BNP PARIBAS STUCK ON COAL

Note: On 2nd July 2020, BNP Paribas announced a new strategy to meet its objective of exiting the coal power sector by 2030 in EU/OECD countries and by 2040 in other countries. To get there, BNP Paribas excludes all companies with coal expansion plans and companies without any coal exit date. They will exclude from 2021 companies that don’t have a coal exit strategy aligned with the 2030/2040 deadlines and will monitor the implementation process every year.

You an read our press release commenting the strategy.

In May 2020, after years of hemming and hawing, BNP Paribas has specified its phase-out requirement for the coal power sector.

It is too early to celebrate.
Keeping to a 1.5°C pathway requires putting end dates in place as well as a swift and steep reduction curve in coal financing.

Specific provisions in the updated policy include the 2030 coal phase-out deadline to EU and OECD countries and 2040 deadline for other countries, as well as the exclusion of coal plant developers. However, not included are measures to exclude and exit other sectors of the broader coal industry, such as extraction and transport ; Strict exclusion criteria of existing clients highly exposed to coal and a requirement to remaining clients to adopt by 2021 a detailed plan to close not sell their coal assets.

BNP Paribas is always behind

Despite its multiple statements on climate and its laudable policy on unconventional oil and gas, which is more ambitious than policies of other French banks, BNP Paribas has always been behind on coal. BNP Paribas was the last French bank to adopt a coal sector policy in 2015, just a few days before the opening of COP 21.

Without pledging its willingness to take action on coal, the main energy source that emits greenhouse gases, the Bank’s participation in COP21 would have likely ended in embarrassment. Up until today, BNP Paribas keeps to its pattern of doing too little too late. The bank waited until January 2017 to announce that it would no longer finance new coal plant projects anywhere in the world, months after Crédit Agricole and Société Générale had taken that step. And it took BNP Paribas much longer than its two main competitors to finally announce phase-out deadlines for the coal sector in November 2019. 7 months later, BNP Paribas specified its phase-out requirement for the coal power sector. But it’s still not good enough to be in line with the announcement made in July 2019 by the Paris financial center that its members, – banks, insurers and investors – should adopt exit policies from the whole coal sector by mid 2020.

BNP Paribas bids farewell to coal power but fails to exclude the rest of the coal sector

Last November, BNP Paribas announced its intention to reduce its exposure to coal to zero by 2030 in EU countries and by 2040 worldwide. While these target dates may appear to be in line with climate science, they are not. According to Climate Analytics research, based on the latest IPCC report, not only European countries need to shut down all coal plants by 2030. All OECD countries, including the United States, Australia, Japan and Chile, must also do so. The omission of these countries from BNP Paribas’ commitments was not insignificant: More than 20% of existing coal power capacity is located in these countries. With its May announcement, BNP Paribas is correcting one substantial failure of its existing policy by extending its 2030 coal power sector phase-out commitments to OECD countries outside the EU. BNP paribas also confirmed its intention to exclude companies planning new coal plants from its financial support.

Not included are measures to exclude and exit other sectors of the broader coal industry, such as extraction and transport. According to BNP Paribas, the bank did prioritise the coal power sector over the rest of the value chain because of its dominance in the bank’s balance sheet. This issue must be immediately tackled. BNP Paribas might not be exposed to many coal mining companies but highly controversial ones can be found in the bank’s portfolio. Among them are the German company RWE which intends to keep producing lignite till 2038, or Glencore to which the bank provided USD 1.8 billion of financing since the Paris Agreement was adopted, including USD 578 millions in 2019.

