THE LEX COLUMN: Sparks fly over coal, bank lending
“Fossil banks, no thanks!” chant protesters. Financial institutions that lend to coal users are under pressure from climate campaigners. Their anger will have been stoked by research from lobby group Europe Beyond Coal identifying nearly €8bn of loans to coal-burning power companies since 2018.
It is not just campaigners. Nearly a quarter of shareholders supported climate change resolutions at annual meetings in 2020. Critics focus on banks’ bottom lines, as well as the wider impact on society. Billionaire hedge fund manager Christopher Hohn compares the risks of lending to coal with those of sub-prime mortgages ahead of the financial crisis.
Central bank regulators in Europe, Australia and Singapore are planning climate stress tests. How badly would banks suffer from the early closure of coal-fired power plants? What impact would extreme weather events have on sovereign risk or mortgage books?
European banks insist they get the message. The institutions rapped by Europe Beyond Coal — UniCredit, BNP Paribas, Barclays and Societe Generale — complain the criticism is outdated because they have since tightened restrictions on loans to companies that depend upon revenues from coal. Campaigners acknowledge that coal is being phased out across Europe faster than anyone dared hope.
Output from EU coal-fired power plants dropped more than a quarter in 2019. A shortage of bank finance is a factor. Poland’s latest power plant project has switched from coal to gas. The trend is not universal. Chinese lenders have bankrolled most of the world’s big coal plants, says BankTrack, a Dutch charity. Beijing is approving plans for new coal power plant capacity at the fastest rate since 2015. Japanese banks, the second biggest source of funding, appear to be reining back.
Campaigners’ success provokes unease from those who disapprove of funding being withdrawn from businesses operating within the law. US banks have been accused of colluding to starve the US energy sector of capital in a breach of fair, free-market competition.
But banks are right to clamp down on coal-related loans. The use of the black stuff needs to fall dramatically this decade for the world to have a chance of meeting global warming targets. Climate change threatens financial stability. Burning coal helps trigger climate change. Banks have a responsibility to listen to protesters’ chants. /London, July 20
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