By Zella Downing, Coal Action Network Aotearoa
Climate risk is being linked to investment risk, which makes sense.
An unstable climate creates an unstable globe which creates an unstable market. How can commodity investors feel confident about their investment amidst record droughts, devastating floods, unprecedented snowfall, and an absence of water?
What doesn’t make sense is the New Zealand Superannuation Fund increasing its investment in coal over the last three years when the global movement to divest from coal is not only gaining momentum, it’s gaining mana as well.
Analysis by the Parliamentary Library and released by the Greens last week tells us our Superfund increased the value of its investments in the world’s twenty dirtiest coal companies from $29 million at June 30, 2011 to $36 million at June 30, 2014. As the Fund has increased its exposure to these companies, their average (unweighted) stock price declined by 31 percent.
This comes amid warnings from global investment analysts Mercer, who last week released the results of a year-long modeling exercise that looked at the impact of climate change on investments. Backed by the World Bank’s IFC, the German Economics Ministry and the UK’s Department for International Development, amongst others, it says:
“New investment modelling the potential impact of climate change on investments shows the average annual returns from the coal sub-sector could fall by anywhere between 18% and 74% over the next 35 years, with effects being more pronounced over the coming decade (eroding between 26% and 138% of average annual returns over the next 10 years).”
Also last week the Carbon Tracker released an analysis showing that demand for electricity in Europe is falling, and with that, demand for coal.
Organisations such the Norwegian government; French firm AXA; Australian firms Unisuper, AMP Capital and HunterHall; the Dunedin City Council; the cities of Seattle Washington, Portland Oregon, and Boulder Colorado; Stanford University and hundreds more are divesting from fossil fuels as a point of conscience. They are choosing to be part of the solution to climate change.
But divestment is also occurring because of the substantial risk of a carbon bubble, which would make coal a stranded asset devoid of economic value. Coal has little social value either, so with its economic worth threatened, it becomes a thick witted investment indeed.
As hundreds flee from a burning building, why is New Zealand going further inside? It’s not a rescue mission…or is it? Who’s playing golf with whom? Surely the choice to increase an investment in a dying industry wasn’t made because it was considered financially astute?
After witnessing: Typhoon Haiyan—10 000 dead; Cyclone Nargis—138 000 dead; the Australian drought of the 2000s—described as the worst in 1000 years; the current drought facing California—which science links directly to climate change; the 2010 floods in China—15.2 million people evacuated; the 2011 floods in Brazil—considered the worst in the country’s history, the world waits in anticipation of what will happen next.
Climate change is being felt here in New Zealand as well. The Waikato has suffered from serious drought in four of the last five years. The measured 20% reduction in pasture production stretches across the year, but summers, when the milk is being produced, are especially hard hit. Making an investment in any product responsible for such devastation seems wrong to the point of being immoral.
Coal contributes to climate change. That’s indisputable. Humanity is clever enough to find other ways to fuel our energy needs—We found coal when we needed it, and we have found renewable energy as well. The fossil fuel industry’s grasp on power needs to be loosened so that innovation and alternatives have a chance to prosper. Our economic system provides the perfect pry bar to do that.
Divesting from fossil fuels has become a free-market tool that allows citizens to cast one of their most important votes. Governments meet regularly to discuss climate change and haggle over carbon credits and carbon taxes, but little action is being taken. People are taking action by voting with their wallets. It is beyond belief that New Zealand would go against that trend and choose to further support the climate change industry by increasing the Superannuation fund’s investment in coal.
The Fund’s total value is $29 billion. Less than 1% ($140 million) is invested in coal companies, but those companies are stockpiling carbon like some countries stockpile bombs, and that carbon will be just as destructive if it is released.
The carbon emissions that the fossil fuel industry hold in reserve is five times higher than the amount that can be burned for the world to have an 80% chance of limiting global temperature to 2ºC. The coal industry is responsible for 72% of that CO2. The carbon content of the reserves reported by the top 200 fossil fuel companies exceeds their portion of the carbon budget up to 2050 by 400%.
Overall, the Fund made a return of 39%, which was good for NZ citizens, but over this same time period, the Dow Jones Coal Index declined 66% while the Clean Tech Index increased 40%, which makes it clear that we have not made a wise investment at all.
The whole purpose of a superannuation fund is to prepare for the future. It’s illogical and ironic to invest in products that destabilize the very future we are planning to fund.