The Rise of the Financial Warrior
Just last week I made the case that there would be three key subjects we’d be looking at in 2020.
Gold, interest rates, and the increasing economic impact of climate instability.
However, I realise I’ve left off a fourth.
And this topic could be the most divisive of all…
That is, the rise of the financial warrior.
Are they out to do good, or really just interested in protecting their bottom line?
A multitrillion-dollar weapon
I first noticed the rise of the financial warrior last year.
Australia’s super funds started making noise not investing in fossil fuels. I wrote early last year that financial activism essentially turned Australia’s $2.8 trillion super industry into a financial weapon.
The thing is, they aren’t the only ones waiving their financial might.
By the middle of the year, Norway’s $1.45 trillion sovereign wealth fund was well on the way to selling $8 billion of their stocks in fossil fuels.1
Around the same time, BHP Group Ltd [ASX:BHP] announced they were selling their coal assets.2
It should be noted though, BHP were following their competitors.
Rio was completely out of coal by the end of 2018, as was Japanese-owned Mitsubishi, to name a few.3,4
Come the New Year, we have another pretend do-gooder in our presences.
This morning Black Rock announced that their $10.1 trillion assets under management will move away from coal-related investments completely. Somehow over the next year the company will sell out of around three quarters of a billion of coal-related stocks.5
To compound all of this, major banks are pulling money out of coal.
All four major Australian banks have said they won’t fund new coal projects.
And major banks in Singapore announced a similar thing last year.6
Although I suspect they were really just playing catch up to European and US banks, who all stopped offering credit to new coal mines a couple of years ago.
And insurance companies? Nope, they won’t touch a new coal mine. 35 major insurance firms are even working out how to un-insure the existing coal projects they are in.7
My problem isn’t what these companies choose to invest in.
That’s their business and their choice. And as an investor you can choose to invest in companies that invest in areas that interest you.
My issue, is that every single company is using the environmental angle as the reason for ‘divesting’ their coal-related products.
And no doubt they’ve been met with a cheer by environmental advocates.
But in the process, they make themselves financial warriors, appearing to be on the right side of climate instability…
…but in reality, moving out of coal is less about environmental concerns, and more likely about the fact that the dollars don’t stack up anymore.
Prices have halved in a decade
It’s not about climate activism nor about forcing a green view on investors.
The reality is, if there was money in coal, companies and banks would be in it.
Remember, these banks and investment firms are multitrillion behemoths.
They don’t invest for their conscience.
And given how divided the world is on carbon emissions, ditching coal will only win you support on one side — but have you looking like a sell out to the other.
Not only that, if there was money to be made, all of the above would’ve dived in head first.
You have to remember these are the institutions that created, enabled, supported, and then benefited from central banks’ handouts during the financial crisis.
I find it impossible to believe they’ve found a collective conscious.
The simple fact is, the price and demand of coal is falling. Meaning there are fewer and fewer profits to be had.
Australian coal prices are down 50% since 2011.
A broader global coal index reflects a similar price fall over the same time.
Coal stocks around the world are down to all-time lows.
The Van Eck Vectors Coal ETF [NYSEARCA:KOL] — which tracks the performance of global coal companies — has fallen a whopping 79% since April 2011, from US$49.50 to today’s US$10.04.
Not only that, but since President Trump has taken office in January 2017 — he has shut 50 coal plants.
Why? Because the economics of keeping them open any longer doesn’t stack up.8
Simply put, the fracking revolution that took place over the 2010s means extracting oil and gas is cheaper than coal.
According to one report from CoalTrans, the effects of all these plants shutting are yet to filter through to the price of coal, as closing down plants takes some time.9
Which suggests that global coal prices are going to fall further in the next couple of years.
Companies and banks aren’t moving from coal because of environmental concerns, it’s because the profits aren’t there.
All of these companies are feigning environmental concern.
When really these pretend financial warriors just can’t turn a buck from the industry anymore.
But that doesn’t sound as good in the PR statement.
Until next time,