A new report from a half-dozen environmental groups says global banks financed $2.7 trillion of fossil fuel projects from December 2015, when the Paris Agreement on climate was reached, through year-end 2019. The report said funding for such projects has increased in each of the past four years.
“Banking on Climate Change 2020,” published March 18, provides information on lending and underwriting of projects in the coal, natural gas, and oil sectors worldwide in the period from 2016-2019. The report is backed by the Rainforest Action Network, BankTrack, Indigenous Environmental Network, Oil Change International, Reclaim Finance, and the Sierra Club. It tracks banks’ financial commitments to about 2,100 companies in the fossil fuel industry.
The report notes that financing of fossil fuel projects is dominated by large U.S. banks, including JPMorgan Chase, Wells Fargo, Citi, and Bank of America. The report said those four institutions account for about 30% of all financing in the sector since the Paris Agreement was adopted. The study looked at 35 major global banks.
A UK-based fund manager recently called for banks to end their financing of coal plants, and today’s report comes two days after Första AP-fonden (AP1), a major Swedish pension fund and one of five funds in the country’s national income pension system, said Monday it would “no longer invest in fossil fuels.”
Banks and other finance companies worldwide have been grappling with their investment decisions in projects such as coal- and natural gas-fired power plants as the impact of climate change become clear. Those same institutions, though, see the need for continued investment in fossil fuels as a way to provide more access to power in developing countries, while acknowledging the need to balance their financing risk.
“These Green fundraising groups are completely tone deaf and incredibly insensitive to the world around them,” Dank Kish, senior vice president of policy for the American Energy Alliance, told POWER. “They support policies that would have people freezing in the dark or without desperately needed medical attention during a worldwide pandemic like the one we are currently facing. They have no accountability or realistic solutions to meet our very real energy needs and their advice should be completely ignored.”
The report noted an overall decline in financing for coal mining and thermal power generation projects, as some banks in recent years have limited or eliminated their support for those areas. The number of new coal plants that began construction worldwide fell by 84% between 2015 and 2018, according to non-governmental organizations that track coal generation.
However, a December 2019 report from CoalExit, which tracks global coal projects and their financing, said more than 1,000 new coal-fired power stations or units are in the planning or construction phases worldwide. The data said commercial operation of those plants would add as much as 570 GW of generation capacity.
“Funding for top coal power producers from 35 major banks has fallen slightly since the Paris Agreement was adopted—but coal power financing must fall much more steeply in order to be phased out this decade,” Hana Heineken, senior campaigner with Responsible Finance, part of the Rainforest Network, told POWER. “Japan’s MUFG and Mizuho alone provided over $9 billion in financing to the very top global coal power producers, with more financing since adopting coal policies, underscoring that their weak tea policies pale in comparison to global standard and what is needed to align financing practices with climate stability.”
JP Morgan Chase Leads Financing
The report published Wednesday said JPMorgan Chase has provided $269 billion in financing for fossil fuel projects over the past four-plus years, far and away the most of any institution, and representing 10% of the global total. Other major backers include Canada’s RBC, at $141 billion, and Tokyo-based MUFG, at $119 billion. London, UK-based Barclays is next at $118 billion. Other major funders include France’s BNP Paribas, and the Bank of China, known for its support of the coal industry and coal-fired power generation.
JPMorgan Chase in February announced it would scale back its loans to the coal industry and end its financing of oil and gas exploration projects in the Arctic. The bank, though, said it would continue to provide loans to oil and gas projects in the Lower 48 states and in other parts of the world.
Climate activists have staged protests at JPMorgan branches in recent months, calling for an end to the bank’s role in underwriting the fossil fuel industries. The bank on Wednesday clarified its February announcement, telling POWER: “In 2020, we committed to facilitate $200 billion to advance the United Nations Sustainable Development Goals, including $50 billion toward green initiatives that also fulfill our 2017 clean financing target. Our 2017 commitment was as follows: Facilitate $200 billion in clean financing by 2025 and source renewable energy for 100 percent of its global power needs by 2020. Both of these goals are expected to be reached by the end of 2020.”
