The $21bn (€18.7bn) pension fund for the United Methodist Church (UMC) plans to exclude companies whose main business is to extract thermal coal as well as power utilities that derive most of their electricity from the fossil fuel.
In a statement, the UMC’s General Board of Pension and Health Benefits (GBPHB) explained it was due both to thermal coal’s huge impact on the climate as well as the risk that it could become “stranded” amid tighter regulation and the rise of renewable energy.
It said: “We believe that in many markets thermal coal will be heavily taxed or significantly replaced by alternative fuel sources. This would result in a meaningful deterioration in the value of companies that derive a significant portion of their revenues from the fuel source.”
Given these risks, GBPHB’s Board has empowered its Wespath asset management arm, to exclude companies (in developed markets) that derive 50% or more of their revenues from thermal coal.
In developing markets, companies receiving 50% or more of their revenues from thermal coal and in the bottom half of their peer group on ESG performance will be excluded, it said.
Power utilities that derive 75% or more of their electricity from the fossil fuel can also be excluded, unless these companies are, at the same time, sourcing at least 10% of the power from renewable sources.The GBPHB, based near Chicago and serving 91,000 participants, did not specify its exposure to thermal coal or what companies would be affected by its move. Press reports put the exposure at a scant 0.1% of its US equity portfolio.
However, the GBPHB also said that before any firms would be excluded, Wespath would engage with them. “We continue to believe that constructive engagement is the most powerful tool for effecting corporate change and supporting the transition to a low-carbon economy. Engagement may therefore be employed for companies in the mining and electric utility sectors that are close to the threshold for exclusion,” the US faith investor said.
The targeting of thermal coal firms is just one of two new guidelines that the GBPHB has adopted as part of its responsible investment strategy. The other concerns the sourcing of raw materials from conflict-ridden countries. As a result, Wespath may exclude firms that generate 10% of their revenues or raw materials from countries that “demonstrate a prolonged and systematic pattern of human rights violations” or “conflict-affected areas where significant human rights violations have been widely documented.” Link