The time is now for the divestment movement. Recently, investors representing more than US$6 trillion in assets committed to divesting from fossil fuels. The Sustainian met with KR Foundation’s program manager for sustainable finance to talk about what’s going on in the divestment movement and why you should care about coal.

KR Foundation is a Copenhagen-based, philanthropic foundation that works internationally to fund projects that address the ‘root causes’ of climate change. “We have a financial system that is, largely, financing our climate problems – while not financing the solutions adequately,” Alexander Ege, program manager for sustainable finance says, “If we don’t change the structural conditions now, so the finance sector becomes geared towards fulfilling the goals of the Paris Agreement, we will struggle with almost unsolvable challenges in a not so far future” he warns.

The divestment movement has come of age

On a more positive note, the divestment movement has really gained momentum over the last couple of years. “It has grown from a small fringe movement to a great force that needs to be reckoned with” Alexander Ege tells us. In 2014 the divestment movement consisted of pledges from investors controlling about US$50 billion. At the Global Climate Action Summit in California, September 2018, it was announced that the divestment movement now encompasses more than US$6.3 trillion and includes pension funds, philanthropic foundations, Catholic churches, universities and many more. The movement has become so big, that the big oil companies are starting to consider divestment on par with other financial risks.

“Now, we see a degree of coordination we have never seen before”

“At the same time, engagement, or active ownership, has become much more advanced,” Alexander Ege says. For many years, active ownership was a little vague, and has been criticized for being too slow and complicit in greenwashing. “Now, we see a degree of coordination we have never seen before” Alexander Ege explains.

One of the big changemakers in this is the KR Foundation-supported Climate Action 100+ initiative, a group of 296 international investors with more than US$31 trillion in assets under management, monitoring the 150 most polluting companies in the world. “Engaging with the 150 most polluting companies in the world and demanding that they align their actions and emissions with the Paris Agreement, within the next 5 years. That’s substantial progress” Alexander Ege tells us.

These investors have quite specific demands for the companies: show us your plan for bringing your emissions in line with a climate-safe future and ensure your directors has the right capacity to handle climate change – or we divest. In that sense, the divestment and engagement movements are really joining forces to ensure crucial impact.

Still a long way to go

Despite making progress, research from KR-supported Rainforest Action Network, and the organizations BankTrack and Oil Change International, showed that bank financing of extreme fossil fuels (coal mining, coal-fired power plants, arctic and deep-sea oil drilling, tar sands and LNG) increased in 2017 by 11% compared to 2016 (US$104 billion in 2016, US$115 billion in 2017).

Even though many institutional investors claim that they are moving in the right direction, they still need to back their words with action. “Big asset managers like BlackRock are urging companies and CEOs to take on societal responsibility, but we still need to see the words turned into action. They are still scratching the surface,” Alexander Ege says.

Why we should care about coal

Add to this that the aggregated fleet of coal-fired power plants actually grew over the last year – especially in South-East Asia – and it is clear that we are currently not yet on a trajectory to climate success. Because the expanding coal fleet is not good news if we are to keep the global temperature increase below 2 ̊C. Because to do so, all coal-fired power plants has to be shut down in OECD countries by 2030, China by 2040 and everywhere in the world by 2050.

There is an urgent need for the financial system to actively retire the coal-fired power plants, especially in OECD countries.

If we continue on our current path, by 2030 there will still be coal-fired power plants operating in OECD countries, with a power production capacity of about 200 gigawatts. That is 15 times the total power generation of a country with a population of six million, like Denmark. There is an urgent need for the financial system to actively retire the coal-fired power plants, especially in OECD countries.

“KR Foundation is supporting organizations that are working actively towards preventing more coal plants to be constructed. But that’s not enough, we also need to shut down the existing ones, faster than they would naturally be shut off” Alexander Ege tells.

Keeping fossil fuels in the ground

The Foundation’s project portfolio includes projects that are strategic, research based, and even activist in nature. This is based on the perception that following different paths and projects will create the most impact.

“In a way our approach is ‘agnostic’, meaning that we do not believe there is only one path to follow. Some believe that divesting might be the only solution, others insist on active ownership. Our project portfolio is more diverse; the time is for experimenting on how to get maximum impact, since we are almost out of time…taking steps is not enough – we have to run,” says Ege.

“If we don’t start translating climate change data into financial data this whole sector will not listen.”

To make the world of finance run, the Foundation focuses on making global investment practices always raise the bar. Ege explains: “When one sustainability practice becomes mainstream we need to push the bar and the level of ambition once again. When disclosure has become mainstream, we will work on making it mandatory. When coal divestment is mainstream, we push for oil.”

Transparent data is needed to merge climate data with financial data – essentially serving as a translator that can help the financial sector to really understand the consequences of a “2 ̊C society”. “If we don’t start translating climate change data into financial data this whole sector will not listen. We must make companies and investors align with reality. The US$2.3 trillion planned investments in the oil and gas sector alone will most likely become stranded assets, as they are invested in fossil fuels that must be kept in the ground.” It should be more generally acknowledged that fossil fuel assets will most likely become high risk assets in a nearby future, as there are no room to expand the existing fossil fuel production if we are to reach the goals of the Paris Agreement.

Would you get into a plane if it was only 66% certain that it would arrive at your destination? Most likely not, but even staying within the proposed carbon budget it is only 66% likely that we will stay below the 2 ̊C target of the Paris Agreement. ‘Developed reserves’ (left column) means the fossil fuels we have access to, and which are already planned to be extracted. Source: ‘The Sky’s Limit: Why Paris Climate Goals require a managed decline of fossil fuel production’, Oil Change International 2016, based on data from Rystad, IEA, World Energy Council and IPCC.

Just glancing at the projects KR Foundation supported in 2017, it becomes clear that diverse actors and projects are working towards the same goal. “Some projects might appear very ambitious, but if we don’t try, we don’t get anywhere,” Alexander Ege stresses. “It is not just about the overall level of ambition, but also about when. If we are serious about achieving the goal of the Paris Agreement, then we don’t have five years to wait”.

About KR Foundation:
KR Foundation aims to address the root causes of climate change and environmental degradation.
The Foundation’s overall aim is aligned with the Paris Agreement’s goal of keeping global temperature rise in this century well-below 2 ̊C above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5 ̊C.
They do so by funding projects that provide answers to, change mindsets about, and encourage action on the challenges faced by current and future generations living on a planet with finite resources, fragile ecosystems, and climate change.
This is done be working mainly in two areas that:
1) Seek ways to shift financial flows
2) Support a transition away from high-impact lifestyles towards ways of living that are sustainable and offer high levels of wellbeing.
When it comes to supporting projects specifically for climate change action, the KR Foundation is a significant, well-renowned and ambitious part of the global climate philanthropy community. In 2014 the Danish THE VELUX FOUNDATIONS pledged to fund KR Foundation with DKK 1 billion over 10 years. The KR Foundation has since its establishment become one of the most experienced foundations working on sustainable finance, monitoring the lay of land, cooperating with a line of the leading experts, organizations and institutions and not least by assessing almost 500 letters of interests (2017) from climate projects all over the world.