About $8-trillion worth of known coal reserves lie beneath the earth’s surface. The companies planning to mine and burn them are being targeted by a growing group of investors concerned about the greenhouse gases that will be produced.

Storebrand, which manages $74-billion in assets from Norway, has sold out of 24 coal and oil-sands companies since July, including Peabody Energy, the largest US coal producer, citing a desire to cut fossil fuel industry holdings. This month, Norway’s opposition Labour Party proposed banning the country’s $800-billion sovereign wealth fund from coal investments.

“Maybe we’ve hit some kind of nerve in the debate,” says Christine Torklep Meisingset, Storebrand’s head of sustainable investments, who is based in Oslo. “Hopefully, other investors will be acting along the same lines. There could be an interesting parallel to tobacco.”

The movement is an offshoot of a campaign by more than 70 investors to pressure all fossil fuel industries on climate change. It harks to the 1990s anti-tobacco push and is gaining help from unlikely partners. The International Energy Agency, a 28-nation group promoting energy security, is lobbying increasingly to limit the release of heat-trapping gases.

“Investors make decisions everyday on buying and selling stock and we’re confident that the strong long-term outlook for coal and Peabody’s specific investment appeal will carry the day,” says Vic Svec, a spokesperson for Peabody Energy. “Coal has been the fastest-growing major fuel around the world for the last decade and is expected to surpass oil as the world’s largest energy source.”

Coal, whose burning spews about twice the greenhouse gases as natural gas, is not in retreat. In 2011, coal was used to generate 30.3% of the world’s primary energy, the highest level since 1969, according to the World Coal Association, an industry trade group. That share slipped only to 29.9% last year.
Investors cite both ethical and financial concerns with carbon-bearing fossil fuels. The Norwegian fund, the largest of its kind in the world, owns shares in some of the biggest coal pro- ducers, including a $2-billion holding in BHP Billiton, the world’s biggest mining company, and stakes in GlencoreXstrata, the largest coal exporter, and Anglo American.

The call to divest coal holdings is a political issue that the fund will not comment on, says Thomas Sevang, of Norges Bank Investment Management, which manages Norway’s sovereign wealth fund. “We’re investing according to the mandate that we have at any given time.”

Future curbs on carbon emissions beyond 2020 may cut valuations on coal assets by as much as 44%, according to HSBC.

“This is the beginning of divestment out of pure-play coal by some investors,” says Nick Robins, head of HSBC’s climate change centre of excellence, in London. “There’s been a very marked rise in concern about this issue. There’s a recognition that, as you move to a low-carbon economy, coal is potentially most vulnerable.”

Coal remains a “good story”, with demand from China and India estimated to grow almost 4% a year to 2020, says Godfrey Gomwe, CEO of Anglo Ameri-can’s thermal coal unit.

“We believe that fossil fuels will continue to play a significant role in the global energy mix,” Ivan Glasenberg, CEO of Glencore- Xstrata, wrote in the company’s sustainability report last week.

Globally, the share prices of thermal coal producers have slid over the last two years on declining demand for the fuel and fears of oversupply. US producer Patriot Coal filed for bankruptcy last year, while Arch Coal has dropped 71% and Peabody 44% over the last two years. China Shenhua Energy, the nation’s biggest producer, is down 27% over the same period, while Indonesia’s biggest exporter, PT Bumi Resources, is off about 80%.

Prices for thermal coal shipped from Newcastle, in Australia, have slumped about 8.9% so far this year and are heading for a third straight yearly decline.
“There’s a pretty plausible case that this is the beginning of the end,” says Craig Mackenzie, investment director and head of sustainability at Scottish Widows Investment Partnership, which manages $233-billion in assets Scottish Widows divested from pure-play coal producers last year on the prospect that demand for the fuel would continue to wane amid a booming US natural gas market.

Even so, Mackenzie says the divestment campaign has had little to no effect to date, and the sell-off in coal stocks has been driven by fundamentals.
“It’s quite easy to paint a scenario where coal demand never recovers,” Mackenzie says. “Gas prices are the biggest short-term driver. Over the longer term, climate and clean air polices are the structural drivers.”

Other investors are starting to echo Storebrand’s views as Ministers, executives and activists debated climate change for a second week at United Nations (UN) talks in Warsaw amid concern about the current rate of carbon emissions growth will see temper- ature gains exceed a UN target of 2 ˚C by 2100.

Some mining companies “are increasingly aware that this is going to be a show-stopper”, says Storebrand’s Meisingset.

Like tobacco companies, coal producers may move to paying high dividends to attract investors amid an uncertain longer-term future for the fuel, Meisingset says.

A group of 70 investors, including California’s two largest public pension funds and F&C Management, which hold more than $3-trillion in combined assets, wrote to the world’s top 40 oil, gas, coal and electric power companies in September, urging them to assess the risks climate change poses to their business.
International Energy Agency Executive director Maria van der Hoeven last week described coal as the “biggest elephant in the room” in the debate about how to shift away from fossil fuels to help manage climate risks. Coal-fired power stations remain the cheapest form of energy for developing nations, she says.

Total production rose 2.9% to an estimated record 7.8-billion tons last year. There is about one-trillion tons of reserves left, equivalent to 132 years of global output at the 2012 rate, according to the coal association.

“It is important that the international community recognise that much of the developing world is turning to coal to fuel development,” says Gomwe, also chairperson of the association’s energy and climate committee. “We need to help them do that in the cleanest way possible.”

The beginnings of a fossil fuels divestment campaign are rooted in the US, where, in 2010, Swarthmore College called on its endowment fund to sell all shares in producing companies, according to a report last month from the University of Oxford, titled ‘Stranded Assets and the Fossil Fuel Divestment Campaign’.

The Oxford University report analysed previous divestment campaigns on tobacco stocks and companies that operated in apartheid South Africa in the 1980s. Both movements gathered momentum at the involvement of large universities, such as Harvard, John Hopkins and Columbia.

Still, the report concluded that such a campaign would have a “negligible direct impact” on direct equity valuations on fossil fuel companies. Funds withdrew about $5-billion of investments in tobacco stocks in a push that took hold in the 1990s, according to the report.