Research shows how banks and investors finance the coal industry

A bulldozer pushes coal on a conveyor belt at Jiangyou Power Station on January 28, 2022 in Jiangyou, Mianyang City, China’s Sichuan Province.

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LONDON — Banks and investors have funneled massive sums of money to prop up the coal industry in recent years, new research shows, backing the world’s dirtiest fossil fuel at a time when humanity is facing a climate emergency.

Analysis released Tuesday by campaign groups Urgewald and Reclaim Finance, alongside more than two dozen other NGOs, found that commercial banks funneled $1.5 trillion into the coal industry between January 2019 and November last year.

The research shows how a small number of financial institutions in a handful of countries play an outsized role in keeping the coal industry afloat.

Indeed, financial institutions in just six countries – the United States, China, Japan, India, Canada and the United Kingdom – were considered responsible for more than 80% of financing and investment in the world. coal.

“These financial institutions should be criticized from all sides: civil society organizations, financial regulators, customers and progressive investors,” Katrin Ganswindt, head of financial research at Urgewald, said in the report. “If we don’t end coal funding, it will end us.”

Coal is the most carbon-intensive fossil fuel in terms of emissions and therefore the most critical replacement target in the transition to renewable alternatives.

Fog shrouds the Canary Wharf business district, including global financial institutions Citigroup Inc., State Street Corp., Barclays Plc, HSBC Holdings Plc and the No. 1 Canada Square commercial office building, on the island of dogs on November 05, 2020 in London, England.

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Who are the main lenders to coal customers?

The conclusions describe all business loans and underwriting for businesses on Urgewald World list of coal releases but exclude green bonds and financing for non-coal activities. The GCEL refers to a list of 1,032 companies that account for 90% of global thermal coal production and coal-fired capacity.

This is the first financial research update from GCEL since the COP26 climate conference held in Glasgow, Scotland, late last year. Campaigners say it is for this reason that the analysis should be seen as a benchmark for assessing the integrity of the pledges made at COP26.

Banks like to argue that they want to help their coal customers transition, but the reality is that almost none of these companies are transitioning.

Katrin Ganswindt

Head of financial research at Urgewald

At the UN talks, major coal-dependent countries pledged for the first time to “phase out” coal-fired power generation and inefficient fossil fuel subsidies. A last-minute intervention to change the terminology of the Glasgow Climate Pact to ‘phase down’ rather than ‘phase out’ has sparked fears among many it would create a loophole to delay desperately needed climate action.

“Banks like to argue that they want to help their coal customers make the transition, but the reality is that almost none of these companies are making the transition. And they have little incentive to do so until the bankers keep writing them blank checks,” Ganswindt said.

NGO research shows that while 376 commercial banks provided $363 billion in loans to the coal industry between January 2019 and November 2021, only 12 banks accounted for 48% of total business loans on the GCEL.

Turów power plant in southwestern Poland.

Dominique Zarzycka | NurPhoto | Getty Images

Among these so-called “dirty dozen” of lenders, 10 are members of the UN Net Zero Banking Alliance — an industry-led initiative that commits to aligning its portfolios to net-zero emissions by 2050.

The three main lenders providing loans to the coal industry are Japan’s Mizuho Financial, Mitsubishi UFJ Financial and SMBC Group respectively, followed by Britain’s Barclays and Wall Street’s Citigroup.

A Barclays spokesman said the bank had pledged in January 2019 “not to provide project finance for the construction or physical expansion of coal-fired power plants or the development of new thermal coal mines anywhere in the world”.

Barclays has since said it will not provide general financing to companies specifically for the development of new or extended coal mining or coal-fired power plants and said it has tightened restrictions on customer financing from the extraction of thermal coal and electricity.

Meanwhile, Mitsubishi UFJ Financial said it has announced targets to achieve net zero emissions in its operations by 2030 and its financial portfolio by 2050.

