Monthly Archives: October 2013

Mayors Argue to Cut Fossil Fuel Stock

By John Ryan,

Seattle Mayor Mike McGinn wants his city to divest from fossil energy companies.

Investment advisors from across the country met on Friday in Seattle in hopes of cutting fossil fuels from the stock portfolios they manage.

Seattle Mayor Mike McGinn organized the forum on divesting from coal, oil and gas companies. McGinn wants the city employees’ pension fund to divest because of fossil fuels’ impact on the global climate.

“Isn’t it fiscally irresponsible as well as morally irresponsible to invest in companies whose very business model depends upon destroying the climate we depend upon?” McGinn said.

McGinn doesn’t have control over Seattle’s more than $2 billion in pension funds. That’s controlled by a seven-member board.

No pension board members attended Friday’s forum.

The mayor has tried to exercise the control he does have, however. McGinn ordered the city’s finance director in December not to invest any of the city’s cash balances in coal, oil or gas companies. He also urged the board that administers the Seattle City Employees’ Retirement System to sell off its fossil-fuel investments.

That board voted last month to consider changing its investments for social or environmental goals only if doing so wouldn’t hurt the pension fund’s bottom line.

At Friday’s divestment forum, financial experts said that divesting from fossil fuels need not hurt the bottom line.

“There’s a lot of evidence out there showing that it won’t hurt,” said Craig Metrick, an investment consultant with the multinational firm Mercer. “It’s as much about what you do with the money once you divest, if you’re going to divest, as to whether or not you divest alone.”

Metrick said replacing fossil fuel stocks could even be financially beneficial, especially if burning of fossil fuels is restricted to protect the climate.

“If you’re replacing fossil fuel stocks, performance may be better over certain time periods,” he said.

McGinn said not divesting would leave the city’s pension holders more exposed to the risk of their retirement savings losing value. “They should be concerned if their financial returns depend on doing something that may be regulated out of existence,” he said.

How much of Seattle’s pension funds are invested in fossil fuel companies is unclear, as the investments are typically in mutual funds containing a variety of assets. McGinn said in December that the city employees’ pension funds included at least $17 million in ExxonMobil and Chevron stock.

McGinn’s opponent in the upcoming mayoral election also supports divesting from fossil fuels. Rep. Ed Murray’s campaign said Murray supports divesting only if it doesn’t put the city’s pension system at risk.

At least one investor at the forum questioned the utility of divesting in a long list of energy companies, as the environmental group is calling on cities and colleges to do.

“Divestment itself won’t reduce emissions,” said money manager Jonathan Naimon with Light Green Advisors in Seattle. “If you sell the stocks, but you still buy the fuel to fuel your cars, you’re not really moving the real economy forward.”

Naimon said he favors greening portfolios by shedding the very worst firms but investing in those that have improving records.

“You’ll actually have a larger impact on climate if you engage with these companies and get them not to do bad projects like the tar sands (heavy oil drilling in Alberta),” Naimon said.

Mayors of 12 cities have pledged to divest their cities’ funds from fossil fuels. McGinn was the first.

October 22, 2013

This article can also be viewed on the website here.




A Snowball’s Chance: “Re-Energizing Peabody” Bucks 20 Year Industry Decline

By Jonathan Naimon, Light Green Advisors:


Peabody sales of thermal coal to US utility were in a long term decline along with its stock price before President Obama announced a plan to reduce  US greenhouse gas emissions by 17% by 2020.  While Ms. Doherty is certainly  correct that US politicians including Obama are as unlikely to jeopardize a fuel supply that produces 50% of US power supply, however, the nation’s financially conservative electric utilities have no such qualms and have already reduced thermal coal’s role as fuel for US power consumption from close to 50% to under 40% in last 10 years – faster than the regulatory goals.  The reasons for the utility industry shift are not purely related to climate: natural gas is less expensive on an inflation adjusted basis, natural gas reduces the operational and capital expense uncertainty associated with upcoming EPA greenhouse gas regulations, natural gas does not require determining appropriate reserves for ash waste management, and as a fuel source,  natural gas generates no particulates and contains no toxic and increasingly regulated mercury.

Peabody management realizes the decline of its primary product, thermal coal for the US utility market, is inexorable.  The company’s defensive debt-producing acquisition of MacArthur coal was required to provide its investors with at least some growth in the increasingly Asian market for metallurgical coal used in steelmaking.  The company’s closure of US mines is a reflection of a structural shift away from coal among US utilities and a smaller future US market.

In contrast to coal, the natural gas industry has created billions of dollars of new shareholder wealth above and beyond the wealth destroyed by the coal industry. The natural gas industry has created literally millions of blue collar jobs in an era where few industries do. While technology associated with coal mining and burning has not advanced materially in recent years, the revolution in natural gas extraction technology has led to sizable investment in the US gas industry by many global energy firms from both Europe and Asia. Utility scale combined cycle natural gas turbines can now generate approximately 40% more energy per BTU than commercial coal systems.

Perhaps the most delicious “market-eats-politics-for-breakfast” irony is that according to the International Energy Agency, the US, not Germany, is the sole developed economy that has  reduced its greenhouse gas intensity as a result of a combination of more fuel efficient vehicles, and the substitution of natural gas for coal by electric utilities — in the five years preceding Obama’s recent proposal!