Citi becomes the first US bank to announce a partial coal phase-out

1. What’s new

Citi had already committed not to provide project-related financial services for new thermal coal mines or coal power plants, including for the expansion of existing mines or plants. This exclusion now includes transactions supporting the supply of all components, equipment, materials and services directly required for such projects.

On the coal power side regarding the general financing of companies, Citi sets a policy with increasing expectations over time. Among others, Citi commits to, after 2030:

• No longer extend capital and/or provide other financial services for clients with power generation operations in OECD countries unless the share of power generation from coal power is less than 5%,
• No longer extend capital and/or provide other financial services for clients with power generation operations in non-OECD countries unless such clients have a low-carbon transition strategy that is designed to reduce the share of power generation from coal-fired power plants to less than 5% by 2040.

On the coal mining side, Citi confirms its target announced last year: to phase out its financing of mining companies deriving ≥25% of their revenue from thermal coal mining. By the end of 2030, all remaining exposure to these companies will be reduced to zero.

Citi also adopted an exclusion criteria for new clients planning to expand coal power or ≥20% of power generation from coal unless such client is pursuing a low-carbon transition strategy.

2. Our analysis: an important step but still a lot to do

Citi’s coal policy, which applies to corporate loans, underwriting transactions and advisory services, contains real progress, with the first elements of a coal exit strategy. However, it has major limitations which could significantly reduce its effectiveness in reducing Citi’s support to the coal sector. According to recent financial research, Citi has provided more than $33bn to the coal industry between October 2018 and October 2020.

The exclusion of companies planning to build new coal plants and the adoption of a relative exclusion threshold based on the company’s energy mix would have been important steps if they were not limited only to “new clients”, which makes this measure cosmetic. As a result, Citi will be able to continue to support coal plant developers such as Sumitomo ($2,1bn of loans provided between October 2018 and October 2020) until at least 2025, when Citi will require a low-carbon transition strategy from its clients. Even though the Japanese company plans to increase its coal power capacity by 2320 MW according to the Global Coal Exit List, Sumitomo is not affected by this exclusion policy because it is already a client of the bank. The same policy loophole will also allow the US bank to continue to support Duke Energy ($2,4bn of financial support between October 2018 and October 2020), even if the US power company has a coal share of power production of 27%, above the 20% threshold announced by Citi.

Citi also turns a blind eye to companies developing new coal mines. The bank will continue to support coal mine developers such as Glencore and Adani (total support of $946m and $233m respectively, between October 2018 and October 2020), even as these companies develop new coal mines including the infamous Carmichael dodgy deal in Australia. Citi should immediately exclude all coal developers, on both mining and power sides as well as for coal infrastructure, without any exception for current clients.

Moreover, the bank’s policy also states that Citi expects clients with coal power generation to publicly report their GHG emissions and to develop low-carbon transition strategy to diversify away from coal power generation. Whilst there are encouraging signs, this leaves enough space for a company to build new coal plants as long as it develops its renewable energy portfolio. Citi must define the elements needed in such a “transition strategy” to be credible, such as the adoption of a precise closure plan asset by asset by the relevant deadlines. And once again, Citi does not cover coal mining. To consider the real impact on climate and health of coal companies, Citi 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.

By announcing a coal phase-out for coal power by 2030 in OECD countries and by 2040 in non-OECD countries, Citi is on the right track. But on the mining side, again, Citi is way off the mark. By the end of 2030, Citi only commits to reduce to zero all remaining exposure to mining companies deriving ≥25% of their revenue from thermal coal mining. This is not a plan to exit coal mining since it does not cover big coal producers such as Glencore, mentioned above, which produced 123,9 Mt of coal in 2020. The bank should immediately exclude all companies above 25% coal shares of revenues. Most importantly, the bank should announce a global phase-out from coal by 2030 (OECD)/2040 (non-OECD). To achieve this goal, the bank must commit to exclude all coal power and mining companies above the maximum 5% exclusion threshold in 2030/2040 and require companies to adopt such coal exit plans by the same deadlines. This is what some of its global peers like Credit Agricole and BNP Paribas already request.

Citi’s Scores in the Coal Policy Tool

These tables present the coal scores of Citi based on five criteria of the Coal Policy Tool

3. Our conclusion

With this updated coal policy, Citi becomes the first U.S. bank to announce a phase-out – even partial – from coal by 2030/2040. While we welcome this new policy, we urge Citi to exclude immediately all coal developers. Citi’s policy also needs to become more consistent: the bank should phase-out from coal by 2030/2040, both on the power and the mining side.

Patrick McCully, Climate and Energy Program Director at Rainforest Action Network, comments: “It is positive to see a major coal banker like Citi tightening its coal power financing restrictions and committing to essentially phase out its support for the sector over the coming two decades. However this new policy needs significant strengthening to match the best coal policies from global banks, which include a halt to financing of all companies that are building new coal plants. Aligning with 1.5°C requires an immediate end to all new coal infrastructure.”