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Norway’s $1tn oil fund, the world’s largest sovereign wealth fund, has removed Drax from its investment blacklist as the UK power company ditches coal in favour of cleaner energy.
Norges Bank Investment Management’s decision to invest in Drax again is one of the clearest signs yet that some big investors are rewarding companies they think are making sufficient progress on moving away from the most polluting of fossil fuels.
Drax chief executive Will Gardiner said the decision was “great news”.
“Converting Drax from coal to sustainable biomass has reduced emissions at Drax by more than 80 per cent since 2013,” he said. Biomass is plant or animal material used for energy production.
The decision will be watched closely by rival power companies, which are facing growing pressure from investors to provide cleaner energy.
Norges Bank, which oversees the fund, divested from Drax in 2016 after it estimated that coal accounted for more than 30 per cent of the FTSE 250 group’s total power capacity.
The move was controversial at the time, with Drax arguing that it was already well into the process of transforming itself into a company that predominantly generated electricity by burning biomass.
Announcing the plan to reverse its 2016 decision on Thursday, the oil fund acknowledged that Drax had made progress in overhauling its business.
“The company has undergone significant restructuring, with a transition from coal to biomass as fuel,” it said.
The oil fund added that it now thought the company’s coal power capacity was “less than 30 per cent of total power capacity by a good margin”.
Drax’s vast power station in Selby, North Yorkshire, used to run exclusively on coal and was the biggest polluter in western Europe.
Since 2013 it has been converting its generating units at Selby to burn wood pellets, a form of power generation classified as renewable by the UK government and which has attracted generous subsidies. However, it is controversial among some environmentalists, who question its green credentials.
The global biomass industry has been linked to deforestation and some environmental groups argue that it is more damaging than fossil fuels.
Four out of the six generating units at the Selby plant have been converted to biomass and Drax said this week that it was “assessing options” for the remaining coal units.
However, the company has applied for planning permission to build up to two big new gas-fired power generators at the site. A decision last year by the UK energy secretary Andrea Leadsom to grant planning permission for Drax’s gas proposals is being challenged in the High Court by the environmental legal group ClientEarth.
In recent years, Norway’s oil fund has removed several other companies from its exclusion list, arguing they had improved on ethical issues.
This included Walmart, which it had previously divested from over human rights issues, and Rio Tinto, which it had dumped because of concerns about the environmental impact of an Indonesian mine.
Many companies still remain on the exclusion list, with several dating back more than a decade.
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