Deutsche Bank, the largest German commercial bank by far, published the update of its Environmental and Social Policy Framework earlier today. It contains some slightly better fossil fuels exclusions than announced previously, but clearly misses the opportunity for this global player to align itself with the best practices in the sector. The bank will continue to finance most companies still expanding the coal, oil and gas industries despite the climate and health urgencies.
- On coal mining:
- After reducing its exposure to coal mining companies in the past few years, Deutsche Bank now commits to phase it out by 2025, both for its lending and underwriting activities. While the deadline is a good one, the issue lies in the definition of “coal mining companies”. In discussions with our German partners urgewald, the bank mentions that it covers companies that have more than 50% of their reserves in coal mining, or 50% of their revenues. It is very hard to know the concrete impact this will have on the list of companies covered, but it is already certain that this is not a full coal mining exit.
- Large, diversified coal mining companies that Deutsche Bank financed during the past years and are still its clients, such as Glencore, which has received more than 350 million dollars since 2016 according to the latest data from the Banking on Climate Change 2020 report, or others like BHP Billiton or Anglo American, will not be impacted and can continue to receive financing from the bank for the foreseeable future.
- Even for the pure player companies covered by this commitment, such as Peabody or Coal India, in the absence of any immediate exclusion criteria, we cannot know when they will be excluded between now and 2025. This is worrying given that Deutsche Bank is the 7th biggest global bank financing the coal mining sector to the tune of more than 1.6 billion dollars since 2016, according to the same report.
- On coal power:
- Deutsche Bank has still not yet adopted a clear and immediate relative exclusion threshold. The 50% threshold based on the share of coal in energy capacity or energy production mentioned in its policy only triggers then the analysis of transition plans of the companies covered, which will be conducted by the end of 2020 in Europe and the US, and not before 2022 in Asia and selected developing markets.
- Not only is the 50% threshold very weak, since most French banks now use a 20 or 25% real exclusion threshold, but the bank can still provide financial services to companies above this threshold which have what Deutsche Bank would consider to be a “credible diversification plan”, with no element of definition provided in the policy.
- It is thus unclear which companies above 50% will be considered as having met this requirement as it is important to stress that diversification does not automatically require a company to reduce its absolute activity in coal. However it is already certain that the bank will keep financing all companies below the 50% threshold, including some of the biggest coal power producers and the bulk of companies that are planning new coal power plants. According to the Global Coal Exit List (data of 2019), 163 companies (out of the 258 companies) planning 246 GW of new coal power capacity (six times the coal fleet of Germany) are below the 50% threshold. This is the case of Kyushu Electric Power, Chugoku Electric Power and Uniper, for instance, the three coal plant developers that Deutsche Bank financed the most with almost 3 billion dollars since 2017 according to the latest data from September 2019.
- All these uncertainties and loopholes explain why Deutsche Bank should better adopt clear and immediate exclusion criteria covering all coal developers and the most active coal companies. The bank should also adopt a global coal phase-out strategy for both coal mining and coal power, asking all coal companies to provide a credible coal exit plan by 2030 for the EU/OECD and by 2040 worldwide.
- On oil & gas:
- Deutsche Bank commits to ending dedicated financing to new oil and gas projects in the Arctic and to new tar sands projects, but it fails to restrict any financial services at the corporate level. Our understanding is that a significant share of the financing for such activities is raised through corporate financing instead of project financing, lowering the impact of such a policy. This is the case for the more than 1.3 billion dollars that Deutsche Bank channelled to oil and gas companies active in the Arctic since 2016, making it the third top global bank active in this field, according to the report mentioned above.
- However, even for projects in the Arctic region, the Arctic is defined as “based on a 10°C July Isotherm boundary, meaning the area does not experience temperatures above 10° C”. This definition seems to make the covered relevant region smaller when climate change intensifies, so it is difficult to see how the policy will be concretely implemented.
- Deutsche Bank finally commits to ending the direct financing of projects using hydraulic fracturing, but this commitment is restricted to “countries with extremely high water stress”, excluding the United States where most of this technique is being used.
- The German bank finally mentioned its aim to reduce its global business activities in the oil and gas sector after a thorough analysis by the end of 2020.
Almost everything remains to be done in the oil & gas sector and Deutsche Bank remains far behind the best practices of some of its peers like Crédit Agricole or BNP Paribas which have blacklisted all coal developers, have adopted global coal phase-out strategies by the relevant deadlines, and have started to blacklist some oil & gas companies.
As Regine Richter, Energy Campaigner at Urgewald, puts it: “Deutsche Bank seeking to limit its fossil businesses is a much-welcomed step forward. From a climate perspective, however, this is still too little, too late. We would have needed significantly more ambition in the year 2020.”