Many international banks have updated their coal policies over the last few weeks. The common feature of the majority of them: they only deal with the tip of the iceberg, direct financing of new coal-fired power plant projects, but not the submerged part, the indirect financing of companies active in coal. Our review of these latest announcements:
On 16th April, the South African bank announced an update to its coal policy. This brings an end to financing new coal-fired power plants…apart from in “extenuating circumstances” that they do not specifically describe. Therefore, Absa Bank does not go nearly as far as Nedbank which stopped this type of financing, without exception. Most notably, it refrains from making restrictions on providing funding to companies in the sector, particularly with the two developers of coal-fired power plants Eskom and First Quantum Minerals that it supported with 1.6 billion dollars between 2017 and September 2019.
Mizuho and SMBC
On 15th April, the Japanese bank Mizuho announced the annual update of its coal policy, which also involved the end of financing new coal-fired power plants…with the exception of replacing old power plants with new ones in countries where they are “essential” for providing energy. This is the same for their projects that are already being negotiated, as is
the case for several projects in South-East Asia. In addition, Mizuho also undertakes to reduce its exposure to coal-fired power plantsto 50% by 2030 and to zero by 2050. This last date is 10 years too late to comply with the 1.5°C Paris Agreement goal, and above all, this commitment does not cover the funding of companies active in the coal sector, the most important by far.
Another Japanese banking giant, SMBC, also made a similar announcement on 16th April but this time there were greater exceptions as it may still directly finance new ultra-supercritical coal-fired power stations, on top of those that are already being negotiated.
The lack of strict exclusions concerning the coal-fired power plants projects, and that of any restrictions concerning the funding of companies that are active in the coal sector, show the worrying delay of the Japanese banks compared to their western counterparts. Yet Mizuho and SMBC have financed dozens of coal plant developers with 31 and 19.2 billion dollars respectively between 2017 and September 2019, which makes them the first and third biggest lenders in the world of this type of company.
The end of the sequence startedin spring 2018 relating to HSBC is the best example of this difference. The British bank was the last of the large European banks to not have permanently put an end to its direct financing of new coal plants, having left the door open for projects in Indonesia, Vietnam and Bangladesh. After two years of controversy, these are the exceptions, which concerned countries amongst those planning the most new coal plants in the world and in need of overseas finance, which HSBC officially cancelled during its Annual General Meeting on 24th April. It is satisfied with the minimum, without even making a small extra announcement relating to it providing finance to companies active in the coal sector like its Standard Chartered, RBS and Barclays peers recently did a few months before the Glasgow COP. HSBC has also financed dozens of developers of new coal plants with almost 8 billion dollars between 2017 and September 2019.
In a very similar way, a few days earlier on 20th April just before its AGM, the American bank Citi also brought an end to, the exceptions to its coal policy concerning direct financing of new coal-fired power plants, adding the exclusion of coal mines. The big difference to HSBC is that Citi has carried out nearly none of this type of financing recently, and you would have to go back to 2013 to find its last transaction made.
Unlike the banks mentioned above, Citi’s new coal policy also involves restrictions relating to thermal coal mining companies, but these remain very weak. Even if the threshold of 25% of the revenue from coal production is rather good, it is the approach taken which poses a problem. In fact, instead of immediately excluding these companies, Citi pushes back the deadline by 5 years and also only commits to reducing its exposure to 50% by 2025, then to zero in 2030. This measure is problematic as this exposure reduction can, paradoxically, go alongside an increase in the flow of financingto these companies. Furthermore, it only concerns the mining sector and not the power generation sector, while Citi providedmore than 14 billion dollars to various coal plant developers between 2017 and September 2019.
The last announcement was on 4th May and involves the Australian bank Westpac. This bank adopts a similar approach by committing to reduce its exposure to the mining companies that draw more than 25% of their revenue from thermal coalby 2030. If the deadline is correct, with Westpac being primarily active in Australia, a member of the OECD, and not really elsewhere in the world, this approach is problematic. In fact, it can only be considered as a first step to a full coal exit strategy as it omits all companies under the 25% threshold that should also be affected. But the most obvious problem in Westpac’s policy relates to the lack of commitment to completely stop directly financing coal mining and coal-fired power station projects, which is the very first step in leaving coal behind.