The Italian bank Intesa SanPaolo has just adopted its first coal policy. It was the last major European bank to lack such policy. Although it goes beyond simply restricting the financing of coal projects, the policy contains many loopholes that limit its scope. Decryption.
The good news is that the policy excludes all direct financing of new coal mines or new coal-fired power stations, without geographical exceptions, much like in policies recently adopted by other international banks such as HSBC, which abandoned these exceptions a few weeks ago.
But in 2020, as climate and public health emergencies are more present than ever, international banks are expected to meet criteria for the exclusion of coal companies and not only coal projects. Indeed, general business financing is the bulk of financial support offered by banks, it is the submerged part of the iceberg, compared to project financing, which is only the tip.
This is where the problem lies: Intesa SanPaolo has found many loopholes in order to make its policy less ambitious. First, they limit its application to certain general loans. This excludes not only share and bond issues, but also the renewal or extension of credit lines, which is an exception among large international banks. Not to mention investments in companies in the coal sector, which will not be impacted either, even though the bank has invested more than USD 230 million in dozens of coal-fired power plant developers, according to the latest data from September 2019.
The big Italian bank is also the first to introduce a differentiation in its criteria for excluding electricity generating companies between those based in OECD and non-OECD countries. The former are not eligible for support if they have more than 30% of their electricity generation capacity based on coal and the latter if they exceed the extremely low threshold of 50%. Only the German Commerzbank has so far differentiated its exclusion thresholds between companies based in Germany and those outside. While the relative exclusion criteria adopted by Intesa SanPaolo for OECD-based companies is quite strict, it is unfortunately accompanied with exceptions that leave the bank a wide margin of manoeuvre to decide on a case-by-case basis. The criteria for those based elsewhere remains notoriously insufficient.
Moreover, strangely enough, no relative exclusion criteria are applied for coal mining companies, although they are the only ones affected by the exclusion of companies planning new coal mining projects. This is the exact opposite of the approach taken by many banks to date. The 5 companies planning to build new coal-fired power plants, which Intesa has financed to the tune of USD 2.6 billion between 2017 and September 2019, will therefore not be excluded on the basis of such criteria.
On a more positive note, Intesa SanPaolo has adopted an exclusion criteria that is quite rare in the industry: that of certain financing for the acquisition of existing coal-fired power plants. The criteria remains less strict than the one adopted by the major French banks.
On the other hand, the Italian bank has not adopted a date for a complete exit from the coal sector, nor a strategy to achieve it, unlike an increasing number of international banks. It will therefore have to review its policy in the near future if it does not want to lag far behind many of its European rivals.