‘Exiting coal financing is the most important in climate terms’
Interview with French analyst Yann Louvel about the urgent need to “exit coal for good”
It doesn’t get much filthier, in climate terms, than coal. Yet despite decades of dire warnings about the impacts on our planet and health of mining and burning it, coal is still used to generate over a third of the world’s electricity, with global consumption reaching an “all-time high” in 2022 and forecasts of further increases up to 2040, according to the International Energy Agency.
While generally speaking governments around the world have been dragging their feet abysmally slowly - or outright failing - on legislating a coal phase-out, some campaigners have been trying to stop banks and other financial institutions from financing coal projects or coal companies. In other words, if the law doesn’t explicitly ban coal yet, we need to turn off the money tap. Here researcher and analyst Yann Louvel, from the France-based NGO Reclaim Finance, tells me how they’ve been getting on:
DH: I’d like to begin with a personal question. I understand you’ve been working for years on coal financing. How has that come about - serendipity, perhaps, or the belief there isn’t anything as important, in climate terms, as weaning the world off coal?!
YL: I started to work on finance issues straight after my studies in environmental sciences, in Montreal, when I came back to France in 2007 and was hired by Friends of the Earth France in Paris to campaign on French financial players. I initially planned to focus on sustainability applied to university campuses, the topic of my dissertation, so the move to finance issues was a bit of serendipity indeed as I quickly realised how central to the economy the finance sector is. I then moved in 2010 to another NGO, BankTrack, which used to be an NGO network at the time, where I coordinated the Climate & Energy campaign. Most of the network members started to focus on coal financing, so this is how I dived into the topic. Coal is still my main focus now at Reclaim Finance, as a policy analyst, and I still find it captivating to focus on that sector since exiting coal financing is indeed the most important in climate terms.
DH: Since you started working on this issue, what would you say the major changes or advances have been?
YL: When I started to work on coal financing, more than 10 years ago, the idea that a big bank could exclude a whole sector such as thermal coal, even just for its direct financing of new coal projects, was simply inconceivable. To date, according to the latest statistics from our Coal Policy Tracker, 50 top global banks and insurance companies have refused to support directly new thermal coal mines and new coal plants worldwide. The discussion has now moved to the indirect financing of the thermal coal sector: the general financing of thermal coal companies, not dedicated to a specific project. To date, 133 top global financial institutions, including investors, have a policy restricting this financing in one way or another. A recent study from Harvard [University] showed that banks’ coal policies do have an impact: they negatively affect both the financing and operation of coal assets, and have reduced coal CO2 emissions by an estimated one gigaton.
DH: You’ve mentioned thermal coal - burned to generate electricity - but there’s more to the issue than that, right?
YL: Yes. While the main focus has so far been on thermal coal, it is not the only type of coal. Metallurgical coal, which is used for steelmaking and represents about 14% of total coal production, has been an emerging topic for the past couple of years. Metallurgical coal is the main culprit behind steel sector emissions. New technologies now make it increasingly possible to manufacture steel without using coal, and there is no need for new metallurgical coal mines to be opened. A few financial institutions have started addressing the issue by adopting policies to restrict financing for new metallurgical coal projects. However, as seen in our Coal Policy Tracker, there is still a long way to go. More financial institutions need to broaden their thermal coal policies to cover all types of coal, at the project and at the company level.
DH: The fact that so many big banks have taken certain new positions on coal is obviously encouraging. Do you put that down mainly to NGOs and their research and campaigning, or have there been other key factors?
YL: NGO research and campaigning definitely played a key role, particularly to foster a race to the top by comparing peer companies, but there were also other key factors as well. Among others, there were: 1) the opportunities to make good moves in the lead-up to and at COP21 in Paris in 2015 and COP26 in Glasgow in 2021 2) the narrative and evidence of financial risks that made it easier for many policies to be adopted internally 3) geopolitics at the international level regarding coal and 4) the risk of regulation or the role of federation of financial institutions at the national level.
DH: The NGO research and campaigning. . . What would you say have been your most effective strategies?
YL: The most effective strategies have been to combine high quality research with impactful campaigning. The publication of the Global Coal Exit List by our partners at Urgewald in 2017 was a turning point since it became a unique tool to analyse the impact of financial institutions’ coal policies. We were then able to know precisely how many companies were excluded according to specific coal policy criteria, or not. We were also able to move the focus first to companies planning to expand the coal industry, which were missing from other databases. This changed the dynamics of our exchanges with financial institutions and made our demands clearer and more credible since we were providing the tool to implement them concretely, with a precise list of companies and key criteria. In terms of impactful campaigning, the most effective strategies have been so far what was done in France, combining a race to the top among French financial institutions with the targeting of the government and financial sector federations. Peer pressure was instrumental in the adoption of coal policies after the government threatened in 2018 to regulate if French financial players did not phaseout coal. This led to the adoption of guidelines and a collective declaration from the French federations of banks, insurance companies and investors, including the commitment to phaseout thermal coal, in 2019. To date, 53 French financial institutions have adopted a coal policy, 17 of which we consider “robust” with all the key elements needed to be impactful.
