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Commercial lenders still tipping US$1.5tn into coal, research says

Commercial banks lent over US$1.5tn to companies in the global coal industry between 2019 and 2021, according to new research, despite a flurry of commitments to ease away from the sector and aim for net-zero emissions.

Yesterday, a coalition of NGOs published an analysis of data compiled by Dutch sustainability research firm Profunda, which suggests that 376 commercial lenders provided US$363bn to the coal industry between January 2021 and November last year, while 484 institutions provided US$1.2tn in underwriting.

The research draws on figures from deal databases such as those maintained by Refinitiv and Bloomberg, and includes financing for 1,032 companies on a “global coal exit” list maintained by the NGOs which includes miners, traders, coal transporters, power plant operators and equipment manufacturers.

Many banks have pledged to exit the coal sector, a trend that gathered pace in the run-up to last year’s Cop26 summit in Glasgow. A database maintained by the Institute for Energy Economics and Financial Analysis shows that between 2019 and mid-2021, some 250 financial institutions and insurance providers had pledged some form of coal exclusion, or to exit the sector entirely.

Many global banking giants also signed up last year to the Net Zero Banking Alliance, which requires signatories to abide by lending and investment guidelines aligned with the aim of keeping global warming under 1.5 degrees Celsius and achieving net-zero emissions by 2050.

However, the research, led by German campaign group Urgewald, noted that 10 of the 12 top lenders to the sector are members of the alliance. The dozen top financiers are responsible for 48% of loans extended to coal companies during the period.

Three Japanese banks – Mizuho, MUFG and SMBC – top the rankings, lending between US$20bn and US$33.6bn each. Barclays, the only UK-headquartered bank in the top 12, lent US$16.1bn during the period, while Citi extended US$14.9bn, the analysis says. All are members of the Net Zero Banking Alliance.

“At the time when it counts most – today – most of these banks are still channelling billions of dollars to the coal industry,” says Eri Watanabe from the Japan branch of 350.org, a climate change campaign group. “It is not enough to make net-zero promises for the distant future and only inch towards them reluctantly.”

In response to the report, a spokesperson for MUFG tells GTR the lender has a policy of net-zero emissions in its portfolio by 2050 and is “committed to operating in a manner that is both socially responsible and in accordance with the long-term developmental requirements of the markets that it operates in”. Since June 2021 the bank only provides finance to coal-fired power projects with emissions-abatement technology, the spokesperson says.

A spokesperson for Barclays says: “In 2020, in recognition of the fact that Barclays should go further in this area, we committed to not provide general corporate financing that is specified as being for new or expanded coal mining or coal-fired power plant development, and have introduced tightened restrictions on financing of thermal coal mining and power clients.”

The bank also does not provide project finance for new or expanding existing coal-fired power stations or thermal coal mines and is making cuts to emissions from its energy portfolio, the spokesperson says.

SMBC declined to comment but noted that it is also committed to reducing its portfolio emissions to net zero by 2050. Citi also declined to comment. Mizuho did not respond to requests for comment.

The NGOs’ research does not distinguish between thermal and coking coal. Used in steelmaking, green alternatives to coking coal have only recently emerged.

Green finance provided to a company’s non-coal operations was excluded from the data analysis but all financing to diversified companies is included, meaning the funds may be used for purposes other than coal-related operations.

In cases where the individual contributions of each bank to a syndicated facility are not known, the researchers used the bank’s fee to calculate its share of the lending, or the facility’s book ratio.

The report also found that just 12 financial institutions – all but one based in China – had provided 39%, or US$460bn, of the total underwriting for the coal companies during the period.

“Underwriting now accounts for the lion’s share of capital that banks mobilise for their coal clients. It’s therefore crucial that the Net Zero Banking Alliance also begins applying its emission reduction targets to underwriting immediately,” says Yann Louvel of NGO Reclaim Finance, which campaigns for sustainable finance.

Campaigners are increasingly taking aim at private and public financial institutions for supporting not just coal, but also oil and gas. Activist groups such as Market Forces and ShareAction have lobbied shareholders of major financial institutions to support tougher restrictions on fossil fuel financing.