Over 100 global investors restricted coal funding since 2013

05-March-2019

New Delhi: Over 100 major global financial institutions have introduced policies restricting coal funding, a recent report by the Institute for Energy Economics and Financial Analysis (IEEFA) said on Tuesday.

The report titled “Over 100 Global Financial Institutions Are Exiting Coal, With More to Come” showed that the global capital is fleeing the coal sector at an electrifying rate.

“Since 2013, coal exit announcements have occurred at a rate of over one per month from globally significant banks and insurers holding more than $10 billion worth of assets under management,” IEEFA said in a statement.

According to the report, since 2018 there have been 34 new or significantly improved announcements from global financial institutions restricting coal.

The World Bank announced the first-ever restrictions in 2013, with the 100th announcement in December 2018 coming from the European Bank of Reconstruction and Development (EBRD) removing three country exceptions to its coal finance ban.

Additional policies have been announced since the beginning of 2019 with moves coming from Nedbank of South Africa, Barclays Bank UK, Export Development Canada, and Varma of Finland. The latest move announced last week was from Austria’s Vienna Insurance Group saying it will no longer insure new coal plants and mines.

Tim Buckley, director of Energy Finance Studies, IEEFA, said: “For environmental, reputational and financial reasons, thermal coal is a toxic asset for global investors increasingly announcing new and improved policies responding to climate change.”

He added that the strong leadership of a few globally significant institutions five years ago was increasingly turning into capital flight by the many, with one new announcement every two weeks in recent years.

The pattern of tightening existing policies combined with new lending restrictions is creating a domino effect within the global financial industry while resulting in a progressive strangulation of the thermal coal industry. Stranded assets are a clear financial risk for any institutions left funding the coal sector,” he added.

IEEFA’s Buckley said that with investors understandably focused on cheaper, sustainable, domestic renewables, an emerging theme is coal companies’ inability to access capital markets for expansions, mergers or acquisitions.

According to the report, the 100 plus financial institutions restricting coal lending included 40 per cent of the top 40 global banks and as of last week, at least 20 globally significant insurers with more than $6 trillion of investments – 20 per cent of the industry’s global assets – who were excluding coal from their portfolios.

Eight insurers and reinsurers, including industry giants like AXA, Allianz, Swiss Re and Munich Re, have ended or restricted their insurance for coal projects, making it increasingly challenging for companies to find cover.

“Since the beginning of 2018 there have been 34 coal restriction policies announced, with 25 being new and another nine building on earlier coal-related commitments. These restrictions are beginning to come from Asian financial institutions led by Dai-ichi Life of Japan and Sumitomo Mitsui Trust Bank, which are rapidly aligning with their European and US counterparts,” IEEFA said in a statement.

Buckley said the report showed that coal finance restrictions were increasingly emerging across the globe, from New York to South Africa, Brazil to Japan.

“While initial measures vary in effectiveness, we found that the trend is for financial institutions to ratchet up the strength of policies once they are in place. With environmental and reputational concerns certainly driving factors for capital fleeing coal, investors are also increasingly aware that coal industry forecasts are increasingly dour,” he added.

He also said with the energy transition to cheaper technologies gathering pace, the likelihood of investors having to wear billions of dollars in additional stranded assets is impossible to ignore.

Source- Economic times