In what could be a seismic shift in its coal mining heritage, the industrial city of Newcastle has joined the global push to abandon investments linked to fossil fuels.

Newcastle City Council has voted to dump fossil fuel investments and has told its major banks they need to divest portfolios of assets that include resources such as coal and oil.

The decision to focus on investments that are both environmentally and socially friendly challenges Newcastle's image and rich history given its status as the world's biggest coal port.

The motion to shake up the City of Newcastle's $280 million investment was driven and won by Labor councillor Declan Clausen who was elected on a platform of moving away from fossil fuel investments.

"It's about ensuring that where we have the choice - where investments are going to provide equal returns to the city, where the investment opportunities we're seeking has the same credit rating - we're going to preferentially invest in activities that are environmentally and socially productive," Mr Clausen told the ABC's AM program.

"Ratepayers of Newcastle are very keen to see a city that continues to diversify as an economy, that continues to acknowledge the past and future of the coal industry while also looking at alternatives technologies and embracing renewables in particular, and that's certainly what we're seeing in Newcastle."

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Mr Clausen acknowledged the risks of switching away from fossil fuel investments but said Newcastle and the Hunter region had to deal with current and future social and economic challenges.

"We've seen a significant downturn already in the investment cycle in coal projects in the Hunter and, as a result, there are quite a few people at the moment seeking work," he observed.

"We've got amongst the nation's highest youth unemployment, for example, and the writing has been on the wall for some time. The coal industry is not going to continue to sustain our region solely."

Ethical investments must match ordinary returns

The switch in strategy from fossil fuels to renewables is subject to working within current legislation, ensuring that it meets AAA or AA credit rating criteria and that any new investment has a stable rate of return comparable to other products available.

Mr Clausen said that, in switching away from fossil fuels, the City of Newcastle will consider options such as renewable energies, products associated with health and aged care, equal opportunity employment, companies that support indigenous communities and affordable housing.

The Minerals Council has scoffed at the proposal and said the coal industry pumps billions of dollars into the region and employs thousands of people.

However, Mr Clausen said Newcastle needs to move with the world, where other cities and sovereign wealth funds are moving away from fossil fuels.

"I think that the coal industry certainly plays a key role in the Hunter presently and it will continue to play a key role into the future," he acknowledged.

"But a lot of jobs in other industries are emerging and it would be irresponsible of council to focus on just one industry. We need to ensure that we're supporting a number of others particularly those emerging industries."

Follow Peter Ryan on Twitter @peter_f_ryan and on his Main Street blog.