BBVA, the second Spanish bank by volume of assets, published in March 2021 its new Environmental and Social Framework, which updates the 2020 version. On the plus side: BBVA commits to a thermal coal phase-out by 2030 in developed countries and by 2040 worldwide. However, this coal policy remains insufficient because of the large number of exceptions it allows and the absence of a strong commitment to immediately exclude all coal developers.

1. What’s new

  • In the previous update of its coal policy in December 2020, BBVA had lowered its exclusion thresholds from 40% to 25% of revenues from coal for mining companies and from 35% to 25% of power generation for coal power companies. But companies with a diversification strategy are not affected by these exclusions.
  • Regarding the exclusions at the project level, BBVA has also revised the scope of possible exceptions. Where exceptions were made for “new coal mines and new coal power plants” before, only “existing mines or expansion of mines using MTR methods and existing and under-construction coal plants” are now possible.
  • This time, the Bilbao-based bank goes even further by announcing that “BBVA targets zero exposure to coal clients by 2030 in the developed countries and by 2040 globally, through engaging with them and actively monitoring its portfolio”. BBVA defines its coal clients as “companies with greater than 5 percent of revenues from thermal coal mining for power generation and thermal coal-fired power generation.”

2. Our analysis – some progress but not enough

BBVA’s coal policy, which applies to CIB activities in all entities of the BBVA Group, seems relatively advanced, with exclusions of both new coal projects and companies involved in the thermal coal value chain. However, it has major limitations and exceptions which could significantly reduce its effectiveness in reducing BBVA’s support to the coal sector. According to recent financial research, BBVA has provided more than $3.3bn to the coal industry between October 2018 and October 2020.

At the project level, BBVA commits not to support the financing of new coal plants and new coal mines, including the expansion of existing plants or mines. However, BBVA allows some exceptions in “countries with a high level of energy dependency (over 65% of energy imports) or no viable alternatives” (see below). It remains unclear which countries are covered and how many projects could still be allowed under this policy, but each of them will be a stumbling block for the achievement of the Paris Agreement climate targets.

At the corporate level, the reduction of the relative exclusion threshold, from 40 or 35% to 25% of coal share of activities, is more than welcome considering that best practices are between 5% and 20%. However, BBVA’s overall approach remains the same and is highly problematic. Indeed, BBVA only excludes companies in which coal constitutes over 25% of activities and who have no diversification strategy. This approach does not necessarily lead BBVA to exclude coal plant developers. Indeed, a company could diversify as long as its activities outside the coal sector grow faster than its activities in the coal sector.

Moreover, the bank’s policy also states that BBVA encourages power companies to adopt GHG emissions reduction targets, to increase their investment in renewable energies and low carbon energy sources and not to increase their coal power capacity. Whilst there are encouraging signs, this leaves enough space for a company to build new coal plants as long as it closes the equivalent amount of coal power capacity. This additional assessment criteria confirms that BBVA fails to consider the absolute activity and climate impact of a company in the coal sector. To really support the exit of the coal sector, BBVA should explicitly exclude all coal developers, as defined by the GCEL, and exclude the biggest coal mining and power companies, even when they fall below the 25% threshold.

To consider the real impact on climate and health of coal companies, BBVA should immediately exclude companies that produce more than 10 Mt of coal per year or have more than 5 GW of coal capacity and commit to lowering these thresholds to zero. With the current policy, BBVA will be able, for example, to continue to support Enel. The Italian power company has an installed coal power capacity of 9.6GW but a coal share of power production (CSPP) of 16%, which allows it to be below the exclusion threshold.

In addition, BBVA allows exceptions for clients in countries with a high level of energy dependency – over 65% of energy imports) or no viable alternatives. BBVA fails to specify what countries are covered and what criteria are used in its assessment of alternative. Without more information, one could assume that these exceptions are very broad and concern many companies. The case of Turkey is interesting. Garanti BBVA, Turkey’s second largest private bank, has BBVA as its majority shareholder with 49.85% share. As Turkey imports about 75% of its energy, Garanti BBVA will still be able to support the power company Enerjisa Uretim Santralleri – in line with the $129m loans granted by Garanti between October 2018 and October 2020. BBVA must specify in its policy the number of companies that are covered by these exceptions.

Finally, we call for consistency. BBVA should immediately exclude all coal developers, without exception, and commit to progressively strengthen its criteria for excluding companies active in the coal sector. Beyond a diversification plan, BBVA must require companies in the coal sector to have an exit plan asset by asset.

BBVA’s Scores in the Coal Policy Tool

This table presents the coal scores of BBVA based on five criteria of the Coal Policy Tool

3. Our conclusion

Year after year, BBVA is getting closer to a robust coal policy. This new commitment to phase-out from coal by 2030 in developed countries and by 2040 globally is a real step forward. Nevertheless, as long as the bank does not decide to stop all coal projects without exceptions and end its support to companies developing coal projects or highly exposed to coal, it will remain far from the best practices in the sector. The bank should by inspired by BNP Paribas and Crédit Agricole’s exclusion policy and call on its remaining clients to adopt an asset-based coal phase-out plan.