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Coal hard facts for religious investors

12 Comments
Neil Ormerod |  10 February 2014

Hand with pin bursting a bubble containing a dollar signThe international movement to divest from investment in fossil fuels is gathering momentum. Investors are starting to realise the dangers associated with the problem of stranded assets; that is, as governments act to restrain fossil fuel consumption in an effort to address climate change, fossil fuel companies will find their assets being written down. It is of no value to have millions of tons of coal in the ground if carbon taxes or emission trading schemes prevent you from ever digging it up.

A recent article in The Conversation by Tom Swann and Richard Denniss from ANU documented the growing concern among investors as the politics and economics of climate change begin to bite. At the recent World Economic Forum in Davos, World Bank President Jim Yong Kim argued that investment firms, especially those in pension funds, have a fiduciary duty to review their investments in fossil fuels. He also called on governments to push both divestment and taxes to make fossil fuels less attractive investment options for the future.

In line with this, the World Bank is pulling back from providing development funding for coal fired power stations. This is a significant move. The World Bank is hardly the stronghold of 'weak-minded liberals' or 'greenies'. This is an institution which, together with the IMF, oversaw the most draconian economic reforms in third world economies in the name of economic rationalism and trade liberalisation. They were, and remain, primarily driven by economic concerns, and the economic costs of climate change are starting to mount.

As Jim Yong Kim notes, continued reliance on fossil fuels and the resultant climate impacts 'threatens development gains [made] over the last 20 years'. This echoes concerns raised by international aid agencies that the present effects of global warming are undoing decades of progress in the poorest parts of the world.

Other groups of investors and philanthropic organisations are taking similar action. Development banks in the US and Europe are pulling back from funding coal fired power stations, while a major US philanthropic group with combined assets of over $1.8 billion is divesting from fossils fuels and investing in renewable energy. 'The magnitude of the climate crisis requires that we no longer conduct business as usual,' the Wallace Global Fund’s executive director Ellen Dorsey has told reporters. 'If we own fossil fuels, we own climate change.'

These concerns are particularly pertinent to the Australian context. Australia is the second largest coal exporter and a major expansion of exports is under way, notable through the development of the Galilee basin which contains over 100 billion tons of coal. While the carbon footprint of the average Australian is among the highest in the world, our low population means our national impact is mercifully small. However,we export around the same amount of coal as we use domestically, thus doubling our national contribution to global warming.

It is also significant that the greatest resistance to doing anything about the problem of climate change in international negotiations comes from Australia and Canada, two of the largest exporters of fossil fuels.

It is ironic that the Australian Coal Association acknowledges that 'the production and use of coal is a significant contributor to climate change', while some of our leading politicians remain less than convinced that this is the case. Indeed the coal industry has a self-imposed levy to raise $1 billion to develop technologies to mitigate carbon emissions. Hardly the move of sceptics.

All this raises questions for Australian religious bodies and organisations about the prudent and moral use of their resources. At the prudential level fossil fuel investments are running the risk of a carbon bubble, where the value of investments could rapidly collapse as governments are forced to take more drastic climate action. At the moral level, do church investors want to contribute directly through their investments to a problem which impacts most significantly on the poorest of the poor?

Some church bodies are taking up the challenge. The Uniting Church Synod NSW/ACT has moved to divest from investments in fossil fuels. A number of Anglican Dioceses in NZ voted last year to take their money out of fossil fuel investments. Various bodies in the Catholic Church in Australia are being encouraged to act similarly. With its multiple structure — dioceses and diocesan development banks, religious orders, welfare and education agencies, Catholic Church Insurances and Catholic Super Funds — there is ample scope for divestment action.

While the prudential argument carries weight in its own right, one would hope that the moral issue of not investing in something which is impacting the world's poorest would be enough to determine the outcome.


Neil Ormerod headshotNeil Ormerod is Professor of Theology at Australian Catholic University.

Bubble burst image from Shutterstock

 



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One telling point in this article is Dr Ormerod's quote from the Australian Coal Association's website, that "the production and use of coal is a significant contributor to climate change", as if this is proof of anything. That's indeed what the Coal Association says. But is that what it believes? I have no idea, and I'll wager, nor does Dr Ormerod. All I know is that that is what the Coal Association thought it SAFE to say, given the eco-political environment it faced. I have a personal experience of the difference between truth and safety when it comes to business organizations. Some years ago I wrote a submission to a Review of the Trade Practices Act (The Dawson Review). I (on the part of my organization) proposed some fairly radical free market amendments to the Act. The supposedly capitalist champion, the Business Council of Australia, in its submission, put forward (as it usually does) weasel, lame duck amendments (at least from our free market point of view). When we met privately with the BCA's chief economic advisor, he confessed that he thought our suggestions were spot on. "But", he said, "of course we couldn't have made them ourselves...you understand?" "Of course." I said. "Perfectly." Do you get that, Dr Ormerod?

