The 2020s have already proved to be full of unparalleled obstacles – and we're just a few months out. The coronavirus pandemic highlights the degree to which the world is unprepared for global disasters. Yet the climate crisis continues to be another big international threat demanding concerted action from both the private and public sectors. With the abdication of global climate leadership by the US government, the world will continue to look to China. The way in which its institutions treat coal in particular is of great importance to the future of the industry and to our shared climate.
The giants of global finance are ditching coal
Many global financial actors have begun to take the climate crisis more seriously – if only to protect their own bottom line. One after the other, financial institutions around the world have made new commitments to limit their support for fossil fuels. For example, BlackRock, the world's largest asset manager, announced that it will disburse its actively managed funds from most thermal coal firms, and AXA and 18 other global insurance companies have committed to, or have already limited, insurance coverage and investment in coal.
Dominoes are also starting to fall in the commercial banking sector. Royal Bank of Scotland committed to phase out its financing of coal by 2030 and to at least halve the climate impact of its financing activities by the same year. In the US, the biggest steps of the banks have been much slower but still noteworthy: in recent months, both JPMorgan Chase, Goldman Sachs, Citi and Morgan Stanley have strengthened their coal policies – while also imposing restrictions on some Arctic drilling projects. In April, Japanese banking giants SMFG and Mizuho strengthened their coal finance policies.
As a source of enormous amounts of carbon emissions and air pollution, coal is losing its financial appeal as renewable energies become ever cheaper. “Up to 80% of coal assets will be stranded…” said former Bank of England governor Mark Carney in December. “A question for every company, every financial institution, every asset manager, pension fund or insurer: what’s your plan?”
While most of these policies leave much to be desired in order to align business activities with climate stability, the message to the fossil fuel industry is becoming clearer: the financial sector is increasingly wary of the reputational and financial risks associated with the promotion of fossil fuels in the climate catastrophe age. The latest Banking on Climate Change 2020 study by a coalition of non-governmental organizations found that 26 out of 35 major global banks have now analyzed policies that limit the financing of energy. More than a dozen of them also restrict funding to certain oil and gas sectors.
Chinese banks are lagging behind their peers
By comparison, the four major Chinese banks included in the analysis – Bank of China (BOC), Industrial and Commercial Bank of China (ICBC), Agricultural Bank of China (ABC) and China Construction Bank (CCB) – have little to no policy provisions on their involvement in fossil fuels. BOC and CCB each have a vague pledge to perform due diligence on environmental and social issues. ICBC was the first Chinese bank to join the Climate Action Task Force on Financial Disclosures (TCFD) and the founding signatory to the Responsible Banking Guidelines. Although these initiatives call for companies to align themselves with the Paris Agreement and the UN Sustainable Development Goals, ICBC has not used these platforms as an inspiration to draw red lines about what it will not finance. Nor did the other three banks take such action.
At the same time, Climate Change Banking 2020 shows that these four banks have jointly financed fossil fuels with almost US$ 240 billion over the four years since the Paris Agreement was adopted. While many of their global peers have outperformed them in overall fossil financing, the Chinese banks earned the top chart in the coal and power subcategories in this report. Between 2016 to 2019, BOC, ICBC, ABC and CCB together made up 51 per cent of the funding to 30 top coal-fired firms worldwide and 67 per cent of the funding to top coal mining companies. This outcome may not be so surprising considering that China is home to more than half of the world's coal-fired power plant fleet and a major producer of coal.
The data monitors funding, as well as debt and equity underwriting, from these banks to fund fossil fuel companies and ventures in and around China. In addition, according to data from the Global Coal Finance Tracker – which monitors the direct support of government-affiliated financial institutions for overseas coal projects – ICBC, BOC and CCB are the top lenders, along with China's two policy banks: China Development Bank and China's Export-Import Bank. Most of this funding goes to Belt and Road countries.
These banks all seem to have favored coal and other fossil fuel investments in Belt and Road countries so far. According to a joint study by researchers at Boston University and the World Resources Institute in 2019, almost 75% of the syndicated loans provided by both policies and four commercial banks to finance overseas energy and transport ventures went to the oil , gas and petrochemical industries. Out of power generation and transmission projects, about 40 per cent went to coal power stations and 14 per cent to oil and gas. Non-hydro renewable energy accounted for between 12 per cent and 23 per cent of hydro. This is despite the huge gap in funding needs for renewable energy from BRI countries, as indicated in their commitments under the Paris Agreement. All four commercial banks are signatories to the Green Investment Principles for the Belt and Road Initiative launched during the second Belt and Road Forum hosted by President Xi Jinping in 2019, which reiterated China's commitment to promoting green Belt and Road.
Strengthening green commitments
Researchers have pointed to the increasingly declining returns from investment in coal-fired power plants in China. China's banks have been called upon to help stimulate the Chinese economy as the country recovers from the Covid-19 pandemic. They, along with other government policies, have a huge role to play in effectively directing resources to support quality, clean, advanced and profitable infrastructure in and beyond China. Moving away from coal will not only improve the likelihood of the world meeting the goals of the Paris Agreement, but will also reduce the burden of the financial system.
The global pandemic also exposes the deep vulnerabilities of poorer and over-indebted countries, including many on the Belt and Road initiative. Pakistan has asked China to waive its debt obligations under the China-Pakistan Economic Corridor for 12GW of thermal coal-fired power plants. Faced with the possibility of a global recession, investment in coal resources would become much more costly for borrowing countries and lenders. Renewable energy investment can be a major force in economic recovery, generating a decent return on investment and boosting employment opportunities, according to IRENA 's latest estimate. The world will need the global banking sector to support a recovery effort that enhances society's capacity to absorb potential shocks.
Coal is increasingly risky in both China and the BRI countries and inconsistent with global efforts to combat climate change. It is in the interest of Chinese banks and China's financial sustainability to pursue – and strengthen – their green commitments.
