EXIT COAL FOR GOOD
$745 billions for coal expansion
The Paris Accords were adopted 5 years ago; yet, coal remains one of the main sources of greenhouse gas emissions, putting the health of millions as well as our future in peril.
The Financial sector is in large part responsible for a collective failure to organize a sector-wide exit. Their investments, financing, insurance underwriting, and other financial services are keeping this industry afloat, despite being outcompeted by low-cost renewables. Between 2017 and September 2019 alone, banks handed out over $745 billion in financing to companies developing new coal plants.
Reclaim Finance urges financial institutions to adopt a public policy on coal, aiming to align their financial services with the target of limiting global warming to 1.5ºC above pre-industrial levels. This means (1) ceasing all financial services supporting sector expansion at once, and (2) adopting a strategy for shutting down the world’s existing coal infrastructure.
The problem with coal
Despite the United Nations’ and scientists’ repeated calls to exit the coal sector and to stop building new plants, the global coal production capacity has continued to rise over the last two decades: coal makes up 38% of global energy production. Air pollution restrictions might slow down the most harmful projects and accelerate the adoption of coal exit targets in some countries. However, the decline in coal production following the Covid-19 crisis may only be an interlude on the international level. One thing is for sure: we are far from shutting down coal at the rate needed to limit global heating to 1.5ºC.
On the contrary, more than 1,000 new coal-fired power generation units are being planned, mainly in Asia, in addition to 6,600-plus units in existence, increasing capacity by nearly 40%. This is particularly alarming and goes against scientists’ calls to immediately shut down thousands of coal facilities. Such installations are not temporary: they have a lifespan of 40 to 60 years and would remain in operation until well after 2060. However, limiting global heating to 1.5ºC will only be possible if we put a complete end to coal-fired power generation by 2030 in Europe and OECD countries and 2040 worldwide.
Divestment: an effective solution?
238 global financial institutions have policies limiting financial services to the coal sector, and the effects are significant:
- In November 2018, analysts at Goldman Sachs posited that the “divestment movement has been one of the main drivers behind the decommissioning of 60% of the coal sector over the past five years.”.
- And in January 2019, Willis Towers Watson, one of the world’s largest insurance brokers, noted that insurers’ flight from the carbon market significantly reduces the sector’s access to affordable insurance coverage, leaving it increasingly vulnerable to competition from other energy actors.
But while finding financing, investment, insurance coverage, and other services is more difficult, it remains possible. Adopted policies impact small and medium enterprises specialized in the coal sector but are not enough to effectively curb coal production and consumption. The problem is not the number of policies, rather, their quality.
Far too many policies are empty shells or window-dressing, with little to no positive impact on the climate. They only marginally transform the activities of financial institutions, barely limiting their ability to finance, insure, or invest in companies that continue betting on coal. The prime aim of these policies is to create a perception of action and to protect financial actors from the fiscal risks linked to the coal sector rather than preventing the human and environmental harm caused by coal.
Beware of greenwashing!
Here are three examples of ineffective policies:
French finance could set an example
On July 2, 2019, French financial institutions, through their professional federations, committed to adopting “a timetable for the overall exit from financing coal activities” by mid-2020. This is an opportunity for a new begining, moving beyond the first coal exit policies adopted ten years ago in France.
If the Paris Financial Center follows through on its commitments, it will set an international example that may drive forward other insitutions ramping up to COP 26 Glasgow, starting with London’s City.
Yet, the outcome is all but certain: the commitment remains non-binding and the implementation of announced measures will only be evaluated at the end of 2020 by commissions constituted in part by financial institutions. Furthermore, no sanctions mechanisms have been proposed.
Now that mid-2020 has passed, we are already faced with the fact that many exit plans are not aligned with a 1.5ºC trajectory and that many insitutions will not follow through.
Only 12 financial groups have adopted a robust coal policy: AG2R La Mondiale, AXA, CNP Assurances, Crédit Agricole, Crédit Mutuel, Groupama, La Banque Postale Asset Management, MACIF, OFI Asset Management, and SCOR’s investment management division, as well as UniCredit and Desjardins outside France.
Those who broke their promise
Many players from the Paris Financial Centre have not followed through on their commitments from July 2, 2019. Among the largest ones, Groupama, and Covéa did not adopt robust policies while ODDO BHF AM failed to adopt a policy altogether.