“MUFG takes its mission to contribute to the sustainable growth of customers and society seriously, and is therefore committed to operating in a manner that is both socially responsible and consistent with the long-term development requirements of the markets in which it operates. operates,” a spokesperson said.

Mizuho Financial did not comment specifically on the NGO findings, but quoted from an ad from May last year which announced its intention to reduce its credit balance for the year 2019 for coal-fired electricity generation facilities to 50% by the year 2030, and to zero by the year 2040.

Mizuho Financial also identified companies whose primary business is coal-fired power generation or coal mining, among others, as companies “highly likely” to be exposed to transition risk. It says it will “implement risk control through engagement” and will not provide funding or investment to be used for new thermal coal mining projects.

Citi declined to respond to NGO analysis when contacted by CNBC.

“Large sums of money”

The study found that it is underwriting that now accounts for the lion’s share of capital that banks raise for their coal customers. Underwriting refers to the process by which banks raise investment or capital for companies by issuing bonds or stocks in their name and selling them to investors such as pension funds, insurance funds and mutual fund.

In the nearly two-year period from January 2019 to November last year, 484 commercial banks funneled $1.2 trillion to GCEL companies through underwriting. Of these, only 12 banks accounted for 39% of total underwriting since 2019.

The headquarters of JP Morgan Chase & Co., the JP Morgan Chase Tower in Park Avenue, Midtown, Manhattan, New York.

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the The Industrial Commercial Bank of China, China International Trust and Investment Corporation and Shanghai Pudong Development Bank have been identified as the top three respective coal industry underwriters. Indeed, the only non-Chinese bank among the top 12 underwriters for the coal industry was JPMorgan Chase, the largest US bank by assets.

Jason Opeña Disterhoft, climate and energy campaign manager at Rainforest Action Network, said JPMorgan’s list of coal customers in 2021 “reads like a ‘who’s who’ of the most carbon-heavy companies in the planet”.

He added: “Despite a new coal policy in 2020, it continues to serve major carbon polluters like China Huaneng, Eskom, American Electric Power and Adani.”

A JPMorgan Chase spokesperson said, “Being the first U.S. bank to set Paris-aligned 2030 carbon reduction targets, including for the electric power sector, and create a 2 .5 trillion are clear examples of our continued commitment to supporting the transition to a low-carbon economy.”

Reflecting on the research findings, Ganswindt of Urgewald told CNBC that it’s important to see the big picture when it comes to how banks support the coal industry.

“Ultimately, it does not matter whether the banks support the coal industry by providing loans or providing underwriting services. Both actions lead to the same result: huge sums of money are provided to an industry that is the keystone of our climate’s worst enemy,” she said.

What about investors?

While banks play a pivotal role in helping coal companies get their hands on capital by guaranteeing their stock and bond issues, the NGOs behind the research acknowledged that it is ultimately the investors who are the purchasers of these securities.

The research identifies nearly 5,000 institutional investors with combined holdings of more than $1.2 trillion in the coal industry. The top two dozen account for 46% of that sum as of November 2021. US investment giants Blackrock and Vanguard emerged as the two largest institutional investors, respectively.

“No one should be fooled by BlackRock’s and Vanguard’s membership in the Net Zero Asset Managers Initiative. These two institutions bear more responsibility for accelerating climate change than any other institutional investor in the world,” Yann Louvel, policy analyst at Reclaim Finance, said in a statement.

He added that it was “absolutely chilling” to see pension funds, asset managers, mutual funds and other institutional investors continuing to bet on coal companies amid the climate emergency. .

BlackRock declined to comment on the NGOs’ findings.

A spokesperson for Vanguard told CNBC that the company is “committed to encouraging businesses, through effective management, to address significant climate risks” through the energy transition.

“As an asset manager, Vanguard has a fiduciary responsibility to the wide range of retail, intermediary and institutional investors who have entrusted their assets to us,” they said. “Our mandate is to invest clients’ assets in accordance with their chosen investment strategies and to act as steward of those assets. We take this responsibility very seriously.”

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