National Australia Bank (NAB) recently joined the short list of financial institutions that have committed to refusing financing to some new metallurgical coal mines. (1) By becoming the third major Australian bank with a commitment on metallurgical coal, NAB takes a step forward to align its practices with global climate goals. Historically, European financial institutions have been the first to lead on coal-related policies, particularly with thermal coal. However, their efforts are still falling short of the urgency required regarding metallurgical coal. Reclaim Finance calls major European financial institutions to lead the way either by adopting strong commitments on metallurgical coal, or improving their existing ones.
The steel sector has the potential to become coal-free in the early 2040s, driven by innovative technologies and a growing push for decarbonization. (2) The International Energy Agency (IEA) has emphasized the need to halt the expansion of metallurgical coal, (3) pointing to a declining demand for met coal (4) as the industry shifts towards cleaner alternatives. For financial institutions, continuing to finance metallurgical coal expansion is not only misaligned with climate goals but also a risky bet in a market transitioning away from coal dependence.
European financial institutions need to move faster on met coal
While some financial institutions have taken the lead by including met coal in their policies, others are lagging far behind their peers in the decarbonization race. So far, only 10 major European financial institutions have adopted policies that cover metallurgical coal. This includes seven banks – BNP Paribas, CaixaBank, Crédit Agricole, HSBC, ING, Lloyds Banking Group, Société Générale – two investors – Eurazeo and Nordea AM – and only one insurer – Zurich. This leaves at least 20 major financial institutions that have supported met coal companies in the past with no commitment whatsoever regarding met coal expansion. (5)
Major laggards include:
- In France, BPCE is the only bank that still does not cover metallurgical coal in its coal policy. Since 2016, the bank has been involved in transactions to support coal giant Glencore, which acquired a majority stake in the met coal operations of Teck Resources. (6)
- In the UK, Natwest, Barclays and Standard Chartered still fail to include met coal in their policies, unlike HSBC and Lloyds Banking Group. Standard Chartered, as one of the few signatories of the Sustainable Steel Principles (SSP) (7) – a disclosure framework whose signatories could show leadership in decarbonizing the entire steel value chain – might have been expected to be among the first to act on metallurgical coal. Unicredit is the only other European bank that has signed the SSP but still has not adopted a met coal exclusion policy.
- In Germany, Deutsche Bank does not have a met coal policy and appears to still view met coal as a worthy investment, since it was the only European bank involved in the US$2.1 billion bridge loan that helped Peabody Energy Corp. acquire the extremely methane-intensive (8) met coal mines of Anglo American Plc in Australia. (9)
Even the first movers don’t do enough
The largest financial institutions that have adopted restrictions for met coal expansion are banks. Among these, almost all merely have restrictions at the project level, therefore only restricting direct project financing. However, our research indicates that project level financing represents an extremely small portion of financing received by companies with met coal expansion plans. (10) This means that in order to meaningfully halt met coal expansion, financial institutions must adopt robust policies to restrict financing for companies developing new met coal projects.
BNP Paribas, CaixaBank, Crédit Agricole, HSBC and ING, which already have a policy at the project level, must move a step further and broaden their policy to restrict financing for companies developing new met coal projects. Lloyds Banking Group and Société Générale are the only banks that currently have restrictions at the corporate level. However, their restrictions are only for new clients, meaning that existing clients in their portfolio, like Glencore, could still be financed. They must therefore broaden their policy to cover all met coal developers.
Met coal is a fuel of the past
Initially, finance sector restrictions focused on thermal coal due to the technical challenges of decarbonizing steel production. But technologies to stop using coal to make steel now exist and must be deployed, meaning that this sector is no longer “hard-to-abate”. In reality the term “metallurgical coal” covers many types of coal, including thermal grades of coal which only become metallurgical because they are sold to the steel market. In the end, coal is coal, and it needs to be phased out regardless of its end use. Furthermore, the climate impact of metallurgical coal is estimated to be even worse than that of thermal coal due to the methane intensity of underground mines.(11)
Yet, too many met coal mines continue to be developed by companies like Glencore, Whitehaven, BHP, and Mitsubishi, with the support of financial institutions. Financial institutions must refuse to believe these companies when they tell them that metallurgical coal is an essential component in the energy transition and a profitable investment. (12) A survey conducted by the Australasian Center for Corporate Responsibility (13) found that 68% of investors foresee a transition away from metallurgical coal in steelmaking, and 80% believe metallurgical coal’s risk profile will increase in the next decade.
The timeframe to decarbonize the steel sector is now, (14) meaning that there is an urgent need to include metallurgical coal in all restrictions from the financial sector. Financial institutions that still have no commitments on met coal – BPCE, Natwest, Barclays, Standard Chartered, Unicredit and Deutsche Bank – must immediately include met coal in their coal policies. Those that have already done so – BNP Paribas, CaixaBank, Crédit Agricole, HSBC, ING, Lloyds Banking Group and Société Générale – must broaden their policy to the corporate level and make it robust by refusing to finance all met coal developers.
