NGO’s Perspective | New Analysis Tool Sheds Light on Financial Institutions’ Coal Policies

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© Dominik Vanyi

INSIGHT by Reclaim Finance

Reclaim Finance, in partnership with 26 other NGOs1, is releasing the first online tool to identify, assess, and compare the policies adopted by financial institutions worldwide to restrict or end their financial services to the coal sector2.

| The Coal Policy Tool rates the coal sector policies of 214 financial institutions on a consistent and transparent scoring grid built upon five key criteria; it also names the largest banks, re/insurers, asset owners and asset managers that have not begun taking steps on the coal policy road3. The tool, which will be updated in real-time, spans 30 countries, from Australia to the United States. The Coal Policy Tool helps users to easily identify the good, the bad, and the in-between of policies adopted by financial institutions worldwide. It is accessible at coalpolicytool.org.

The number of coal policies has been growing fast since the adoption of the Paris Agreement in 2015. The Coal Policy Tool is the most comprehensive database assessing the quality of existing policies against the goal of keeping global warming below 1.5 degrees Celsius above pre-industrial levels. 

In a snapshot, the tool shows that:

The best policies are in Europe, where one can find the highest number of financial institutions adopting policies on coal and reviewing them regularly to adopt higher standards.

US asset managers, which dominate the market worldwide, are among the worst performers. BlackRock is the only US asset manager with a policy on coal. However, Blackrock’s January 2020 announcement was largely theatrical as its policy scored 0 on all but one of the Coal Policy Tool criteria.

Except for French banks which have recently adopted policies to exit the coal sector, banks are globally lagging behind re/insurers, with a relatively higher number of re/insurers having adopted appreciable restrictive exclusion criteria at the corporate level.

 

Quality is, however, still a major issue. According to the Coal Policy Tool’s analysis, only 16 financial institutions, including top players such as AXA, Crédit Agricole/Amundi, Crédit Mutuel and UniCredit have a robust coal phase-out policy4. Most coal policies around the world remain too weak to even prevent further growth of the coal sector.

 

“The tool goes beyond identifying and comparing policies and enabling clients, media, financial institutions, and other stakeholders to navigate the coal policy jungle easily. Above all, it aims to ensure high-quality coal policies that effectively contribute to preventing climate chaos,” says Lucie Pinson, Founder and Executive Director of Reclaim Finance.  

Pinson adds: “It is not enough to adopt a policy, what we need are good coal policies. French financial institutions were the first global players that adopted policies on coal, but these policies had to be amended many times before they became sufficiently robust to support a coal exit. We cannot afford to continue delaying real action. Addressing oil and gas is increasingly pressing; financial institutions need to now urgently progress to the level of the highest quality coal policies identified by our tool.”   

 

What makes a coal policy strong?

To perfectly align with climate science, a coal policy needs to (a) cover the entire value chain, from mining to power through infrastructure; (b) tackle all financial services, including corporate and project financing, underwriting, and passive fund management, and (c) combine exclusion criteria and shareholder engagement to not only prevent the expansion of the coal sector but to also support its rapid phase-out. 

Preventing new coal projects from being built is of the utmost urgency to have a chance at limiting global warming below the 1.5ºC target set forth in the Paris Climate Agreement: Financial institutions must immediately end all services at the project level, but also all general corporate support to companies with coal expansion plans.

All existing coal assets must progressively be shut down, and not sold: Financial institutions must commit to bringing their coal exposure to zero by 2030 in Europe and OECD countries and by 2040 in other countries at the latest. Achieving these goals requires the immediate exclusion of companies highly exposed to coal – either because a large share of their activities is based on coal or because the sheer size of their coal activities is significant [5]- as well as a robust engagement strategy requiring companies to adopt a coal phase-out plan.  

 

Most banks and insurers still support new coal projects

216 top financial institutions [3] continue to lack any policy on coal, and most banks and insurers allow direct financing or insurance coverage for new coal projects. This is the case for the UK insurance market Lloyd’s, the US insurers AIG and Liberty Mutual, the Chinese bank ICBC and the Polish insurer PZU, which do not exclude any new coal projects. Many other financial institutions only exclude some of the worst projects. All geographies are concerned even if US, South Africa, and Asian financial players dominate the picture.

 

“Asian financial institutions have very poor coal policies, and Japanese insurers MS&AD, Sompo and Tokio Marine are definitely among the worst performers worldwide with absolutely no policy. The Covid-19 crisis shows that they can no longer ignore the calls of climate scientists and political leaders and must immediately end direct and indirect support towards new coal projects. Having zero tolerance for coal expansion is only the essential first step for any financial institution with environmental and sustainability commitments.” says Yuki Tanabe, the Program Director of Japan Center for a Sustainable Environment and Society (JACSES). 

