Wave Goodbye! Another Bank Withdraws Support For Coal

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Support for coal continues to wane around the world. It’s not happening as broadly or as rigorously as is needed to achieve the goals of the Paris Agreement, but the pace of coal’s decline across a whole series of countries, although variable, has been remarkable.

Coal currently accounts for 38.5% of the global power mix and generates 46% of global CO2 emissions. But that stat seems to be quickly changing.

In March, VanEck Vectors Coal ETF dramatically underperformed on the market, with a total return of -55.6% as compared with a total return of -17.6% for the S&P 500.

In April, Units of Alliance Resource Partners LP dropped over 18%, rescinded initial 2020 guidance, halted distribution payouts, and reduced total production to meet contract volumes.

During the same month, Arch Coal plunged to a 52-week low after posting a larger than expected Q1 loss on a 27% year-to-year decline in revenues and suspending its quarterly dividend.

The Wall Street Journal reports this week that the coal industry’s long decline wasn’t so bad in 2017 and 2018, all things considered. But, instead of saving profits for the proverbial rainy day, “coal producers spent billions of dollars in dividends and stock buybacks to benefit their investors.”

Those golden days of money, money everywhere are becoming a thing of coal’s past. Support for coal is becoming elusive.

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Australian Bank Announces It Won’t Offer Support for Coal by 2030

Australia is the world’s second-biggest thermal coal exporter. The country has seen more and more difficulties acquiring new financial resources however, as institutions across the globe acquiesce to pressure from shareholders and climate groups to divest from coal and other fossil fuels.

Westpac Banking Corp. said it will exit the coal sector by 2030, according to Bloomberg Green. That leaves Australia and New Zealand Banking Group Ltd. as the only remaining original banking conglomerate to maintain investments in the coal industry. Westpac has reportedly already reduced its total coal exposure to $700 million (AU) and asserts it will not establish relationships with any new thermal customers.

The bank continues to finance metallurgical coal while it promotes initiatives to reduce the steel industry’s dependence on the fuel. The financial institution acknowledged it and other lenders have a significant role to play in facilitating the transition to a low carbon economy. Westpac has a target of $3.5 billion (AU) in new lending to climate change solutions over the next 3 years.

Commonwealth Bank of Australia and National Australia Bank Ltd. plan to be leave thermal coal financing by 2030 and 2035 respectively. ANZ allows that is expects to have reduced coal involvement but hasn’t declared a formal exit date.

Why Banks are Bailing on Coal

Clients, shareholders, regulators, and the general public are increasingly holding financial companies responsible for their decisions as actors with a responsibility to mitigate their climate impacts. “Banking on Climate Change — Fossil Fuel Finance Report 2020,” issued by the Sierra Club and partners, points to the biggest culprits in the coal financing arena.

• Coal Mining: China Construction Bank and Bank of China are the biggest bankers of coal mining, while French banks Credit Mutuel and Credit Agricole have the strongest policy scores.
• Coal Power: This is the area where bank policy scores are strongest overall, yet funding for top coal power producers is not dropping rapidly enough. Financing is led by ICBC and Bank of China, with Citi as the top non-Chinese banker of coal power.

Financing for coal mining is still dominated by Chinese banks which are not restricted by policies to limit coal investments. Though many banks from other regions have policies in place restricting financing for coal mining, the report authors argue that “these policies need to be strengthened in order to quickly phase out financing for this carbon-intensive fuel.”

Instead, the report lists 3 steps that banks must take:

1. Measure and disclose climate risk to their assets.
2. Measure and disclose their climate impact on the planet.
3. Set targets to phase out this climate impact.

Final Thoughts

The coal industry remains a major supplier to key industries such as steel and utilities with coal-fired electricity plants, but the trend is changing.

Double-digit drops in oil and gas prices haven’t significantly hurt renewable energy sources like wind and solar farms. Indeed, renewable energy sources are forecast to hold nearly 21% US electricity usage this year, up from about 18% in 2019 and 10% in 2010. The renewable business continues growing in 2020 and next year even as oil, gas, and its dirty sibling coal companies struggle financially or seek bankruptcy protection.

Note: Carolyn Fortuna has an article in press with The Journal of Sustainable Education titled, “Coal’s Last Gasp, Its Resuscitation by Media, and the Habitus of NIMBY.”