Total SA, the French multinational energy company, announced the sale of its South African coal mining facilities and the stoppage of coal mining and marketing in a statement Monday.
"We cannot claim to be providing solutions to climate change while continuing to produce or market coal," said CEO Patrick Pouyanné. The company will focus new efforts on natural gas and solar power, he said. Total’s sale of its South African coal units to Exxaro Resources Ltd. came at a net loss and in an "unfavorable economic environment" for the group worldwide, the company said in regulatory filings.
"By end — 2016, we will no longer be involved in the coal business," Pouyanné said, living up to a pledge he made in June that the company would halt coal output.
Total’s choice to exit the coal market may not have been entirely prompted by its bottom line. "It was a matter of both consistent strategy and our credibility," Pouyanné said of the move. But risks to or benefits for a corporation’s reputation and credibility regarding environmental issues now appear to at least make some stockbrokers think twice before placing their bets.
About three-quarters (73 percent) of financial professionals consider ESG issues — environmental, social and governance topics that affect companies — when investing, according to a survey of roughly 1,300 financial experts conducted by the CFA Institute earlier this summer. And 30 percent of those investors said they do so because their "firm derives reputational benefit" from the process.
Sixty-three percent of those who consider ESG matters, which include environmental subjects (climate change, recycling, land use) and social and governance topics (child labor, money in war zones, bribery), do so to manage investment risk, and 44 percent said their clients and investors demand ESG analysis.
Among those who incorporate ESG methods with their work, a little more than one-third said that "ESG performance is a proxy for management quality," that it’s their "fiduciary duty," and that they do so "to help identify investment opportunities." (About a quarter of investment experts don’t consider ESG criteria, 47 percent of whom said clients and investors don’t demand the service.)
Coal stocks are cheap, but banks are backing away
For banks, guarding against reputational damage and promoting environmental bona fides, or at least backing away from current projects for which they’ve taken a lot of flak, has been a common theme this year.
In the first two quarters, ING Group’s commercial banking division has seen its volume of financing for "sustainable clients and projects" grow 7 percent more than the volume at the end of 2014, the Dutch bank said Tuesday in an unsolicited statement sent to ClimateWire. And ING’s lending for renewable energy, sustainable development and greenhouse gas-cutting projects has nearly doubled during the same window to €1.4 billion as of June, the bank said.
"ING Bank’s focus is not limited to energy-related areas, but also includes water, waste and other sectors of its mainstream portfolio, collaborating with companies who are transitioning to become tomorrow’s leaders in sustainability," said Leonie Schreve, ING’s global head of sustainable finance.
Earlier this month, Commonwealth Bank of Australia walked away from the $12 billion Carmichael coal mine project, which has been tied up in regulatory procedure and protests from environmental advocates but would be the largest mine in the country if built (ClimateWire, Aug. 6). Four days later, Standard Chartered PLC, the British bank, backed out of the project, which is backed by Indian energy giant Adani Enterprises Ltd.
"We believe the banking industry, investors, NGOs, governments and regulators all have a role to play in balancing this global dilemma," said spokesman Simon Kutner in an email confirming Standard Chartered’s decision to stop work on the mine.
Bank of America Corp. said at its annual shareholders’ meeting in May that it would no longer finance coal mine owners that aren’t addressing "significant, ongoing or recurring material violations" including water contamination, dredging and wetland destruction, or trying to improve "other relevant environmental, health or safety standards." (Bank of America displays its accomplishment of issuing the first corporate green bond prominently on the environmental section of its website.)
Four years of campaigns and demonstrations against Bank of America over coal lending, spearheaded by the Rainforest Action Network (RAN), an advocacy group, led up to the May announcement.
Pressed by groups like RAN and the Philadelphia-based Earth Quaker Action Team, more than a dozen top European and U.S. banks, including Barclays PLC, BNP Paribas SA and Morgan Stanley, have recently moved sharply away from mountaintop-removal coal mining.
ESG investing is on the rise
Drafted in 2006, the "Principles for Responsible Investment," a U.N.-backed set of financial guidelines promoting ESG-based investing, have become increasingly popular.
In April 2006, 100 asset managers overseeing $6.5 trillion were PRI signatories. By April this year, that figure had ballooned to 1,380 signatories managing $59 trillion.
Asked if demand for ESG is rising, Matt Orsagh, director of capital markets policy at the CFA Institute, said: "From institutional investors we talk to, and other investors we talk to, that seems to be the case." A large portion of those who responded to the survey this summer aren’t in the sustainable investment niche, he said.
The CFA Institute, which administers financial exams for professional credentials, such as the chartered financial analyst title, published a manual on ESG investing in 2008, Orsagh said. ESG issues have only entered the organization’s curriculum within the last decade, he said.
"The tools are increasingly there," he said of conducting an ESG analysis. "If a company is operating in the oil and gas sector, of course there are ESG issues to look at."
"ESG to some extent is an acronym to connote everything that isn’t in the balance sheet," he added, suggesting it may be part of standard financial scrutiny in a decade or two.
Yet a June survey of 12 major European banks by financial services firm KPMG NV, with help from the World Wildlife Fund, found mixed results.
Five banks have "weakly aligned" environmental sustainability with business strategy, five have a "strongly aligned" strategy, and two have done so to a moderate degree, the report found, and just one of the 12 has set measurable objectives concerning environmental sustainability.
