Norway’s $860 billion Sovereign Wealth Fund (SWF) has unveiled the first list of miners and power producers to be excluded from its portfolio following a ban on coal investments.
The 52 companies being barred include American Electric Power Co. Inc., China Shenhua Energy Co. Ltd., Whitehaven Coal Ltd., Tata Power Co. and Peabody Energy Corp., according to a statement from Norges Bank Investment Management (NBIM), the unit of Norway’s central bank that manages the world’s biggest wealth fund. The exclusions are based on new criteria introduced by the government in February impacting companies that base at least 30 percent of their activities or revenues on coal.
“We’re reviewing all relevant companies by the end of 2016, and there will be further exclusions,” NBIM spokeswoman Marthe Skaar said by phone.
The fund has already divested stocks and bonds from the 52 companies, Skaar said. Based on current valuations and allocations in line with the fund’s benchmark index, the securities would represent about 19 billion kroner ($2.3 billion), she said. Most of the companies were out of the portfolio by the end of 2015 because 28 of them overlap with a list of so-called risk-based divestments, which the fund initiated as early as 2013, before it was clear there would be a new exclusion criterion based on coal, she said.
Norges Bank has estimated that the ban on coal investments, which was agreed in Parliament last year against the initial reluctance of Norway’s minority, Conservative-led government, would force the fund to sell holdings valued at about 55 billion kroner in 120 companies. The central bank said in a letter to the Finance Ministry last year that most of the companies will have been evaluated by the end of 2016, and that some could remain in the investment portfolio while the fund continued a dialog on their future use of coal.
“We look at the companies’ plans for the future in a one- to three-year perspective, and that can affect whether the companies are excluded or not,” Skaar said. “If a company plans to go below 30 percent, we can stay invested.”
The analysis process based on the new criterion is “comprehensive and demanding,” and the fund is struggling to obtain sufficiently detailed information from the companies, meaning it also relies on other sources, Skaar said.
“Before we make anything public, we will contact the relevant companies to seek information,” she said. “This time we sent 50 letters, and got only five replies. That’s a bit disappointing.”
In a related development, the Norway’s Climate and Environment Ministry has signed an agreement to buy UN-certified carbon credits from three of Scatec Solar’s power plants in West Africa. About 330,000 tons of CO2 emissions will be avoided from these solar plants during a three-year period ending 2020. The Purchase Agreement for the Certified Emission Reduction (CER) includes an option to extend the contract thereafter.
“Carbon offsets ensures that sustainable projects are implemented with the lowest possible risk. This contributes to the growth of solar energy in developing countries, which in turn allows for better and more stable energy and lower greenhouse gas emissions,” says Climate and Environment Minister Vidar Helgesen.
The Agreement marks a major milestone in the implementation of Scatec Solar’s global carbon strategy that aims to stimulate carbon and climate finance to accelerate deployment of solar power in the countries most in need of it.
Scatec Solar develops, builds, owns and operates solar PV plants in emerging markets, focusing on projects that meet the high sustainability criteria set by the UN’s Clean Development Mechanism (CDM). “As a partner for climate action, Scatec Solar attaches great importance to this because we believe the United Nations mechanisms provide the highest level of environmental integrity available in the marketplace,” says Terje Osmundsen, Scatec Solar’s Vice President for Business Development.
The first three West African projects to be included in the agreement are being developed by Scatec Solar in Mali, Burkina Faso and Ghana, says Minister Helgesen. “This region is struggling with major energy shortage, large populations without access to electricity, dependence on fossil fuels and high energy costs.”
The carbon credit agreement will lower the capital cost risks for clean and sustainable projects. This in turn will contribute to the growth of solar plants in these sun-rich countries, enable local utilities to improve grid networks and generate more solar electricity to fuel development and improve people’s lives.
Carbon credits are valid for Scatec Solar’s UN-compliant projects in other developing countries as well. “Over half of all developing countries stated that they wish to continue using the CDM to help deliver national climate change plans submitted for the Paris talks last year” says Daniel Rossetto, Managing Director of Climate Mundial, Scatec Solar’s carbon & climate finance advisor. “Scatec Solar’s carbon program therefore positions it to make a very important contribution to countries’ climate ambitions both before and beyond 2020”.
About 600,000 tons of carbon emissions will be avoided in 2016 from Scatec Solar’s power plants operating in South Africa, Rwanda, Czech Republic, the United States and Honduras. This is set to increase to 2 million tons by the end of 2018 with the commissioning of several more solar plants.
By Mikael Holter (Bloomberg)