Some of the world’s largest insurers and pension schemes are warning companies they invest in not to finance, insure, build, develop or plan new thermal coal plants or face sanctions, including possible divestment.
The Net-Zero Asset Owner Alliance, whose members include German insurer Allianz and manage a combined US$5 trillion in assets, is making the call after a recent commitment to set tougher carbon limits on their portfolios.
At the same time a group of European development finance institutions (DFIs) managing $50 billion said they planned to stop lending money to fossil fuel projects by the end of the decade.
To meet the terms of the United Nations sponsored Paris Agreement on climate change, which aims to limit global warming to 1.5 degrees Celsius above pre-industrial norms by 2050, developed economies need to phase out most thermal coal by 2030, with a global phase out by 2040.
In a report seen by Reuters Newsagency ahead of its release on Monday, the alliance said all companies owned by the group needed to develop their own plans to transition away from thermal coal.
“If no long-term carbon footprint reduction can be produced the members will need to escalate and ultimately divest,” Günther Thallinger, Member of the Board of Management, Investment Management, Environmental, Social and Governance (ESG) at Allianz, said.
To help guide them, the group issued a set of core principles including that, other than coal plants currently under active construction, no further thermal coal power plants should be financed, insured, built, developed or planned.
“Alliance members believe that all companies in our portfolios should have a firm understanding of the wider implications for the activities, operations and projects that they are engaged in,” the report said.
There should also be an immediate cancellation of all new thermal coal projects that are in a pre-construction phase, including coal mines and related infrastructure, as well as the supply of other products or services.
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n addition, all unabated existing coal-fired electricity generation, that which is not captured by carbon sequestration or storage, should be phased out, it said.
“Participation in activities and projects that are not aligned with these principles is incongruent with our net-zero goals and the aspirations we have in respect to the different decarbonisation strategies of the companies we invest in.”
The Association of European Development Finance Institutions (EDFI), whose 15 government-owned members invest across emerging and frontier markets, also said it would align all new lending to the Paris Agreement on climate change by 2022.
It would also ensure that all investment portfolios achieve net-zero carbon emissions by 2050 at the latest.
“As taxpayer-funded organisations, we are committed to promoting green growth, climate adaptation and resilience, nature-based solutions, access to green energy and a just transition to a low-carbon economy,” EDFI Chief Executive Søren Peter Andreasen told Reuters in a statement.
Development Finance Institutions refer to state-backed lenders such as CDC Group in Britain, Norfund in Norway and Proparco in France, which provide financing in areas like infrastructure and healthcare to help boost economic development, often in low- and middle-income countries.
The move comes a week before the world’s 450 DFIs meet for the first time at a major conference in France to discuss accelerating their efforts to help in the fight against climate change as well as to boost sustainable development more broadly.
Reuters reports a key factor will be how open lenders in coal-reliant Asia are to any toughening of policy.
The meeting is seen as a crucial test of the countries’ commitments to meeting the terms of the Paris Agreement ahead of the next round of global climate talks, COP26, to be held in Scotland in 2021.
The EDFI group said it would immediately stop financing new coal or fuel oil projects and would only finance other fossil fuel investments such as gas-fired power generation as long as they were in line with Paris, before excluding them by 2030.
The commitment includes direct investments, indirect investments made through other funds and through dedicated lending, the group said.
The group said a “significant and progressive” alignment of private capital flows to developing countries would be required to meet the United Nations’ climate and sustainable development goals.
“In the lead-up to COP 26, and as countries around the world strive to achieve a sustainable recovery from the Covid-19 pandemic, it is more important than ever that European DFIs set a collective example for investors in developing markets,” EDFI said.
Next year’s COP26 meeting will potentially not be attended by the world’s biggest economy, after the United States exited the Paris Agreement on Wednesday, although if Democrat Joe Biden wins the United States presidency, he has said the US will rejoin.
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