The finance sector can play a critical role in accelerating the coal phase out. While more and more financial institutions are now calling on coal companies to adopt phase out plans, they need to go beyond vaguely worded requests and take action to ensure that these plans are robust, time-bound and credible. In this briefing, Reclaim Finance and Urgewald look at the criteria that financial institutions can use to evaluate the phase-out plans of their clients involved in the thermal coal sector.

This briefing aims to assist financial institutions in evaluating the coal phase-out plans of clients involved in the thermal coal sector. Since the adoption of the Paris Agreement hundreds of financial institutions have committed to restricting their support to the coal industry. However companies with non-existent or inadequate plans to phase out their coal operations, and even those building new power plants and mines, continue to have access to insurance, investments and banking services.

Financiers Fail to Explain What is Needed in Coal Phase-Out Plans

A small number of financial institutions have adopted policies that state they will require their coal clients to adopt phase-out plans, but these policies provide little detail on what these plans should include. Evaluating whether coal phase-out plans are sufficiently ambitious, concrete and credible will be challenging, especially for financial institutions with large portfolios. It can be expected that many companies will put forward plans that are vague or inadequate. How to Exit Coal” gives financial institutions a set of clear-cut criteria to thoroughly evaluate their clients’ coal phase-out plans, and closely monitor their implementation.

First stop financing coal majors …

As is explained in Urgewald’s Global Coal Exit List (GCEL) and Reclaim Finance’s Coal Policy Tool, financial institutions must immediately stop providing services to companies that:

  • Develop new coal power plants, mines or other associated infrastructure; expand the lifetime of existing plants; or acquire new coal facilities;
  • Generate more than 20% of their revenues or electricity generation from coal;
  • Produce more than 10 million tonnes of coal per year or have more than 5 GW of coal-fired capacity.

… Then require credible phase-out plans

Once these thresholds have been applied to their portfolios, financial institutions should insist that all remaining coal companies under these thresholds adopt a coal phase-out plan by January 1, 2022. All these criteria must be applied at the corporate group level and must include all subsidiaries, affiliates and joint ventures. If a company fails to adopt a credible phase-out plan that meets these criteria by January 1, 2022, financial institutions should suspend all new financial support to the company. After this date, the financial institution should start a new engagement process leading to a permanent cessation of all financial services if a credible transition plan is not adopted by January 1, 2023.

The ten criteria for credible coal company phase-out plans are:

  1. All coal expansion plans must be cancelled.
  2. 80% of the global coal fleet and all thermal coal facilities in the OECD, Eastern Europe and Former Soviet Union must be closed by 2030, and all globally by 2040.
  3. Phase-out plans must include facility-by-facility closure dates.
  4. Coal facilities must be closed and not sold to new owners.
  5. Coal power plants must be closed and not converted to fossil gas, biomass or fossil-based hydrogen.
  6. Claims of future retrofitting with carbon capture and storage must not be used to delay coal plant closures.
  7. Plant closures must be accompanied with just transition plans, and all worker and environmental obligations funded and implemented.
  8. Companies must pledge not to challenge the phase out of coal facilities through investor-state dispute settlement mechanisms.
  9. Companies must stop all lobbying activities against government action on climate.
  10. A Science-Based Target or net-zero commitment is not an acceptable substitute for a credible coal phase-out plan.

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