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Tide turns on fossil fuels as Norway quits coal, ANZ goes green

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In Europe overnight, the Norwegian parliament voted to instruct the government pension fund – the largest in the world – to cut its exposure to fossil fuel risk. In Australia, ANZ Bank made the biggest yet issue of an Australian-domiciled “green bond”. In the US, institutional shareholders tried to force oil giant Chevron to return money to shareholders, rather than risk it searching for yet more oil reserves.

Three continents. Three decisions. Three major signposts of the massive change in capital flows that are occurring across the world. Or at least are about to. The tide is going out for fossil fuels, and it is coming in for green energy.

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All three events are significant, because they represent just part of the change that is occurring across the world, as rapidly falling clean technology costs and the global push for an agreed policy for decarbonisation combine to force the hand of global capital markets.

For the last few years, investment in renewable energy investment has outpaced investment in fossil fuels. In the US in April, 100 per cent of all new large-scale electricity generation that came online was wind and solar. In the first four months of the year, wind, solar, geothermal, and hydropower accounted for 84 per cent of the 1,900MW of new capacity. The rest came from gas capacity.

There is no doubt that the tide for fossil fuel investments in Australia is still high, but much of it is historic, and in retreat. The tide for renewable energy investments is relatively low, but advancing – particularly with new financing for commercial-scale rooftop solar, the advent of battery storage, and finally some certainty for large-scale renewables.

Australia’s third biggest bank, ANZ, overnight issued its first “green bond”, a $600 million issue whose funds will be used to finance, or refinance, green buildings such as the low-carbon Brookfield Tower complex in Perth; and renewable energy projects such as the 207MW Collgar wind farm in West Australia; and loans for rooftop solar installations.

ANZ is the second Australian bank to tap into so-called “green bonds”, which are focused on “climate-smart” low-carbon investments. At a time when all four major Australian banks are under pressure not to finance “carbon bombs” such as the Galilee Basin coal projects, it is an important development.

NAB made the first issue in December, of $300 million, but the global market for green bonds trebled in size in 2014 to reach $US36 billion, and is forecast to treble again in 2015 to $US100 billion. Climate Bonds CEO Sean Kidney, an Australian, said earlier this year the green bonds market might be worth $1 trillion by 2020.

Oliver Yates, the CEO of the Clean Energy Finance Corp, said the ANZ issue was hugely significant, because superannuation funds and other institutional investors are increasingly recognising that reducing the greenhouse gas emissions exposures in their portfolios is a strategic investment priority.

The CEFC offered to put in $75 million to be a cornerstone investor in the issue, but stood aside because of the rush to take up the issue. In the end 96 per cent of the issue went to Australian investors, with 46 different groups – super funds, insurers, councils and other investors – taking up stock.

Yates says that means that each of these 46 first-time investors in a green bond will be starting a portfolio allocation, and will want more such investments.

“They will encourage demand,” he told RenewEconomy in an interview. There is now a clear signal that investors are after this product, and if it can be delivered, there will be buyers for it. We can have state governments issue them, councils, we can have securitisation, and we can have corporates.”

ANZ group treasurer Rick Moscati said the bond issue was made in response to investor demand, and would help the bank increase funding for green projects in the future. “We have developed the bond in response to investor demand and to deliver on our commitment to deploy capital for the transition to a low-carbon economy,” he said.

Yates said surging green bond demand indicated that the investment dollar was swinging towards the “cleaner” end of markets. “Markets are dependent on supply and demand signals. This is an indication of less demand for non-green projects.”

Indeed, in Norway, the parliament voted to reduce the exposure of its pension fund to fossil-fuel risk by divesting more of its coal-related holdings. The fund holds $11 billion in coal stocks. The divestiture will include all companies who rely on coal for more than 30 per cent of their revenues.

IEEFA, which last week produced a report that noted that global coal stocks had lost 71 per cent of their value in the last five years, says that other large pension funds will follow.

“Coal markets globally are in the midst of a wrenching structural decline,” said IEEFA’s Tom Sanzillo. “No investment fund in the world – be it university, pension or institutional – can make a compelling financial case to hold these equities in their portfolio any longer.

