Content on this page is marketing communication

Published 11.11.2019 by Portfolio Manager Philip Ripman

With the high CO2 emissions associated with the combustion of coal, the world needs to turn to more sustainable energies. The IPCC has analyzed various pathways, all of which require a near-total reduction in coal use for electricity generation by 2050 and reductions of approximately two-thirds by 2030.

The emissions from currently operating coal plants, utilized at an average rate and lifetime are too high to hold global warming to 1.5°C or 2°C. This needs to rapidly change and investors concerned with future scenarios should plan for their exit. The choice between continuing to waste capital on environment-destroying coal in the coming decades and instead tapping in to the huge solar- and wind-power potential should be a no-brainer.

Early movers

Storebrand Asset management was an early mover in the investment community beginning its coal divestment program already in 2013. The companies that remained invested were companies considered to have a credible plan to reduce their share of revenues from coal and redirect their business models to increased revenues from renewables. The threshold has tightened over the years in order to push for an industry switch in the companies energy mix.

While cutting all strings to companies connected to coal could be a tempting move for an asset manager, using engagement as a tool for change and inspiring other investors to follow suit in the divestment movement is another. The latter is the pathway Storebrand chose when we decided to fully exit coal by 2026 at the latest. From a risk perspective, it would have been doable earlier – however using our position to engage and bring others on board is our ambition. We want others to join us on this journey.

Doing engagement in a way that can affect change, must sometimes include dialogue beyond the investor – investee approach. Communicating our experience, our methodology, and clearly stating where we are headed can be an important part of an overall strategy.

In 2017, we identified Japan as a potential country for this kind of engagement and as an important brick for major change.

Japan can lead the way

Japan along with China are by far biggest financiers of coal overseas. Once those two giants end coal finance, new planned global coal plant building will grind to a halt.

coal map
Click on image to go to https://endcoal.org/finance-tracker/

To illustrate the complexity of the problem. The three largest private sector lenders, Mitsubishi UFJ Financial Group (MUFJ), Mizuho Financial Group and Sumitomo Mitsui Financial Group (SMBC), have an estimated US $5Bn in outstanding loans for coal power project finance in emerging markets. All are anchored with Japanese government loans via the Japan Bank for International Cooperation (JBIC), and guaranteed by Nippon Export and Investment Insurance (NEXI), a government entity.

Japanese investors including Mitsubishi Corporation, Marubeni Corporation and Mitsui Corporation have equity stakes in 18 projects in emerging markets, with a major stake (30% equity or greater) in at least 10 of these projects. All according to the report "Thermal Coal in Asia: The Real Risks for Investors", by InfluenceMap.

This further highlights the need for engagement beyond the investor – investee approach.

Japan being a global investment giant, could put the final nail in the coffin of the coal industry and create a new sustainable path for wind, solar and battery, finally leading the way to the end of the road for old King Coal.

Over several trips to Japan, with the aspiration to further encourage Japan take lead in the Asian divestment movement; away from coal and into clean energy, Storebrand Asset Management has met with a wide range of important stakeholders with power to further the agenda. The meetings have included meetings with sitting members of Parliament, The Ministry of Economy, Trade and Industry, The Financial Services Agency, NGOs, Asset managers, Consultants and media.

Since Storebrand Asset Management started this initiative a few years back– several actors have started moving including large institutions such as Mitsubishi UFJ financial Group, Sumitomo Mitsui Banking Corporation, Sumitomo Mitsui Trust Bank, Nippon Life and Dai-Ichi Life Insurance.

While we cannot take credit for their moves – we do hope to have played some part in participating in the surrounding the debate, and showing others that it is possible.

The issue is not likely to decrease in focus over the next year – as Japan is set to host the Olympics in 2020.

Some selected quotes:

Shin Furuno, Senior Regional Campaigner, Asia Finance for 350.org:
Japan’s major financial groups - Mitsubishi UFJ, Sumitomo Mitsui and Mizuho are finally starting to recognize climate risks as material financial risks to business, thanks to the efforts of progressive investors and civil society groups calling for greater climate action. Much more work needs to be done however to align their lending and investments with a zero carbon future - starting with a commitment to end finance for new coal, oil or gas developments and set concrete targets to reduce financed emissions in the short to medium term.

Martin Norman, Head f Sustainable Finance, Greenpeace Nordic:
Storebrand has been one of the global leaders on financial sustainability for a long time, as well as one of the first with a clear and long term strategy on coal divestment. Storebrand’s willingness to share their knowledge and experience on coal with Japanese companies, government bodies, financial institutions and media has been instrumental in shaping a perspective shift we now see in some Japanese financial institutions away from coal. We still have a long way to go in Japan, but the snowball is rolling, much thanks to Storebrand’s commitment to end coal.


Some selected international media coverage

Historisk avkastning er ingen garanti for fremtidig avkastning. Fremtidig avkastning vil blant annet avhenge av markedsutviklingen, forvalters dyktighet, investeringsrisiko og kostnader ved forvaltning. Avkastningen kan bli negativ som følge av kursfall.

Philip Ripman – Senior Analyst and Portfolio Manager

Philip joined Storebrand Asset Management's sustainable investments team in 2006 and has been Fund Manager for Storebrand Global Solutions which focuses on companies with solutions to the challenges presented by the sustainable development goals since May 2015.

Philip has held a numerous positions within the company including Group Head of Sustainability. Through his engagement with Sustainability he has advised several governments and institutions on topics ranging from coal exclusions, environmental impacts of human activities to policy requirements to achieve international climate agreement targets.

He holds an MA in Chinese Studies and a Master’s in Political Science. Philip specializes within the areas of politics, climate change, the commercialization of sustainability and how to integrate the Sustainable Development Goals as investment themes.