ESG Viewpoint: Coal’s uncertain future

ESG Viewpoint: Coal’s uncertain future

With a growing number of governments setting paths to #netzero emissions, the future of coal is in question

With a growing number of governments setting paths to net zero emissions, the future of coal is in question. It’s estimated that coal use would have to drop by 60% by 2030 to achieve a net zero future.1

Through our engagement, we seek to encourage companies with exposure to coal to be proactive in how they will manage the transition and avoid the risks of stranded assets.

Our 2020 engagement focus was on thermal coal mined and used for power generation, and we centred our efforts with companies that are:

  • Multinational miners, who influence global supply;
  • Based in China, the largest coal producer and consumer in the world; and
  • Based in the US, where we judged there to be significant scope for engagement progress.

2020 engagement with coal mining companies

The coal mining sector is generally not vertically integrated, meaning that companies have little control of the emissions resulting from coal combustion. This limits the options for the sector – in particular for pure-play coal miners – to successfully navigate shrinking demand as electrification and other alternatives take a larger share in the energy system. And while diversified miners may be able to enjoy the long-term demand increase of other metals and minerals, their energy transition journeys are not straightforward.

In 2020, we engaged with 3 diversified miners with coal exposure and 3 pure-play coal miners. All three of the diversified miners we engaged have coal phase-out commitments, but with very different strategies to achieve this. Our engagements with the coal pure-plays, in contrast, revealed that they are mostly in the early stages of dealing with climate change as a material business issue.

2020 engagement with electric utility companies

With the economics of renewable energy becoming ever more favourable, the opportunities for electric utility companies to diversify their businesses away from coal are more obvious than for coal miners. However, the sector still faces some complex challenges, particularly given the heavily regulated nature of electricity markets and the need to balance emissions control with reliability and affordability.

Next steps

2021 will be a critical year for climate change, and we intend to intensify our engagement efforts in relation to coal phase-out. We will be looking to follow up with companies that have announced 2050 targets to press them on implementation, including setting a firm coal phase-out date. We will continue to prioritise China and the US, as the recent and upcoming policy changes create an urgent need for laggard companies to respond; we will also look to engage laggard companies in more challenging markets, including India.

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Vicki Bakhshi
Vicki Bakhshi
Director, Responsible Investment

Vicki Bakhshi is BMO Global Asset Management’s Climate Strategist, working on the implementation of their Net Zero commitment, and heading up their climate integration and stewardship work. She also currently co-chairs the IIGCC’s Implementation Working Group for the Net Zero Investment Framework and the Climate Change Working Group of the Investment Association. Vicki has worked at BMO for 14 years, prior to which she worked on the Stern Review on the economics of climate change, and on international climate policy at 10 Downing Street.

Vicki Bakhshi
Derek Ip
Derek Ip
Senior Associate, Analyst, Responsible Investment

Derek Ip joined the firm in 2019 as an Analyst in the Responsible Investment team. He was previously at S&P Trucost, an ESG data provider, which he joined in 2015. He has significant experience consulting banks and investment managers on environmental risks, primarily climate change. During 2017-2018, he acted as an external policy adviser on green finance at the City of London Corporation in parallel to his role at S&P Trucost. Prior to his experience in Europe, he was with RESET Carbon in Hong Kong, providing supply chain sustainability analysis and engagement services to major international brands. Derek studied at the University of Edinburgh and has a MSc in Carbon Finance.

Derek Ip
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