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RAN is challenging the largest U.S. banks to address their financing of coal power and we’re concerned that they are falling behind their European competitors.
Last week, French banking giant BNP Paribas released its new corporate social responsibility (CSR) policy on coal power. (Those of you who enjoy reading bank statements can check out the policy in full here.) BNP is the 4th European bank to issue a policy on the issue of coal power, following in the footsteps of WestLB, HSBC and Société Générale. Here are RAN’s key take-away points:
Context: The policy statement begins with a lengthy preamble about coal playing a significant role in the global energy mix and a key contributor to climate change. Crucially, the bank states that “it is essential that any country/company developing its coal fired power generation capacity meets essential requirements regarding safety, security and protection of the environment for future generations”. I fully agree.
The scope of BNP’s policy is worldwide construction, including expansion and upgrading of all Coal-Fired Power Plants (CFPPs). Additionally, the policy applies to CFPP companies, defined as “utility companies for which coal accounts for >30% of their total power generation”. This goes above and beyond the Carbon Principles (a document endorsed by six U.S. and Swiss banks) which apply only to new CFPP construction and only to project financing. I am pleased to see that this policy applies to all financing activities offered by the bank (lending, debt and equity capital markets, guarantees and advisory work, etc).
The policy states expected compliance with all existing national and international laws and regulations, plus BNP’s additional criteria. This includes the commitment that BNP will evaluate the coal project to establish whether a national commitment to reduce Greenhouse Gas emissions exists. This is not a mandatory requirement however, so there is nothing here that would prevent BNP from financing a CFPP in a country without such a commitment, for example, the U.S.
Carbon Intensity Standard: HSBC was the first bank to include a carbon intensity standard in its coal policy. BNP matches HSBC’s commitment by stating that it will only finance CFPP projects with a CO2 intensity standard below 550 gCO2/kWh for High Income countries, and goes beyond HSBC’s commitment by stating below 660 gCO2/kWh for other countries. These policies both fall far short of the UK’s White Paper on Electricity Market Reform published in July 2011, which proposes an EPS of equivalent to 450g CO2/kWh (at base load) for all new fossil fuel plants.
Carbon Capture and Sequestration (CCS): It is currently fashionable for coal plants to be described as “CCS Ready,” which is a somewhat confusing label for a technology that has yet to be proven at the scale of coal plant this policy refers to. BNP thinks this should include: A CCS-Ready study, estimated costs, potential for a pipeline, and storage areas. This definition comes from the Global CCS Institute, a body that exists to promote the expansion of CCS, which explains why that definition is so vague and “catch-all”.
CFPP Companies: The BNP policy stipulates that it will only lend to companies that have good track records on safety, that disclose emissions data, that are not involved with severe controversy, and that have a Co2 emission reduction plan, evidencing a decreasing trend over a 5-year period. This section of the policy is a giant loophole. Instead, BNP Paribas should, at a minimum, require CFPP companies follow the same standards for updating and retrofitting their existing coal fleet as those that are stipulated in this policy for project finance.
Disclosure and Follow-Up: BNP has made this policy publicly available on its website and states a commitment to regularly review and update it. The bank also welcomes constructive feedback but has no commitment to report on the implementation of its policy.
Conclusion: I’m encouraged to see another major European bank start to take the issue of existing Coal Fired Power Plants seriously beyond the scope of project financing, but this policy contains loopholes big enough to drive a bulldozer through. The stronger criteria in the CFPP Project section is undermined by real lack of substance in the section concerning CFPP Companies.
Nonetheless, this policy is years ahead of anything an American bank has published. Get with the times, U.S. banks!