Coal divestment pressure builds on Asian asset owners
Institutional investor commitments to end funding of coal mining and related industries are coming under increasing scrutiny in the aftermath of November's COP26 meeting.
The phasing out of coal is regarded as the most vital policy step needed to keep to the objective of limiting warming to no more than 1.5°C. At COP26, more than 40 countries pledged to phase out coal by the 2030s and 2040s. But several of the largest polluters, including the US, China, India and South Korea remained outside the pledge.
Although Korea was absent from COP26’s landmark deal to stop overseas fossil fuel financing, its financial institutions "can set new global standards by creating comprehensive and ambitious plans to exit from fossil fuel,” according to Sooyoun Han, researcher at Solutions For Our Climate (SFOC).
In the last decade, Korea provided around $137 billion in international public finance for fossil fuels, ranking above China and the United States between 2018 and 2020.
But according to a recent SFOC report, the Korean financial sector seems to have “a significantly low level of awareness of climate-related risks”.
KOREA FALLS SHORT
Korea has the second highest coal power emissions per capita in the world, but continues to fall short, with a majority of financial institutions failing to meet global standards of divestment from coal, according to the SFOC.
Their report was based on a study of 100 public and private financial institutions. It found 97 of those businesses, including banks, asset managers and insurers, lacked sufficient policies to phase out coal.
“In spite of the call for OECD nations to end all coal use by 2030 to meet the world’s 1.5°C target, financial institutions in Korea have not adopted tangible coal phase-out policies,” said Han.
“In line with actions taken by Korea’s global counterparts, we need to see faster divestment from the entire coal-related industry, from mining to manufacturing.”
Korean insurer Samsung Fire & Marine was the country's largest private coal financier in 2020, but has made strides in reducing its funding. According to the SFOC, Samsung made internal decisions to divest from companies deriving over 30% of revenues from coal power production and mining.
It also said it will no longer provide insurance for coal-fired power plant construction and operation. However, SFOC notes that the firm has not made its coal divestment policies publicly available.
“The company has the potential to raise industry standards around green finance by being transparent with its existing climate initiatives and having a concrete plan to phase out its existing exposure.” said Han.
Korea’s National Pension Service (NPS) has considered its position on divestment from companies mining coal and those generating electricity from it, at various committee meetings in the last two years. It is unclear whether the fund has acted on any of these initiatives, however. AsianInvestor has reached out to the NPS for clarification.
If the NPS board is adopting negative screening as a first step, the fund is expected to prioritise selling its stakes in domestic firms using coal, given that environmental activists have continued to demand it stop investing in coal-fired power plants.
As reported, Chinese insurers are also lagging Asian and European peers, in terms of restrictions on insuring coal related activities and lack investment exclusion policies in the sector.
Fiona Donnelly, Hong Kong-based business sustainability consultant at Redlinks, said the challenge for asset owners is to highlight where coal, methane and deforestation sit in their portfolios and operations, “so they can start to develop approaches and modify processes to align to net zero. Progress on targets will now be under more scrutiny."
Other institutions are proving that it is possible to move forward smartly with a coal divestment strategy. In March 2021, Hong Kong-based AIA announced it would divest and/or run off its entire directly managed equity and fixed income exposure to coal mining and coal-fired power businesses by the end of 2021 (for equities) and 2028 (for fixed income).
A spokesman for AIA Group told AsianInvestor this week: “In October 2021 AIA completed the entire divestment of directly-managed listed equity and fixed income exposure to coal mining and coal-fired power businesses, seven years ahead of schedule.”
AIA was estimated to hold up to $6 billion of its $326 billion investment portfolio in coal and coal-fired power assets, according to the Institute for Energy Economics and Financial Analysis.
More recently, Hong Kong based New World Development Company pledged to divest from coal mines and coal-fired power plants as part of its ESG targets. The $77 billion property developer plans to achieve 100% renewable energy for its rental properties in the Guangdong-Hong Kong-Macao Greater Bay Area by 2026 and Greater China by 2031.