The bank also, in detailing its terms for lending to the coal industry, has effectively ending such loans, and has also said it would not refinance loans on existing coal plants, or provide money or advice to companies with most of their revenue tied to coal. The bank said existing loans would be phased out by 2024.
The Bank of China and the Japan Bank for International Cooperation recently committed $29 billion to build new coal-fired power projects in Indonesia and Vietnam. Wednesday’s report said Bank of China has committed $84 billion to fossil fuel projects overall in the past few years.
“Banking on Climate Change 2020 paints a deeply disturbing picture of how financial institutions are driving us toward climate disaster,” Alison Kirsch, Climate and Energy Leader Researcher at Rainforest Action Network, said in a statement provided to POWER. “The data reveals that global banks are not only ramping up financing of fossil fuels overall, but are also increasing funding for the companies most responsible for fossil fuel expansion. This makes it crystal clear that banks are failing miserably when it comes to responding to the urgency of the climate crisis. As the toll of death and destruction from unprecedented floods, droughts, fires and storms grows, it is unconscionable and outrageous for banks to be approving new loans and raising capital for the companies that are pushing hardest to increase carbon emissions.”
Japanese banks, with support from that country’s government, have said they will support foreign coal projects in part due to concerns that China would otherwise dominate the market. Japan has a long-standing policy to finance coal projects in developing countries if four criteria are met, including a request from a country for state-of-the-art coal-fired power plant technology.
Vietnam, for example, has about 100 million people, with annual GDP growth around 7% in a surging economy. The country has forecast power generation will need to rise from about 47 GW a year ago to 60 GW this year, and to almost 130 GW by 2030. Analysts have said cheap coal provides the fastest way to increase power generation, even as the country expects to grow its renewable power projects.
Vietnam’s current Power Development Plan (PDP), known as PDP 7, has forecast that the country’s coal-fired generation would increase its share of the energy market from 33% a few years ago, when the plan was adopted, to 56% in 2030. The next version of the plan, PDP 8, is expected later this year.
Turbine Manufacturers Still Developing Coal Technology
Japan-based Mitsubishi Hitachi Power Systems (MHPS), along with General Electric (GE) and Siemens among the world’s largest turbine manufacturers for use in power generation and industrial settings, has not commented on specific projects, but has said moving forward it will only work on coal-fired power plant projects that are already in development. GE and Siemens continue to deploy technology for coal plants, particularly in developing countries.
MHPS, a joint venture of Mitsubishi Heavy Industries (MHI) and Hitachi, earlier this month received an order for the first advanced-class gas turbines designed to transition to renewable hydrogen fuel. The company’s MHPS Americas subsidiary on March 10 said the contract for two M501JAC power trains is the first in the industry “specifically designed and purchased as part of a comprehensive plan to sequentially transition from coal, to natural gas and finally to renewable hydrogen fuel, and creates a roadmap for the global industry to follow.”
Seiji Izumisawa, president and CEO of MHI, this week told the Nikkei Asian Review that “Coal-fired power generation will be greatly reduced in scale due to strong criticism worldwide. But as society needs power generation systems, we will find out how to meet the social needs with hydrogen fuel.”
GE in a statement on climate change last year said the company “offers zero-emission renewable and nuclear energy options to reduce carbon emissions, while also promoting the integration of the world’s most efficient natural gas technologies.” The statement went on to say, “We also work closely with our customers to evaluate opportunities to upgrade existing power generation units or replace less efficient energy sources (e.g., diesel, wood, etc.) with efficient, state of the art coal-powered generation where the circumstances warrant.”
Siemens last year signed a memorandum of understanding with the Vietnamese government outlining future collaboration. Gregor Frank, Siemens’ Vice President for Large Gas Packages and Solution Businesses in Asia-Pacific, said the company was in “early development and financing of equity or debt” for large power projects.
