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World's largest asset managers loading up on thermal coal stocks

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World Coal,

In the wake of the IPCC's recommendations for drastic cuts in coal usage to prevent catastrophic climate change, new financial research from UK think tank InfluenceMap shows that the world's largest asset management groups – with a combined US$40 trillion in capital market assets – have increased the holdings of thermal coal reserves in their funds by more than 20% (with fund inflows accounted for) since the Paris Agreement.

US giant BlackRock leads in absolute terms, with oil, gas and thermal coal reserves controlled by the fossil fuel producers it holds representing an aggregated 9.5 Gt of CO2 emissions equivalent with just under half these emissions in thermal coal. This figure of 9.5 Gt is equivalent to 30% of 2017 total global energy related carbon emissions for 2017, according to the International Energy Agency.

The research introduces the thermal coal intensity (TCI) metric, expressed in t/US$ million assets under management (AUM), which allows like-for-like comparison. BlackRock again leads with the most coal dense portfolios among the ten largest managers of funds. It scores a TCI of 571 in its US$2.3 trillion of funds – 50% higher than the benchmark average for the world's 60 000 largest listed funds.

Incredibly, US fund manager State Street sells two funds marketed as fossil-free, constructed using MSCI indices, with TCI figures of over 200 t/US$ million AUM. These funds are actually 100 times as thermal coal-intense as State Street's flagship US$250 billion SPY ETF which is based on the S&P 500 index of the largest US companies.

French giant AXA, which also has a policy on thermal coal, actually more than doubled its thermal coal holdings within its funds in the time period 2016 - 2018, adjusted for inflows. Most of this increase is accounted for by AXA’s majority owned subsidiary AllianceBernstein acquiring stakes in US coal companies Peabody Energy and Arch Coal, both of which emerged from bankruptcy and rejoined financial indices such as the Russell 2000.

German fund manager Allianz, which introduced a thermal coal divestment policy just before the Paris Agreement in 2015, registers the lowest TCI with just 80 t/US$ million AUM or 80% lower than the benchmark, likely indicative of a proactive push to go underweight in thermal coal in the last three years.

The research also tracked the 10 largest asset owners globally who appear to have sold all direct holdings of thermal coal producers in the last two years, with combined assets of US$1.4 trillion. The list is headed by the wealth funds of oil states Kuwait and Qatar and includes IBM's pension fund and the Ontario Teachers’ Pension Plan. None of them appear to have any publicly disclosed policy on thermal coal holdings – i.e. the decrease seems to be ‘silent divestment’.

This research considers 300 publicly listed companies who control the largest amounts of fossil fuel (thermal coal, oil and gas) reserves and production. It links these assets to the world’s largest 4000 asset owners, 4000 asset managers and almost 60 000 listed funds. The research kicks off a multi-year FinanceMap project by InfluenceMap to generate and make public climate metrics on key portfolios in the investment management sector.

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