KB Financial, one of the four main South Korean banks, adopted yesterday its first coal policy, excluding the direct financing of new coal plants. This exclusion is very basic and will not impact a lot of KB activities since it was not very active in this field. A lot remains to be done for KB to adopt a comprehensive coal phase-out policy and align itself with international best practices.
1.What is new?
KB Financial published on September 27 a press release on its website announcing its new position on the coal sector. The South Korean financial player made public its commitment, adopted in a recent ESG committee, to suspend its participation in the financing or the acquisition of new coal power plants worldwide.
2. Our analysis: the bare minimum
KB Financial is the first South Korean player to announce an end to the direct financing of new coal plants worldwide, through project finance, acquisition financing or the buying of project bonds.
The positive news in this commitment is that it goes further than the policy adopted by its peer Shinhan Bank, which only excludes from direct financing new coal power plants with emissions above 800gCO2/kWh. The other positive news is that this is a clear exclusion, without any exceptions, while most of the Japanese banks that adopted a similar policy excluding the direct financing of new coal plants “in principle” have different levels of exceptions to it.
The negative news in this announcement is that it only covers the direct financing of new coal plants, and not of new coal mines or new coal infrastructure. And regardless of this, it appears that KB Financial through KB Kookmin Bank has not been very active in this sector since no project finance deals for new coal plants can be found in the international financial database IJGlobal in the past 20 years. But according to a 2018 report, KB is involved in the construction of two coal power plants in South Korea: the Gangneung An-in project, expected to be operational in 2021, and the Goseong Hai project, expected to be operational in 2023. And according to an Eco-business article, KB is in the running through its subsidiary KB Securities to underwrite KRW 100 billion (US$85 billion) in bonds for the 2,100-megawatt Samcheok Bluepower project.
More importantly, the coal policy adopted by KB Financial does not cover corporate finance, which is by far the most common channel for financing coal companies. Concretely, this means that the South Korean financial player can still provide finance indirectly through general corporate loans or the issuance of new shares and bonds. KB has only decided to stop financing directly through project-related financing.
This is exactly the case for instance for KEPCO (Korea Electric Power Co), one of the two coal plant developers that KB supports; KB funded KEPCO to the tune of $821 million between 2017 and September 2019. KB will still be able to continue to finance KEPCO as long as the funds are not specifically linked to a new coal plant, while the company is still considering to build several new coal power plants around the world such as the Vung Ang 2 project in Vietnam.
This is why KB Financial scores in our Coal Policy Tool only change for one out of the five criteria, the first one related to coal projects, from 0 to 5 out of 10.
KB Financial scores in the Coal Policy Tool
This table shows the scores of KB Financial coal policy on five criteria of the Coal Policy Tool.
To really “participate in activities limiting the average global temperature rise to 1.5°C or less and driving the transition to a low-carbon economy”, at it claims in its press release, the logical next step for KB Financial is to immediately blacklist all coal developers—companies still planning to build new coal mines, coal plants and coal infrastructures around the world.
It should as well exclude the most exposed and biggest companies in the coal sector and adopt a comprehensive coal phase-out strategy by 2030 in the OECD and 2040 worldwide. Several global banks have already done so recently, such as the French bank Crédit Agricole or the Italian bank UniCredit.
According to a Korea Times article, the adoption of this coal policy was made by KB Financial to win a four-year contract to handle a state fund of 10 trillion won managed by Seoul Metropolitan Office of Education. The education office said that KB and NongHyup, the other bidder which has been the handler of the fund since 1964, will be evaluated on their degree of corporate social responsibility (CSR) contributions to education as well as anti-coal campaigning efforts.
3. Our conclusion
KB Financial has adopted the most minimal coal policy possible. Given it was not very active in this sector, it could have gone further and become the first Asian financial player to at the very least exclude coal plant developers, such as KEPCO; this is the logical next step for KB Financial. Now that KB has started to move on coal, group’s asset management arm, KB Asset Management, should follow suit and adopt the same exclusion for coal developers, as it has invested $86 million in 13 coal plant developers from the latest financial data available from September 2019.