Perverse effect of political correctness: coal mines have never been so profitable

13th November 2018

Olivier Aeschlimann, Senior Financial Analyst - Fund Manager

The fight against global warming has become a major issue and the COP21 (the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change) has set very ambitious targets to reduce greenhouse gas emissions, where in the first place ranks CO2. As a result, and in order to improve their image of responsible companies, many banks have stopped funding coal mining projects, the combustion of which is highly carbon dioxide generating. Some major mining groups have also shed their assets in this sector. However, with global demand for energy continuing to grow and coal remaining (in emerging markets) the main source of power generation, demand for this mineral is now growing faster than supply. In the absence of credible alternatives, the logical result of this situation is a structural increase in the price of coal. Thus, the reduction of new projects has simply increased entry barriers and allowed existing coal mines to improve their profitability. Isn’t it said that hell is paved with good intentions?