Climate Change News: Central Banks Urged To Divest Coal Investments

The London think tank New Economics Foundation recommended in a report issued Wednesday the world’s leading central banks divest themselves of coal-related investments to avoid holding stranded assets as governments work on reining in climate change.

The foundation also urged the adoption of rules that would discourage financing of polluting industries by both banks and credit rating agencies.

Frank van Lerven, a foundation economist and author of the report, said the central banks will have to be careful in how they rid themselves of brown assets so they don’t “trigger transition risk.”

“Central banks have to be careful and manage this process gradually,” he told Bloomberg.

The foundation estimates central banks in the euro area, Britain, the U.S., Japan, China and Switzerland have more than $12 billion coal investments, both stocks and bonds.

“Central banks across the world have exposures to coal through their collateral frameworks as well as the assets they hold,” the report said. “The balance sheets of major central banks today stand at more than $20 trillion. At least $627 billion of that total is allocated to equities and corporate bonds. Assuming that just 2% of this sum is linked to coal-exposed assets, central bank coal exposures would amount to more than $12 billion. Removing this exposure is critical and urgent.”

Lerven noted the U.S., Japan and China have a large number of cial-fired power plants “and that’s probably reflected in their central banks’ balance sheets.” China currently accounts for half of both coal consumption and production.

European Central Bank President Christine Lagarde has said she is committed to finding ways to tackle change while the Bank of England has taken steps “to stress test the financial sector for stranding fossil fuel assets in general and coal assets in particular,” the report says.

Projections indicate the use of coal in energy production will fall by two-thirds by 2030 and to nearly zero by 2050. Currently 80% of coal-fired plants in the European Union are unprofitable, necessitating their rapid phase-out. Despite this, coal use has doubled since 2000 worldwide, with more than 500 new plants being built or planned. More than 6,700 plants were operating worldwide as of July, Global Energy Monitor reported.