(Reuters) European companies moving to coal as an alternative to Russian gas face lower ESG ratings, leaving them rushing to persuade investors.
Despite an energy crisis caused by Russia’s sanctions, big European investors say they won’t loosen their net zero greenhouse gas emission targets by 2050 or earlier.
MSCI and Sustainalytics provide ESG ratings that investors use to evaluate companies. Coal, which emits more carbon dioxide than oil and gas, hurts companies.
Due to the Ukraine crisis, Germany and Italy are considering reintroducing coal. German specialty chemicals company Lanxess may consume more coal.
Industry sources say companies obliged to use the fuel by cost or legislation may make up ground by focusing on the S and G in ESG.
“When your emissions go up, you’re in more difficulties from a ratings viewpoint,” said MSCI’s Sylvain Vanston. “A fresh commitment could offset it.”
Few companies have found a way to replace the harmful fuel. Lanxess, which has acknowledged its carbon footprint, declined to comment on coal’s impact on its ESG rating.
If it prices itself out of the market, factory closures and employment losses could damage its “social” operations.
Companies wishing to maintain their ratings have alternative options. Sustainable Fitch assesses a company’s ESG impact, according to David McNeil, head of climate risk. “We’d look at a utility’s green bond,” he said.
Some firms, like Enel (BIT:ENEI), have issued sustainability-linked bonds.
Sustainability-linked bonds and green bonds, which support environmental projects, have performed poorly in recent months due to increasing interest rates and a likely recession.
RWE, Germany’s leading power producer, has issued green bonds; its CEO declared last month that Germany should replace gas with coal.
RWE is focused on boosting its usage of renewable energies and hydrogen to accelerate a coal phase-out, a strategy its investors have “broadly approved.”
Other companies, such as Europe’s biggest copper smelter, Aurubis, say they still want to decarbonize despite coal’s short-term complications.
Investors say they’re dedicated. AXA Investment Managers, Allianz Global Investors, and Zurich Insurance, which oversee $1.8 trillion between them, all plan to cut back on coal despite the Ukraine crisis.
Linda Freiner, Zurich’s head of sustainability, stated, “We’re staying the course.”
Europe’s energy problems aren’t improving. How far corporations or investors can preserve trust in long-term ESG ideals like eliminating coal remains to be seen.
Alex Simcox, head of ESG investment at Mondrian, said coal conflicts with decarbonization in the short term.
“If you’re in Germany and Russia turns off gas, even if you’re green, you should expand coal-fired electricity.”