Uncertainty About Backing Thermal Projects
Statements from AP1 on Monday echoed previous sentiments from financial groups saying they are ending their investments in thermal projects. The Stockholm-based fund in a statement said the move toward a low-carbon economy less reliant on fossil fuels represented “a substantial uncertainty for companies involved in coal, oil and natural gas activities.”
AP1 also said “continued investments related to these activities can increase the financial risk exposure of the fund,” and said its decision was one of the measures being taken to manage the fund’s “climate risk exposure.” AP1 said that as of year-end 2019, it had had 366 billion Swedish krona (about $36.82 billion) of assets under management.
The fund’s chairman, Urban Hansson Brusewitz, on Monday said divesting from fossil fuels is “an efficient way for the fund to manage the financial risk associated with a transition in line with the Paris agreement.” He said the group will “develop a roadmap and measurable targets towards reaching a carbon-neutral portfolio by 2050.”
Johan Frijns, director of BankTrack, a group that tracks the operations and investments of private sector commercial banks, in a news release today about the climate report said, “In the last year, banks have been queuing up to proclaim support for the goals of the Paris Agreement. Both the Principles for Responsible Banking and the new Equator Principles, each signed by over a hundred banks, acknowledge the global climate goals. Yet the data in Banking on Climate Change 2020 show these laudable pledges making little difference, and bank financing for the fossil fuel industry continuing to lead us to the climate abyss. It is high time banks recognized that reaching the Paris climate goals requires an immediate end to finance for all new fossil fuel projects, and a rapid phase out of existing fossil finance. This should be the Global Glasgow Goal for all banks.”
The report also tracks bank funding for fossil fuel expansion, with an aggregate of bank financing for 100 companies that are planning new coal, oil, and natural gas extraction projects, along with related infrastructure. The report said that of the $2.7 trillion in fossil fuel projects financed, $975 billion went to these companies, and it grew 40% year-over-year from 2018 to 2019.
Lucie Pinson, executive director of UK-based Reclaim Finance, said in a statement provided to POWER: “French banks do relatively better than their competitors, but absolutely fail to align with the Paris Agreement climate targets. While they have some of the strongest overall fossil policies, with close to $70 billion for companies expanding fossil fuels French banks are still choosing irresponsible polluters over a stable climate. BNP Paribas is a striking example: the bank has drastically cut its financing to the biggest unconventional oil and gas companies after adopting a policy in 2017, but its 70% increase in overall fossil financing from 2018 to 2019 shows the bank’s severe addiction to the oil and gas majors. BNP must urgently curb its financing to companies like Total and Shell if it wants to truly be a leader on climate.”
Insurers Backing Away from Coal
Insurance companies in the past year have increasingly moved away from fossil fuel projects, mostly coal mining and coal-fired power generation. European insurance companies including Axa of France, Britain’s Aviva, Germany’s Allianz, and Zurich Insurance are among more than a dozen major firms limiting their exposure to coal. They typically will no longer underwrite coal projects or companies that get more than 30% of their revenue from mining or coal-fired power generation. Axa is among those that promises a total exit from coal by 2030 in developed nations, and by 2040 globally.
The insurers have said they are concerned not only about the future viability of coal companies, but fear the growing risks from climate-related disasters that impact most of the other businesses they insure. Zurich CEO Mario Greco last year said, “as one of the world’s leading insurers, we see first-hand the devastation natural disasters inflict on people and communities. This is why we are accelerating action to reduce climate risk by driving changes in how companies and people behave and support those most impacted. It is simply the right thing to do.”
U.S. insurers Chubb and Axis Capital also are backing away from insuring coal projects. Axis has said it not provide new insurance “for the construction of new thermal coal plants or mines.” Chubb said existing investments and insurance policies with coal mining companies would be phased out by 2022, and after that time it will begin phasing out contracts with utilities that burn coal.
—Darrell Proctor is associate editor for POWER (@DarrellProctor1, @POWERmagazine).