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Sustainable Investing Glossary

Thermal coal exposure

Thermal coal exposure measures the proportion of a company’s operations that is linked to the mining, processing or sale of this common but increasingly environmentally unacceptable fossil fuel.

Thermal coal, also known as ‘steaming coal’ or just ‘coal’, is widely used as the principle means of generating electricity in much of the world. However, its high carbon and sulfur content means it is also a major contributor to greenhouse gas emissions and global warming. This means it is increasingly being excluded from asset management portfolios, particularly those that seek to lower than carbon footprints. Coal in all its forms derives from the remains of plants that grew on Earth about 250 million years ago. These plants decayed and were eventually turned into coal by the intense heat and pressure of the Earth’s geological forces. Since its discovery in prehistoric times as a mineral that burns easily, it has been increasingly used to generate heat. Although its use globally has been declining since 2013, thermal coal still supplies about a quarter of the world's primary energy and two-fifths of its electricity, according to the International Energy Agency (IEA). (Thermal coal differs from coking coal, which has a higher energy content and is chiefly used in metal making rather than electricity production.) 

Coal’s principal problem is that burning it is the largest source of CO2, accounting for 14 trillion tonnes of emissions in 2016, and about 25% of all global greenhouse gas emissions, the IEA says. In order to meet the terms of the Paris Agreement, coal use needs to halve between 2020 and 2030, according to the Carbon Brief data collation service. The UN has asked all governments to stop building new coal-fired power stations, but this has not been universally followed. The largest producer, consumer and importer of coal is China. 

As coal use has become increasingly unacceptable in a sustainability context, it is being treated by investors in a similar vein as tobacco or contentious weapons. In its Sustainability Focused range of funds, Robeco now excludes mining companies with more than 10% of their revenues derived from thermal coal, and power producers with more than 20% of thermal coal-related revenues. In order to meet the Paris Agreement, these thresholds for thermal coal exclusions are set to be lowered in the coming years.

Sources: RobecoSAM, enhanced exclusion criteria (maximum percentage of company revenue threshold)

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