Coal companies are concerned that backing from insurance companies and letters of credit (L/Cs) required for operations in many jurisdictions will become increasingly hard to come by as environmental activists increase their efforts to deter financiers from backing the coal industry.

While some prominent insurance companies are disassociating from coal, an analysis of US regulatory data by ratings agency Standard & Poors found that many insurers hold significant investments in companies that depend on coal as a source of revenue.

Another ratings agency, Moodys, has warned about the damaging impact environmental activists may inflict on the industry.

Environmental concerns

Climate change worries are driving campaigns to push financiers away from the coal industry due to what they describe as the commercial risks of rising global temperatures and their impact.

Coal companies require significant finance for their operations. Peabody Energy reported that at the end of 2018 it had US$1.59 billion in outstanding surety bonds and US$245 million in L/Cs with third parties to provide required financial assurances for land reclamation, workers' compensation, insurance and other obligations.

Company warnings

The company warned in its securities filings that policies that are unfavourable to new coal plants and coal mining companies limit their business choices.

"Our financial assurance obligations may increase or become more costly due to a number of factors, and surety bonds and L/Cs may not be available to us, particularly in light of some insurance companies' announced unwillingness to support fossil fuel companies," Peabody said in its recent annual filing

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.