Glencore is one of the world biggest coal producer. In 2019, Glencore was applauded by climate-concerned investors for agreeing to set a cap of 150 million tons for its annual coal production. In actual fact this still leaves plenty of space for a production increase considering its 2018 coal production was 129 million tons. Glencore is also involved in multiple scandals, ranging from alleged money laundering and corruption in Nigeria, Venezuela and the Democratic Republic of Congo to expanding a mine in Australia where Glencore has already accidentally dumped 63 truckloads of toxic waste near a river, through human rights and labour violations in Columbia. In 2019, BNP Paribas Asset Management committed to no longer invest in companies producing more than 1% of the world coal production. Considering Glencore produces twice this amount, the asset manager must have by now excluded Glencore from its investment portfolio. But BNP Paribas’ May 2020 announcement will not exclude Glencore from the bank’s financing potrtfolio.

Will BNP Paribas exclude Uniper and Fortum?

The very good news of BNP Paribas’ May announcement is its firm commitment to exclude all companies planning new coal power capacity from its financial services. The stakes were high:
– BNP Paribas channeled nearly US$ 9 billion to these companies between 2017 and September 2019,
– It is the 5th largest international lender to coal plant developers worldwide.

Among the companies that should be excluded are the Korean company Kepco and the Japanese Sumitomo and Marubeni.

However, the doubt is cast on Uniper and its mother company Fortum to which the bank respectively provided USD 214 millions and 2.9 billions of financing between January 2017 and September 2019. Uniper just brought online a new coal plant in Germany, Datteln IV, and threaten to take the Dutch government to an Investor-State Dispute Settlement (ISDS) tribunal to counter the Dutch decision to phase out coal by 2030.

Uniper’s behaviour, which prevents the EU to meet its climate targets and exit coal by 2030 as well as threatens the buidling of European solidarity among member States, has been publicly supported by Fortum, which owns 73.5% of the shares of Uniper.

Will BNP Paribas wait for this new coal plant to come online to erase the company from its list of coal plant developers ? Or will the bank take the right decision, have a zero tolerance for this type of behaviour and suspend all financial services to both as long as Uniper and Fortum fail to adopt an asset-based coal phase-out plan covering all coal assets worldwide and consistent with the 2030 and 2040 deadlines ?

High time for BNP Paribas
to adopt strict exlusion criteria

Corporate finance accounts for the bulk of financial services to the coal sector. While some financial players have adopted all of the exclusion criteria needed to cover all companies active in the coal sector, BNP Paribas has not even adopted what has become a common standard for most coal policies: the exclusion of companies with a significant part of their activities in the coal sector. Around 100 financial institutions, including 20 French ones now exclude companies, which are above a certain coal share of revenue and/or coal share of power generation threshold.

For example, Natixis excludes companies from all services that have more than 25% of their activities in coal. Crédit Agricole applies identical criteria, although the bank still allows support for the green projects of these companies. By contrast, BNP Paribas only excludes new customers whose more than 25% of their revenues come from coal.

The bank claims that the implementation of its policy will lead it to exclude half the companies in its portfolio, but nothing can ensure which ones will be subject to exclusion based on their activity in the coal sector. The exclusion of companies with 25% or greater share of coal-related revenues only concerns new clients and it is uncertain which existing clients, such as German utility RWE, which is among the bank’s most coal-dependent customers, will be excluded. This determination will depend on what the bank “believes” about any given client company’s likelihood to be aligned with the Paris Agreement objectives in the coming years.

There is no time to play guessing games. Getting out of coal in the timeframe required by climate science means pushing companies to adopt a detailed plan to close their coal infrastructure by 2030 in European and OECD countries and by 2040 elsewhere.

On top of immediately excluding existing clients that are highly exposed to coal, BNP Paribas must clearly and immediately call companies to publish an asset-based coal exit plan, as AXA, La Banque Postale Asset Management and AG2R La Mondiale already do. Moreover, BNP Paribas must commit to condition the renewal of financial services from 2021 to companies to their adoption of such a plan that should cover all their coal assets worldwide, be based on closing – not selling or converting the plants to gas / biomass – and be consistent with the 2030 and 2040 deadlines. This applies in particular to Engie, which still owns 10 coal plants around the world, including 4 in Chile.