End Of Coal? More Banks Plan To Phase Out Financing Of Coal-Related Businesses

As more banks around the world have decided to gradually end financing coal mining activities, they must take stock of the repercussion of these measures, while focusing more on renewable energy enterprises.

For example, French international banking giant BNP Paribas said it stands to lose up to 50% of its power generation clients due to its plan to phase out investments in coal.

Earlier this year, BNP Paribas pledged to completely exit the global coal business by 2040.

Laurence Pessez, BNP Paribas’s corporate social responsibility director, told S&P Global Market Intelligence: “We've been talking about coal reduction, diversification, the need to fight climate change and align with the Paris Agreement for a long period of time.”

As a result, she said, BNP Paribas will end relationships with energy clients unwilling to move away from coal.

“Leaving a client is not something natural for a business,” Pessez said. “For us, it is the ultimate solution when there is no other [way], when the client is not willing to interact with us.”

Pessez estimated that BNP Paribas will likely cancel relationships with 30% to 50% of its existing clients in the power generation business – particularly companies in Asia that remain highly dependent on coal.

In May 2020, BNP Paribas said it will no longer accept any new customers that generate at least 25% of its revenues from coal.

The bank noted that it has not financed even one new coal-fired power-plant project anywhere in the world since 2017.

“BNP Paribas is the first bank in the world that has set a coal-exit date, decided to end the financing of shale gas and tar sands specialists, and acquired a leading position in financing renewable-electricity projects,” said Jean-Laurent Bonnafe, chief executive officer of BNP Paribas. “Beyond coal and unconventional hydrocarbons, we are putting in place innovative tools that will enable us to systematically introduce environmental criteria into our lending decisions and align our portfolio with the objectives of the Paris Agreement.”

Reclaim Finance, a French nongovernmemtal organization, generally praised BNP Paribas’ moves.

“We can only welcome this policy,” said Lucie Pinson, CEO of Reclaim Finance. “After much trial and error, BNP Paribas is now finally close to adopting a global coal sector policy fully aligned with climate science.”

BNP Paribas is just one of many global banks, insurers and financing entities that have banned investments in coal.

For example, ABN Amro Bank of Netherlands has prohibited investments in both coal mining and coal-powered plants. German insurer Allianz has not financed any coal projects since 2015. British insurer Aviva has ceased coal insurance and divested its coal assets.

In late July Germany’s Deutsche Bank (DB) said it will end relationships with companies most exposed to coal mining by 2025.

In the U.S. earlier this year Citigroup (C) pledged to cease financing new thermal coal mines or the expansions of existing coal mines. The lender also vowed to phase out by 2030 financing for any companies that derive at least 25% of their revenue from thermal coal mining.

David I. Kass, clinical professor of finance at University of Maryland, told International Business Times that other large banks such as JP Morgan Chase (JPM) also plan to curb loans to coal firms.

“The increasing focus by activists and elected officials on global warming and climate change has resulted in pressure being applied to banks to curtail their financial relationships with coal firms,” he said. “As a result, more banks are likely to follow the example set by JPMorgan Chase. Coal emissions have contributed significantly to this environmental problem. The anticipated rapid growth in alternative energy sources that are renewable and environmentally friendly will likely hasten the decline of the coal industry.”

Heffa Schuecking, director of Urgewald, a German environmentalist organization, told IB Times: “While we have seen a dramatic rise in the number of coal policies adopted by banks, quality is still a major issue. Leaders in the field are mostly from Europe, where banks such as BNP Paribas, Natixis, UniCredit or NatWest have adopted strong coal restriction policies and also set dates for a complete coal exit. Banks in the U.S., Australia, Japan and China are, however, still lagging far behind and have up to now only taken ‘baby steps’ towards cleaning coal out of their portfolios. In order to meet the urgency of the climate crisis, most banks still need to drastically speed up their departure from coal. Otherwise we will lose our chance to keep the Paris climate goals within reach.”