Institutional climate investors call on coal firms to react to ‘stigmatisation’ of industry

A group of global institutional investors focused on climate change have warned the coal industry to react to the increasing “stigmatization” of the sector and its potential impact on share prices.

“Some investor preferences are shifting, driven by beneficiary and public pressure to divest from thermal coal assets,” the investors warn, referring to a series of challenges the sector faces, including stigmatisation, lower demand scenarios and technology dynamics (i.e. renewable energy and cheaper fuels due to fracking).

The investors want to see “resilient business strategies” that respond to these developments.

“In 2015 there have been a number of announcements by public and private pension funds to disinvest from companies that earn more than a threshold of revenues from thermal coal assets. For smaller and less liquid stocks, this could have an impact on price.”

The warning comes as the investor groups have launched a guide to help drive engagement on climate risk with the mining sector.

Investor Expectations of Mining Companies was developed by the Institutional Investors Group on Climate Change (IIGCC) with support from investor networks in North America (Ceres’ INCR), Australia (IGCC) and South East Asia (AIGCC). In total the groups represent more than 270 institutional investors with assets worth over €20trn.

The guide is intended to be used in tandem with the previously released Institutional investors’ expectations of corporate climate risk management (link).

Stephanie Pfeifer, Chief Executive at the IIGCC said the global investor community was “setting out as clearly as possible” the expectations it has for mining companies about action required to curb carbon asset risk. The guide is designed to support a “constructive dialogue” between investors and mining companies.

The guide has been lead authored by Bruce Duguid, Associate Director, Hermes Equity Ownership Services.He said the guide is intended to develop “market best practice” for investor engagement with mining companies.

The guide is the first in the series of Investor Expectations guides to also have CDP data points linked to the questions to support investor preparation to meetings with companies.

Whilst primarily aimed at diversified mining companies, the guide can equally be applied to any single commodity.

The guide sets out investor expectations on six areas of concern:

• Governance – Define board/management governance of climate change risks and implications of energy transition dynamics.

• Operational efficiency (and emissions) – Set long-term targets to improve energy efficiency, reduce carbon intensity and curb greenhouse gas emissions.

• Strategy implementation – Ensure business model is “robust and resilient”.

• Preparedness for physical impact of climate change – Appraise risks arising from ongoing changes to climate.

• Public policy: Engage with policy makers and other stakeholders in support of cost-effective measures to mitigate climate risks and support low carbon investments: “Do not lobby against these positions.”

• Transparency and disclosure. Disclosure in annual reports and financial filings.