmental reasons, there
are many others willing to own shares, said Vic Svec, a spokesman
for Peabody. Because demand for coal remains, investors risk
pushing coal out of transparent, public companies with ESG
standards to unlisted ones without, he said.
Some fund managers say they prefer engaging with the companies
they own, rather than simply exiting them. Aberdeen Standard owns
large stakes in Anglo, Glencore, BHP Group Ltd., Enel SpA and RWE
AG -- the latter two are European utilities that generate some of
their energy through coal.
"We were vocal in pushing both [utilities] to be as proactive as
possible in phasing out their coal-powered generation," said a
spokeswoman for Aberdeen Standard. RWE recently bought several
large renewable-energy businesses.
Shares in coal miners and utilities have been under pressure for
years. Peabody has fallen 85% since June 2018 and Arch Coal has
dropped about 40% over a similar period. Shares in Anglo and
Glencore have underperformed their peers, with analysts often
citing thermal coal as one of several reasons.
Anglo and BHP have both said they would gradually dispose of
their thermal-coal assets. But selling them isn't easy, given few
Western-based miners want to stock up on coal. BHP hired banks to
sell its thermal-coal assets last summer, and they remain
unsold.
Glencore says it is keeping its coal. Coal still accounts for
27% of all energy used world-wide and 38% of electricity
generation, according to the International Energy Agency. "The
world still needs coal," CEO Ivan Glasenberg said on a recent
conference call.
Write to Alistair MacDonald at alistair.macdonald@wsj.com
(END) Dow Jones Newswires
February 26, 2020 05:44 ET (10:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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