“The coal industry has failed to compete with other energy resources, particularly wind, solar and energy efficiency. Its various export and trading schemes have only resulted in further deterioration of share value.

“Coal stocks are losing money every day. No investment policy that I am familiar with can holding stocks in an industry with catastrophic losses and with no realistic case for an upside for the foreseeable future. Norway has led, and I suspect they will not be alone for long.”

That turning tide is also starting to afflict the global oil majors. In another event overnight, institutional shareholders in oil giant Chevron pushed a resolution that would require the company to return surplus capital to investors, rather than use it to pursue yet more oil reserves that would likely end up as stranded assets.

The motion failed – it got only 4 per cent of the vote – because many large investors are either “inactive”, don’t know, or don’t care. But the emergence of “active asset owners” at the Chevron AGM in California is seen as a major turning point by Julian Poulter, the head of  Asset Owners Disclosure Project (AODP), an activist group.

“The Chevron AGM was a turning point,” he said in an emailed statement. “There is now a remarkable split in the industry, which is likely to spark the real debate about how, not if, to wind down these companies or diversify them into renewable energy.”

Note: This story has been updated to correct size of NAB green bonds issue.  

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  • Jacob

    Go Norway! Singapore too. I guess you can add some Middle East monarchies to the list as well.

    Having a sovereign wealth fund to benefit their voters rather than oligarchs.

  • Rob G

    Seems no one got Abbott’s message that coal is good for humanity… Looks a lot more like poison for investors.

  • Pedro

    Most Australian super annuation funds are 60-80% invested in the fossil fuel industry. Once major investment funds and large banks start to offload their fossil fuel assets you can expect the fossil fuel shares to plummet. Will Australian super funds be quick enough to get out or will the value of your super plummet?

  • Well done ANZ on a green bond. Will ANZ loan money to Adani for Galilee coal – if it does not it may be a more significant statement. Shell still has its management incentives lined up to drill the Arctic…the tide has a long way to turn.

  • Chris Fraser

    They are getting out. It appears they won’t continue to be confident investing in technologies that always rely on Government handouts. Goodness knows the Government is broke too …

    • Ronald Brakels

      Which country are you referring to, Chris? Norway has gross government debt of about 34% of GDP while the United States’ is 106% and Australia’s is about 27%. While the figure for the US is high, it’s quite manageable provided they avoid another Reagan or a Bush Junior, both of whom spent money like the world was about to end. (I can only assume they had inside information.) Anyway, both Norway and Australia are sitting pretty and are in the enviable position of not only being amoung the richest countries in the world (Norway is the richest country which is more than just a city state), while having very low governmet debt by developed nation standards. Any claim that either of these countries’ governments are broke is about as nutty as a lumpy chocolate bar, so I can only guess you mean the United States. The US government is far from broke, but it is in the most precarious position of the three, as they could always vote in another government drunk on spendahol and go on another war and tax cut binge.

      • Chris Fraser

        Oh yes I was only talking up our apocalyptic debt. I must have got suckered in by Joe’s debt fear mongering. The portending idea of all fossil and clean technologies surviving on merit and ability to sustain themselves through private investment is welcome.

  • Steve159

    Misquote — I think paragraph (beginning “Coal stocks are losing money every day”) should read something like:

    “No investment policy that I am familiar with can **financially justify** holding stocks in an industry with catastrophic losses and with no realistic case for an upside for the foreseeable future.”

  • Henry WA

    It is interesting to recall the vicious criticism heaped on ANU when it divested from coal a few months back, that it was politically motivated and not based on market reality, etc. The only criticism should have been that it did not divest early enough.

  • Blind Freddy of Cairns

    So Norway’s wealth fund will no longer invest in coal assets, a fund built on oil revenue and which benefits from Norwegian gas exports to Europe. Seems they already had a reason to discriminate against coal in favour of their oil and gas investments.

  • Alastair Leith

    be good to read some more stories about Green bonds and other investment opportunities, Giles. for those of us looking divest our savings from the major banks and perhaps earn more than 2% interest.