HH 10 February 2014

"the moral issue of not investing in something which is impacting [on] the world's poorest" and on the world's fauna and flora in their own right and on which we humans depend, also pertains to individual investors who might take a personal interest in their Superannuation funds' investment choices by carefully perusing their investment options and choosing wisely, not just leaving it up to the Fund Investors. It's surprising just how well investments in the environmental sector are doing compated to traditional investment sectors. Similarly one needs to take care of not succumbing to the Socially Responsible sectors without being aware just what that really means. Words can be misleading for the ethical investor.

Jennifer Herrick 11 February 2014

Should we thank HH for arguing that the leaders of Australian industry are basically not to be believed in their public statements? If in fact they don't believe in human induced climate change then the $1 billion they are spending on coal capture and storage amounts to massive financial fraud and constitutes a breach of their duties to their shareholders, I'm glad HH has cleared that up for us.

Neil Ormerod 11 February 2014

Thanks Neil. It's worth adding that most or all of those Catholic investment bodies ALREADY divest from a number of other industries on moral grounds - eg. tobacco, uranium and arms manufacturers. So the idea of 'ethical investment' is not new, the question is only whether fossil fuels should be added to the list. Also the entire national denomination the United Church of Christ USA has agreed to divest too.

Justin 11 February 2014

Well, thanks for the warm sentiments, but you're missing a point you made yourself in your post, Dr O. As you correctly wrote, "It is of no value to have millions of tons of coal in the ground if carbon taxes or emission trading schemes prevent you from ever digging it up." That's the eco-political reality the coal industry faces, and that's precisely why it is investing in carbon capture and storage, which, if successful, might just enable it to survive regimes which come down hard on so-called "dirty" coal. It has absolutely nothing to do with whether individuals in the industry think that the global warming theory driving the draconian legislation is a load of claptrap or not. I personally am now almost totally disillusioned with that theory, but if I were financially advising the coal industry, I'd say "Go ahead with your research! There are far too many interests and egos in high places vested in maintaining this scam for it to disappear soon." P.S.: A couple of episodes of "Yes Minister" might throw light on the subject.

HH 11 February 2014

Why don't Australian governments and busineess take a serious look at nuclear power as an alternative to coal? It has been demonstrated time and time again that nuclear power is CHEAPER, CLEANER and SAFER

Bill Barry 11 February 2014

There is no human induced climate crisis going on. Check out the data yourself at climate4you.com .

Tom Harris 11 February 2014

Currently there are no viable alternatives to coal fired electricity generation. Emissions can be reduced by 30% if the coal washing process is maximised. My field is Land Management, if we optimised carbon sequestration by maintaining our biomass in optimum condition we could absorb the extra carbon as a resource

Nev Hunt 11 February 2014

One source of energy which is plentiful, cost-competitive and clean is natural gas. The coal industry can do all the research on earth but despite washing, scrubbing and all else, it might ultimately be as valuable to human science and the progress of all nations as the never ending Japanese study of Minke whales.

David Timbs 11 February 2014

You challenge us all Neil Thank you! leo kane

leo kane 11 February 2014

I think smart investors will stay in coal. Countries like China and India will need coal for some time. They will need it to lift their poor out of poverty, as it is still the cheapest form of energy. They will not be able to do it with solar or wind. Germany is the World's biggest user of solar energy. Last year it imported coal and nuclear-generated energy to supplement their energy short fall. Now they are building their own coal driven generators – one last year and ten scheduled over the next two years. Last year 800,000 Germans had their power cut because they could not afford their bills. If a country like Germany cannot afford to rely solely on renewables how can the poorer developing countries do it? I believe the World Bank is contributing to the world's poverty by denying help to developing countries to access cheap energy. Which is the greater evil or immorality - burning coal for a few more years, which will contribute to the warming of the planet or keeping millions in poverty by denying them the cheap source of energy available to the rest of us, and allowing us to prosper?

Tony Burnell 13 February 2014

Correct, Tony Burnell. This article is way out of touch. A piece in today's Fin Review says as much: "King coal is here to stay, says the world’s top energy forecaster. Australian coal producers “definitely” have a rosy future once they get over current ­pricing and cost woes, Fatih Birol, chief economist of the International Energy Agency, said. “People have been wrong many times saying that the time of the coal is passed, is over,” Dr Birol told The ­Australian Financial Review in an exclusive telephone interview from Paris. “[But] we have seen that the coal is still growing strongly – unless there are some regulations [to slow its growth].”" And so on. Church investors who believe it is moral to invest in coal (a perfectly acceptable position if you think dangerous anthropogenic global warming is claptrap) should not have any qualms in doing so.

HH 03 March 2014

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