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"Eventually those coal companies may fall out of indexes all together which will really increase their cost of capital."

This seems to contradict your expectation that "passive funds without coal etc. will outperform". If the cost of capital for coal companies is higher then the return for investors in those companies is also higher.

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Yep. There's a good Cliff Asness post on this: https://www.aqr.com/Insights/Perspectives/Virtue-is-its-Own-.... Increasing expected return for sin stocks is exactly what you want if you're serious about ESG investing.

Only if they can collect enough capital to fund projects. Esp multi-billion dollar projects could be harder to fund with less support from the market, destroying parts of the business altogether.

Surely China will pony-up for more coal?

Why would China care where their power comes from ? If renewables are cheaper, then they’ll use them. That’s it.

Quite so. I'm not sure China cares there's an environmental cost associated with coal. With no other buyers, won't that make dirty coal the cheapest?

China has a major public health and pollution issue they are actively and constantly trying to remedy. The thing is everyone is making environmental investing out to be some "moral" approach, when in reality there are real and expensive repercussions and associated long term costs with using something like coal. It might be cheap immediately, but that doesn't mean it benefits society and when it adds stress to a public health system, or causes environmental damage which requires constant government intervention to clean up messes, then it's not a great idea to go for the supposedly "cheapest" option. China has the highest output of carbon in the world, but also the largest population. They aren't net producers of energy that releases CO2. They are net consumers. That's a big and important distinction. That means they don't have any vested interest in CO2 producing energy sources and if the market can adjust to provide them energy without over producing Co2 they will respond without the costs being prohibitively more expensive they'll be all about it. China is one of the largest consumers of Solar energy for e.g.

China absolutely cares about the environmental cost. Perhaps more so than the USA in the current political climate...

He's saying they'll have to pay more when they issue bonds, leaving less to pay as dividend.

This is a nuance barried in my comment, but if you buy an asset today and the cost of capital increases for that asset, that means the price went down all things equal and you lost money

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