DH: Who among the financial institutions - globally - would you say have taken the lead on this?
YL: Seven top financial institutions have what we consider in the Coal Policy Tracker a “robust”, impactful thermal coal policy with the main key elements, including the exclusion of thermal coal developers and the commitment to exit the sector by the right deadlines: 2030 in Europe/OECD and 2040 globally. These top seven are all from France: AXA, AXA IM, Caisse des Dépôts, Credit Mutuel, Eurazeo, La Banque Postale and Ostrum AM. When it comes specifically to metallurgical coal, while a lot remains to be done, robust exclusion policies have been adopted by French asset managers Anaxis and Eurazeo. Almost all the financial institutions that cover metallurgical coal in their policies are banks, including Société Générale, HSBC, Westpac, Macquarie, Lloyds Banking Group, Caixa Bank, Crédit Agricole and ING. It’s worth noting that ING is also the first bank to adopt a policy not just on metallurgical coal, but also for the steel technology that relies on it - i.e. blast furnaces.
DH: And who have the most conspicuous laggards been?
YL: The most conspicuous laggards have clearly been those 187 top financial institutions that have failed to adopt any kind of coal policy, more than eight years after the adoption of the Paris Agreement. That includes prominent financial players: most Chinese banks, the US insurers Berkshire Hathaway and Starr, or top global investors based in the US such as Vanguard, State Street or the Capital Group. Some banks, such as Bank of America in the US and Bank of Montreal in Canada, have also backtracked recently and removed their coal exclusions. Regarding metallurgical coal specifically, insurers are clearly the laggards, with only Zurich including it in its policy.
DH: I’m from the UK. Generally speaking, what would you say about the UK financial sector’s commitments and actions on coal financing?
YL: The commitments of the UK financial sector on coal financing are quite weak so far. Only Lloyds Banking Group has adopted an impactful policy with stringent restrictions for coal developers and exclusion thresholds for coal mining and coal power companies decreasing over time, leading to a complete thermal coal phaseout by 2030. Lloyds is also one of the first banks that have adopted exclusion criteria for metallurgical coal.
DH: What about the other Lloyds - the insurance market, Lloyds of London?
YL: That story is extremely telling, since Lloyds, comprised of many different members, adopted its first coal policy in December 2020. It did not meet the climate objectives set by the Paris Agreement, but despite that it was weakened in October 2021, with each member now able to decide their own targets and policy.
DH: And what about more generally speaking in the UK?
YL: Many big UK investors still have no coal policy at all, or only a very weak one, and none of them cover metallurgical coal. In terms of concrete actions, a recent report published by Urgewald shows that UK banks poured US$6.5 billion in loans and underwriting into the thermal coal industry between January 2021 and December 2023, making the UK the seventh biggest provider of such financing globally. UK investors are even more important since they rank fourth in the world with US$152 billion in investments in the thermal coal industry, according to another recent report.
DH: I see that, according to the International Energy Agency, “global coal consumption reached an all-time high” in 2022 and the world was heading “towards a new record in 2023” - with increased burning in countries like China, India, Indonesia, Viet Nam and the Philippines offsetting decreases elsewhere. Is this a source of frustration and disappointment for you, and how are you trying to combat it?
YL: This is obviously indeed a source of frustration and disappointment for us, since I remember the first mentions of a possible peak of global coal use back in 2014! We’re trying to combat it by focusing our work more in Asia, where coal expansion continues to be financed. We have also started to work on the financing of coal phaseouts and coal retirement mechanisms, to accelerate the phaseout of the thermal coal industry. Finally, there is a burning need to tackle the expansion of the metallurgical coal sector which is clearly unsustainable as steelmaking is transitioning to new technologies.
DH: My final question. On a scale of one to 10, with 10 being a total global coal phase-out, how far along would you say we are?
YL: I would say three, since we have not even yet reached the global thermal coal consumption peak, but there is a clear downward trend in many geographies such as Europe and the US. This is why we ask financial institutions to request a clear and comprehensive thermal coal phaseout plan from their clients by 2030 in the OECD/Europe and 2040 globally. Only 25 top financial players do so today, so there is still a long way to go.
DH: Yann, thank you very much.