 

| Existing policies are insufficient to mitigate the impacts of the coal sector

50 banks and insurers analysed in the tool still do not exclude any coal companies from financial services and just exclude financial services on the project level. And most exclusions of coal companies are based only on the relative share of coal in their activities. As revealed by the Global Coal Exit List, a database maintained by the NGO Urgewald, this approach leads to policies that let some of the biggest coal producers or coal plant developers off the hook.

 

“US asset managers tend to share an inadequate, dead-end approach to coal and climate. Whether it’s California’s pension funds CalPERS and CalSTRS, or the biggest global asset manager BlackRock, we face policies that only tackle the mining side of the thermal coal industry and leave out all other coal-related activities. These financial giants deserve their failing grades for all criteria of the Coal Policy Tool; and their claims to be addressing the climate crisis and ‘divesting from coal’ ring hollow, when their coal policies keep ignoring the majority of the coal sector” says Vanessa Warheit, Executive Director of Fossil Free California.

 

Most financial institutions fail addressing the need to exit coal

And last, but not least, the Coal Policy Tool shows that nearly everything remains to be done to support the closure of existing coal assets on time to align with climate science. Only an exceedingly small number of financial institutions have started to (a) commit to reducing their exposure to the coal sector to close to zero at the latest by 2030 in Europe and OECD countries and by 2040 in other countries at the latest and (b) adopt a strategy to meet this target. Many French financial groups are now requiring that their remaining clients adopt a coal phase-out plan by the end of 2021 and have pledged to drop clients who are unable to prove their ability to exit coal in a timely and orderly manner.

 

| notes

[1] The Coal Policy Tool is launched in partnership with the following NGOs: 
350; BankTrack; Both Ends; Centre for Financial Accountability; CEED – Center for Energy, Ecology, and Development; CLEAN; Ecologistas en Acción ; Fossil Free California; Foundation “Development YES – Open-Pit Mines NO”; Friends of the Earth US; Global Witness; Instituto Internacional de Derecho y Medio Ambiente; Jacses; Just Share; Kiko Network ; Les Amis de la Terre France; Maan ystävät – Friends of the Earth Finland; Rainforest Action Network; Re:Common; RESET; ShareAction; Solutions For Our Climate; Sierra Club; Urgewald.
The NGO campaigns Insure Our Future and BlackRock’s Big Problem also endorse the tool.[2] The Coal Policy Tool is accessible at https://coalpolicytool.org/ password: September8[3] The Coal Policy Tool covers:  

 

The top 20 banks/asset owners/asset managers in global rankings (Standard & Poor’s for banks, Willis Towers Watson plc for asset owners and asset managers), and insurers covered in the 2019 Scorecard on Insurance (Insure Our Future), whether they have a coal policy, or not;  

All financial institutions in the top 100 of those rankings, which were assessed systematically, for which Reclaim Finance could find a coal policy; 

Some other smaller financial institutions above a minimum threshold of 10 billion USD of assets for which Reclaim Finance could find a coal policy through research and from partners worldwide, without conducting a systematic assessment, and  

Some other financial institutions added at the request of our partners.

 

More information on this methodology is available on this webpage.

It rates the policies of 214 financial institutions. The number of 214 is found once duplicates have been removed as insurers are graded both for their insurance as well as their investment policies. 

Reclaim Finance found that 216 top financial institutions have no coal policies. The number of 216 refers to financial institutions in the top 100 global rankings mentioned above of banks (Standard & Poor’s), asset owners and asset managers (Willis Towers Watson plc), and insurers in the 2019 Scorecard on Insurance (Insure Our Future) once removing duplicates. It is important to note that only the largest financial institutions with no coal policy were integrated in the Coal Policy Tool. 

[4] The 16 financial institutions with a robust coal phase-out policy are part of the following 10 financial groups: the top players AXA, Crédit Agricole/Amundi, Crédit Mutuel, and UniCredit along with 6 other French financial groups: AG2R La Mondiale, CNP Assurances, La Banque Postale Asset Management, MACIF, OFI Asset Management and SCOR in its capacity as an investor (the reinsurer SCOR has a minimal coal policy that only ends facultative coverage at project level).

[5] Reclaim Finance and its partners call on financial institutions to exclude all companies generating more than 20% of their revenues or 20% of their power production from coal as well as companies that produce more than 10 million tons of coal a year or have more than 5 GW of coal power production capacity. More information is available on this webpage.

 

about

Reclaim Finance is a France-based NGO founded in 2020. Our vision is a financial system that supports the transition to sustainable societies that preserve ecosystems and satisfy people’s basic needs. In the context of the climate emergency and biodiversity losses, one of Reclaim Finance’s priorities is to accelerate the decarbonisation of financial flows. We speak out against the negative impacts caused by certain financial institutions and push for changes by pressuring these institutions and requiring political decision-makers change existing laws and practices. 

 

All opinions expressed are those of the author. investESG.eu is an independent and neutral platform dedicated to generating debate around ESG investing topics.