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Norway’s giant wealth fund deals $405m blow to coal industry

World’s biggest wealth fund under pressure to get out of coal, but many others may take their place

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By John McGarrity

Norway’s sovereign wealth fund, the world’s largest, may have to withdraw funding from coal following a likely vote in the Norwegian parliament, fueling the hopes of environmentalists that new mines and infrastructure will struggle to find finance.

If minority parties in Norway’s new coalition government back an opposition motion to withdraw from coal, then the country’s wealth fund would be the latest high profile investor to block funding for an industry that accounts for a third of the world’s power generation and is blamed for being the main cause of climate change.

But many more financial institutions – particularly in fast-developing countries where investment funds are awash with cash – would have to withdraw from investing in coal producers to have an eventual impact on the energy mix, said Hunter Hillcoat, a mining equities analyst with South African bank Investec.

“The big question is how many other funds will join the divestment drive. At the moment there are plenty of investors happy to take the place of those exiting from coal. And such measures tend to impact smaller producers, rather than big miners and diversified resources companies,” the analyst added.

Investors from developing countries that have fewer scruples about investing in fossil fuels are likely to see low-cost diversified mining companies as an attractive long-term play, Hillcoat told RTCC.

That’s because coal is likely to maintain a large share of the global energy mix for decades to come, according to forecasts.

Asia exposure

According to a report by Reuters, Norway’s fund has investments in China’s Shenhua and Coal India, the world’s two largest coal producers, as well as Consol Energy of the US and South Africa’s Exxaro Resources.

The fund’s chief told Reuters that its exposure to coal is small, holding 2.5 billion crowns ($405.57 million) in stocks in coal miners, equivalent to 0.08 percent of the fund’s portfolio.

Between them these companies mine around 1 billion tonnes a year of coal for power stations and steel mills, compared with global production of around 6.5 billion tonnes.

Shares in coal mining companies have been hit in the past year because of global oversupply and measures to curb the most polluting coal-fired power plants in China, the EU and the US, while major investors such as Goldman Sachs have pulled out of funding pricey and politically controversial export terminals in the northwestern US.

But even if global demand for coal slows in the next decade, the fuel could still overtake oil as the world’s major energy source because of ‘locked in’ consumption from China and India, and growing demand from other large developing countries such as Indonesia, Pakistan and Vietnam, the IEA said last month.

On the eve of international climate talks in Poland late last year, UN climate chief Christiana Figueres told the coal industry that much of the world’s remaining reserves need to be unused if the world is to escape the worst of climate change.

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