Blackrock Out of Thermal Coal – Australian Bonds Under Pressure

In 2019 Blackrock Inc was criticised for the environmental impact of its holdings in oil and gas and coal. Blackrock is the world’s largest fund manager with UDS7 trillion under management.

Last week it announced that it would be divesting all thermal coal stocks where coal was more than 25% of revenue. The plan is to sell USD520M in actively managed portfolios. See a map of Australian thermal coal deposits and mines below.

Whatever one believes about “human induced climate change”, decisions like this by Blackstone and others will dramatically change the investment landscape. This was well expressed by Geraldine Buckingham, BlackRock’s head of Asia Pacific:

“This is not about people’s personal or individual views about environment or, you know, what the right policy responses are, this is really about how do we fulfil our role as a fiduciary to help clients understand how to manage the risk in their portfolio.”

Notwithstanding the above, thermal coal is not going anywhere anytime soon. It appears that among the few to understand this are China and India. Check out the two charts below. Thermal coal will be with us for a long time yet. And should we replace gasoline with electricity there will be even more demand for coal — or perhaps the gasoline will be burnt to make electricity.

However, Blackrock’s decision will change the investment criteria around coal. It will almost certainly lead to other investors, including governments, also abandoning coal. With more sellers than buyers one can expect an uptick in mergers and acquisitions, perhaps even government acquisitions.

Finally, Australian government bonds will be affected. Already, Sweden has sold Queensland and Western Australian bonds because of “high greenhouse gas intensity”. Should this divestment intensify there is a good chance that Australian bonds will lose their “AAA” rating. This will mean higher interest rates throughout the Australian economy and possible recession.

 

Courtesy Reserve Bank of Australia

Courtesy Reserve Bank of Australia

Major Thermal Coal Deposits in Australia, Courtesy Small Caps