FTSE Russell Starts Coal-Free Equity Indexes as Divestments Rise

FTSE Russell is creating coal-free equity benchmarks as a campaign to encourage divestment from the fuel gathers pace.

The company will add the all-world and North American ex-coal indexes, which exclude companies with exposure to coal or miners with proved reserves of the fuel, to its existing ex-fossil fuel benchmark that was started in 2014, it said Tuesday on its website. FTSE Russell is also developing custom indexes that exclude coal for Norway and California, it said.

Investors from Axa SA, France’s largest insurer, to Stanford University have sold off holdings in coal companies amid pressure from environmental groups such as 350.org. Aviva Plc said July 24 it would divest from companies that weren’t making enough progress in moving to a less-polluting future.

“As the divestment debate has continued to resonate, there is both pending and passed legislation that would force some fiduciaries to divest of carbon assets -– typically their coal mining stocks,” Gordon Morrison, managing director of the environmental and social governance department at FTSE Russell, said in e-mailed comments Tuesday. “Russell decided to create the ex-Coal Index Series, as we felt it was appropriate to develop a benchmark that reflects this reduced investment opportunity set.”

The company established the ex-coal indexes in response to client requests and amid the proposed legislation, Harry Stein, a spokesman for FTSE, said by e-mail, declining to identify any of the companies.

Greenhouse-gas emissions from burning the mineral and other fossil fuels including oil and natural gas are blamed for rising sea levels and changing weather patterns. Nations are preparing to meet in Paris in December to negotiate a treaty to cut emissions of climate-warming gases.

Investment Returns

Lawmakers from Norway to California have proposed bills that would require public pension administrators to end their investments in companies linked to coal. Billionaire climate activist Tom Steyer said June 12 the largest public pensions in the U.S. can drop coal companies without compromising investment returns.

“It’s only natural for them to modify the benchmark against which their assets are measured,” Morrison said Wednesday by telephone.

Non-governmental groups started campaigns to divest coal assets about two years ago. Various church organizations were among the first to drop coal investments, according to Kevin Bourne, managing director, database services at FTSE.

Gas Switch

“The church as a group globally has been the most effective at introducing policies where assets are divested,” Bourne said Wednesday by phone. “Their endowments may not be very big. However, their messaging and engagement and their action has been the most cohesive so far.”

Power generators are switching to cheaper natural gas even as stricter pollution regulations cut demand for coal. Natural gas topped coal as the leading fuel in U.S. power generation for the first time in April. Coal producers including Walter Energy Inc., Xinergy Ltd. and Patriot Coal Corp. have filed for bankruptcy protection this year after prices tumbled to multi-year lows.

The Stowe Global Coal Index, a measure of performance of the global industry, fell to 968.30 on July 27, the lowest in at least 10 years. Alpha Natural Resources Inc., the U.S.’s second-largest producer, was dropped from the New York Stock Exchange earlier this month after its share price fell below $1.

FTSE Russell has not received any request to establish other indexes that would exclude oil or natural gas stocks, Stein said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE