* Coal tops the list for deaths in energy sector
* Coal also a major polluter
* Investors demand higher standards
* European utilities form ethical coal group
By Henning Gloystein, Alexander Winning and Nina Chestney
LONDON, April 25 (Reuters) - European utility companies are under pressure from shareholders to source their coal in a more ethical and environmentally friendly way to cut pollution and save thousands of miners who risk their lives each year.
Coal mining is responsible for more fatalities than the production of any other energy source due to poor working conditions in export countries such as China, South Africa, Indonesia and Colombia. It is also a major world polluter.
But it accounts for around 40 percent of Europe's power generation because a glut of supply has made it cheaper than other fossil fuels such as natural gas.
Under scrutiny from major shareholders including Norway's sovereign wealth fund, some energy companies have already taken action, clubbing together to form the Bettercoal group to improve their ethical, social and environmental standards.
"There is increasing awareness of coal's destruction... and also understanding that alternatives are possible," said Ailun Yang, Senior Associate at the U.S. World Resources Institute.
Over 30,000 people have died in accidents related to coal mining since 1970, compared with 20,000 in the oil sector and around 1,500 in natural gas, according to estimates from the Paul Scherrer Institute (PSI), a Swiss natural and engineering sciences institute.
Other estimates are much higher with Hazardex, a specialist in safety information, saying that China's death toll alone is over 1,000 a year. Indonesia and South Africa also suffer from frequent deaths in coal mines, and there have also been recent ones in Australia and New Zealand.
Meanwhile, the World Health Organization said last month that air pollution, partly caused by burning coal, killed 7 million people worldwide in 2012, making it the world's single biggest environmental health risk.
While the WHO recommended "the movement away from dirtier fuels, such as coal", the use of filters and higher quality coal instead of cheaper supplies with high sulphur and ash contents can reduce air pollution.
Coal mines can also improve their environmental footprint by trying to use less fresh water and taking steps, such as automated ship loading conveyor belts and closed train cargo coaches, to reduce coal spillage into the ground and water.
The push for higher coal mining standards follows the success of the fair trade standards for agricultural products such as coffee and chocolate and the campaign against the sale of diamonds mined in conflict areas.
Industry experts say that while consumers have less influence on the energy sector than they do on products such as coffee, the fall in coal prices provides an opportunity for the utilities to push through a change in practices.
"Utilities and investors are in a good position to demand change as there is a global coal oversupply, giving buyers multiple choices to source their coal from," said one mining adviser who did not want to be named.
"This puts pressure on miners to become more attractive for utilities and investors."
The Bettercoal group is made up of utilities which account for more than half of Europe's thermal coal imports. Its members are DONG Energy, EDF, GDF Suez, E.ON, RWE, Fortum, Gas Natural Fenosa, and Enel.
The group was set up in 2012 and this month started assessing mining companies for their ethical standards. The group says the results will influence which miners they buy their coal from.
"Bettercoal can be an agent for change, not only bringing improvements at the mines, but also enabling members to make decisions with regard to their coal suppliers," said Martin Christie, executive director of Bettercoal.
The group said it would judge mines on criteria including business ethics, health and safety, and environmental standards.
Other utilities are also taking action. German Steag, with 10 gigawatt of global installed coal generation, said it was in talks with miners about social and environmental topics.
"We regard it as an obligation to take a look on-site into the validity of allegations by third parties and to critically scrutinise our suppliers," said Steag board member Wolfgang Cieslik, adding that the company had inspected Colombia's El Cerrejon, one of the world's biggest open cast coal mines, jointly owned by BHP Billiton , Anglo American , and Glencore Xstrata.
LETTER TO THE POPE
Environmentalists, religious groups, academics, politicians and scientists say the utilities and the banks which fund the coal mining still have not done enough.
Late last year the United Nations' climate chief urged a radical clean-up of the coal industry, while religious groups in Australia and North America wrote to the Pope in February, urging him to encourage banks to move their money out of coal.
Some of these campaigns have yielded results. Several large financial institutions have said they will curb funding for coal projects, including the World Bank and the European Bank for Reconstruction and Development.
Norway's $817 billion sovereign wealth fund, the world's largest, invests in both utilities and mining companies. It has halved its exposure to coal producers, and Chief Executive Yngve Slyngstad told Reuters in March it would review investments in the mining sector this year on ethical grounds.
The fund has investments in mining majors such as BHP Billiton, Vale, Glencore Xstrata, and Anglo American, but has dropped Rio Tinto on ethical grounds. It is also invested in some 160 companies that use coal to generate power, such as French utility GdF Suez, and another 190 companies that use coal to produce steel.
"There is environmental damage by definition," Slyngstad said. "It does not mean that we are selling out of the sector. We are concentrating our investments on the companies that we think are continuing this activity in a more sustainable way."
Coal's share of energy generation is still increasing and global carbon dioxide emissions hit a record high last year.
Driven by rising use in China, India and other emerging economies, coal could even surpass oil as the main fuel for the global economy by 2020, energy consultancy Wood Mackenzie said.
This highlights the need to take urgent action to improve environmental standards, experts say.
In the West, a revolution in shale gas technology in the United States has triggered a switch from coal to cleaner natural gas, but it has also resulted in cheap coal exports to Europe where its share of the power generation mix has risen.
In Asia, China approved the construction of more than 100 million tonnes of new coal production in 2013, six times more than a year earlier, despite plans to tackle air pollution choking its major cities.
Chinese efforts to reduce its pollution from coal, range from pushing its natural gas, renewable and nuclear power generation sectors as well as introducing particle filters and reducing the amount of high sulphur and low quality coal imports especially from Indonesia.
(Additional reporting by Vera Eckert in Frankfurt and Gwladys Fouche in Oslo; editing by Anna Willard)