Protesters disguised as bankers and coal miners gathered in London this summer, waving a banner that read: “Barclays ♡ Coal: UK’s # 1 Coal Bank”.
The British lender is one of Europe’s largest coal-consuming utilities financiers, providing £ 1.5 billion in loans and underwriting since November 2018, according to environmental lobby group Europe Beyond Coal.
Under increasing pressure from customers and shareholders to take action on climate change, a series of banks have announced that they will withdraw credits from the most carbon-intensive natural resource projects.
But critics say the industry has been too slow to act, barely scratched the surface and continues to exploit loopholes to fund the biggest corporate polluters. The 35 largest banks in the world have loaned and underwritten $ 2.7 billion to oil, gas and coal companies since the Paris climate agreement in 2015, according to the Rainforest Action Network.
Banks that have made carbon commitments have targeted handy fruits such as thermal coal and oil sands projects, the dirtiest and often the smallest parts of their loans. And despite expectations that the coronavirus pandemic will accelerate the transition to cleaner fuels, the question arises as to how far banks could go.
“What the NGOs want is for us to move away from the sector as quickly as possible. But this is not the most responsible way to manage this transition, ”said Cécile Rechatin, director of environmental and social standards at Société Générale.
Abruptly stopping lending would not help businesses become cleaner, and the role of banks is to “help them see how they can gradually withdraw from the sector, little by little,” she added.
Daniel Klier, global head of sustainable finance at HSBC, believes that not all lenders are taking the right approach.
“Each organization draws lines on what it will and will not do,” he said. “[But] most funding is left untouched by saying that companies will not fund certain projects. Most activities take place at the enterprise level.
Despite bank support for projects like the Climate Related Financial Disclosures Task Force (TCFD), which pushes companies to expose global warming risks to their businesses, Klier said such disclosures should be Standardized – and Improved: “We need to understand how fast businesses change.
European banks, including SocGen, Crédit Agricole and BNP Paribas, were among the first to make firm commitments to reduce their exposure to the most carbon-intensive parts of the natural resources sector.
Credit Suisse de Suisse is the latest to announce that it will limit lending and bond underwriting to thermal coal miners, coal-fired power generators, and arctic oil and gas drilling companies. However, companies that derive up to a quarter of their income from thermal coal mining or coal-fired electricity are not affected.
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Deutsche Bank said in July it was moving away from funding coal miners, but would continue to do business with companies that generate up to 50% of their income from coal.
HSBC, which decided in 2018 to phase out support for the coal sector, only removed an exemption in April that allowed loans to companies with projects in Bangladesh, Indonesia and Vietnam.
Barclays will no longer support the funding of new thermal coal mining projects or the expansion of coal-fired power plants. However, it will continue to lend to corporate clients who own and operate such facilities.
He said the £ 1.5 billion identified by Europe Beyond Coal predates its current stance on fossil fuel lending. But while this will reduce credit to customers who derive most of their income or electricity from thermal coal, anything below this threshold is still acceptable.
In some ways, the banks are lagging behind the industry. Large, diverse mining groups have already started to withdraw from thermal coal, under pressure from investors such as Norway’s $ 1 billion sovereign wealth fund.
Rio Tinto sold its last coal mine in 2018, while Anglo American, BHP and Glencore also have divestiture plans.
Privately, mining executives view the banks’ promises to move away from coal as little more than “greenwashing,” and say they have not been forced to find other forms of capital or not. suffered an increase in financing costs.
They also point out that none of the major mining companies generate nearly 50 percent of their sales from coal. At Glencore, the world’s largest producer of marine thermal coal, fossil fuels represent only 6% of sales.
In addition, only a few large coal mines are being developed in the world and not all of them require external financing. One of the most important is the Carmichael project in Australia, which owner Adani plans to fund himself.
Where large miners could run into problems, concede executives, is when they seek to divest themselves of thermal coal assets. If BHP cannot find a buyer for its thermal coal mines and decides on a spin-off, it is unclear how many banks would be able to provide credits and loans to a coal-only company. Likewise, many investors may be forced to sell the shares they receive.
Anglo American will need to answer these questions as it considers dividing its thermal coal business in South Africa, although local attitudes towards coal, still a cheap energy source, are very different from those in the United States. Europe.
In Europe, too, many utilities have sold or exchange of fossil fuel assets in recent years. But economies such as Poland and Germany remain dependent on coal-fired electricity, and other utilities have argued that coal assets are needed for energy reasons. Security and affordability during the energy transition.
But there is only one direction to follow, analysts say, with oil companies now also in the sights. While some of the biggest oil majors, which have sought to appease activist shareholders with big announcements on cleaner energy projects, have yet to see a difference in the cost of capital, others have yet to see a difference in the cost of capital. not had that chance.
Michele Della Vigna, analyst at Goldman Sachs, said that “for a pure oil exploration and production company today, it becomes almost impossible to finance new large oil projects in the long term.”
For Mr. Klier, the stakes are clear.
“If we fail to make the transition, the 100 most polluting companies, including oil and gas, coal, utilities, cement and steel,” he said, “we won’t ‘will have no savings “.