Coutts, the private banking branch of Natwest (formerly the Royal Bank of Scotland), which also happens to be the Queen of England’s Bank, announced in its latest sustainability report of June 24, 2020, that it would from now on stop investing in companies most exposed to coal, oil sands and the Arctic industries. Coutts is not a corporate and investment bank, and as such does not issue loans, stocks, or bonds for businesses. Rather, it manages more than £34 billion in assets on behalf of its wealthy clients.

On coal:

  • With regards to coal, the bank is now committed to exclude any investment in mining companies deriving more than 5% of their revenues from thermal coal, and in companies deriving more than 25% of their revenues from the production of coal-based electricity. Yet this last criterion does not use the most relevant indicator, which is the share of electricity production from coal as a percentage of total production. Using the latter approach is more likely to reflect the climate impact of companies’ activities, and as a result, even if the exclusion criteria are quite strict, they are not enough to get out of the coal sector as such.
  • Indeed, the policy lacks a complete exclusion of all coal developers, some of whom are below the exclusion thresholds of 5% and 25%, especially for the most diversified companies. This is the case for 18 mining companies that are still planning new coal mines, and for 61 companies that plan to build more than 110 GW of coal-fired power plants, the equivalent of Germany, Japan and Turkey’s coal fleets taken together.
  • The policy further lacks a global exit strategy from the sector by 2030 in EU and OECD countries, and by 2040 in the rest of the world, to align with the Paris Agreement’s goals. The aim should be to send a clear signal to all companies remaining in the bank’s investment portfolio, asking them to adopt a clear plan to close their coal assets by 2030 and 2040.
  • The scope of application of the policy is also problematic, as it only applies to investments made directly by Coutts, and not to those entrusted to external asset managers.

On oil and gas:

  • Regarding oil sands, the bank will from now on exclude all companies deriving more than 5% of their revenues from this sector of activity, a strict exclusion criterion going far beyond that usually adopted by financial actors.
  • The bank also says it will exclude companies that derive more than 5% of their revenues from oil and gas exploration in the offshore Arctic. Whilst the 5% threshold is low, the impact of the policy could be very limited if it relates only to exploration and not to the production of hydrocarbons in the Arctic, the latter of which is the only one capable of generating income. However, in its latest TCFD report Coutts states that it “will not invest in a company that derives more than 5% of its revenues from oil and gas exploration in the Arctic. This will be assessed based on whether or not a company has at least one license or permit to drill or explore in the offshore Arctic region. Sustainalytics provides binary information (yes or no) for this category.” The second part of the statement suggests that the bank may well look at the share of revenues generated from the production of hydrocarbons in the Arctic. If confirmed by the bank, the policy could therefore be one of the most demanding despite its lack of application to activities in the onshore Arctic.

Coutts has therefore adopted an interesting first fossil fuel policy, but still has a long way to go to align itself with the Paris Agreement’s climate goals.