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Who cares if Standard Bank won’t stop funding coal mining?

A choice that isn’t a choice.
The bank's policy relies on the idea that emerging markets will have more flexibility on fossil fuels since they haven’t contributed as much to carbon emissions and should be allowed to benefit from them. Image: Shutterstock

Earlier this month, Wells Fargo became the third major US bank to announce that it would stop financing new oil and gas projects in the Arctic region. It followed similar pledges by Godman Sachs and JPMorgan Chase.

These banks also said they would be reducing lending to the coal industry. Wells Fargo for instance announced that it would not fund coal projects that involved mountain top removal, nor provide financing to any coal producer engaged in this form of mining. JPMorgan Chase will no longer provide money or advice to any firm that generates most of its money from coal.

In February, Europe’s largest asset manager, Amundi, said it would back a shareholder resolution asking Barclays to phase out funding to fossil fuel companies that were not meeting the goals set out in the Paris Agreement on climate change. Sir Christopher Hohn, founder of activist hedge fund company TCI, also recently indicated that he may sue banks that continue to fund coal projects.

Sustainable finance

This demonstrates the significant level of pressure banks are feeling around the world to seriously consider their role in the fossil fuel industry.

“The risks are really twofold,” explains Tracey Davies, executive director of responsible investment organisation Just Share. “The first is the straightforward financial element that if banks continue to finance these projects and the market collapses – or they become stranded assets, or changing regulations prevent companies from extracting those fossil fuels – then they have effectively wasted money.”

The second, and more important risk, however, is the wider question of the role the private sector should be playing in addressing the climate crisis, and ultimately ensuring the sustainability of the economic system on which it relies.

“Every investment into projects that contribute to climate change contributes to the systemic risk that climate change poses to our entire economic system,” says Davies.

“These projects can’t happen if banks don’t finance them,” she adds.

Read: Sustainability impact – new frontier for South Africa’s policymakers

A local precedent

This is the global context in which Standard Bank released its thermal coal mining policy earlier this month. The report is the result of a shareholder resolution that passed at the bank’s last AGM that required it to disclose its plans for lending to the coal industry.

Read: Standard Bank AGM a ‘watershed’

“This is the first policy to deal specifically with coal mining,” Davies explains. “We have seen a few dealing with the funding of coal-fired power, which is easier to an extent because it’s quite clear to almost everyone that building new coal-fired power stations is a bad idea. So a coal mining policy is a harder policy to grapple with for the banks.”

To that extent, it sets a precedent in the local market, and all of the big South African banks have already indicated that they will follow suit.

However, shareholders who backed the resolution are less enthusiastic about what the policy actually says.

“The precedent is not so much what they have said, but more the fact that they have said something,” notes Jon Duncan, head of responsible investment at Old Mutual Investment Group.

“We have a bank stepping out and publicly positioning itself regarding its current and future funding of coal,” he points out. “But I don’t think the content of the policy itself is very precedent-setting.”

The risks and opportunities

The significance of these reports is that shareholders can now see the criteria on which banks are making lending decisions, and can form opinions on how appropriate these are. However, Standard Bank has not announced major reductions in its lending ambitions.

“The content of the policy is fairly measured in that the bank is not saying it is no longer going to do this,” says Duncan. “They are going to do it in a responsible fashion that deals with the requirements of the countries in which they operate.

“That is perhaps understandable in the sense that they need to watch and see where the level of national ambition goes,” he adds.

“But the really interesting point in the conversation about the future of coal in this and other African counties is that the window period for it being commercially viable from a funding perspective is closing.”

The imperative is that, regardless of anyone’s views on the matter, the world is moving away from fossil fuels. And shareholders want to know how lenders like Standard Bank are preparing for that transition.

“The world is trying to rapidly decarbonise long run economic growth,” Duncan explains. “The winners in that process will be those companies and countries that can do that ahead of the curve.”

A choice that isn’t a choice

For Davies, banks are not adapting to this reality quickly enough.

Even appreciating that South Africa specifically and Africa more generally will face serious challenges in phasing out the mining and use of fossil fuels, lenders can’t ignore what is happening in the wider global economy.

Read: Energy transition should not leave communities and workers behind

“I understand the very difficult political situation the banks are in, but all banks around the world are in a difficult political situation,” says Davies.

Standard Bank’s lending policy to coal miners specifically relies on the idea that emerging markets will have more flexibility on fossil fuels, as there is  recognition that they have not contributed as much to historical carbon emissions and they should also be allowed to benefit from using them.

“But even that is disingenuous,” argues Davies. “Developing countries might have slightly longer to make changes, but that doesn’t mean those changes don’t need to be dramatic. It’s not an excuse not to change anything.”

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More propaganda. The onslaught is relentless. The hypocrisy is rank. In South Africa coal is used to make petrol, generate more than 90% of the electricity, make cement, make titanium pigments for paint and make steel (cars). These are basic trappings of civilisation. If the burden of coal is so great why don’t these hypocrites stop using these products. Put their money where their mouths are.

At this point in time, if South Africa wants to keep the lights on, someone had better fund the mines. As easy as that.

This is probably a moot point. Which of the ZA coal miners has the balance sheet to develop new mines? These are the firms which have exited ZA coal or are in the process of doing so:
-Anglo American
The capacity and capability to build new large mines probably does not exist anymore. The companies remaining will be smaller and less diversified increasing the risk to the banks. These firms will be completely exposed to Eskom. Would you lend money to a firm whose sole client is Eskom?

South Africa is part of the merging market and has large reserves of coal – we haven’t got long-term shortages hence no need for renewed interest in the expansion of nuclear power and renewable energy. Solar and wind power have proved economical in small scale and specialized uses in SA but together account for only a tiny fraction of energy use to date.

I don’t think emerging market countries like sunny SA is at all concerned that the burning of coal in various power plants should be restrained by concerns about global warming and other environmental damages. Technology has already alleviated some of these concerns, and given the limited range of alternatives, coal is likely to remain the major source of energy in the future of South Africa.
Banks like Standard Bank should realize that the ANC led Government won’t have any choice but to nationalize these Coal Mines – the magnitude of that power will put ‘’ mom and pop shops’’ that are stepping out and publicly positioning itself regarding its current and future funding of coal” under tremendous pressure due to their precedent-setting policies.
I believe nationalization of the coal mines is already on the cards as the Government with the current status quo, doesn’t want to be caught in a position where private investors can be in a position to change their coal supply/demand fundamentals over both the short- and long-term.
Maybe the Standard Bank shareholders should keep their views for themselves and rather look for other opportunities to invest profitably. Their undertaking not to invest further in coal exploration and development might backfire and lead to a major fall in much of their dividends.

Like it or not, coal ain’t going nowhere in SA.

But it’s all OK as Standard Bank funds shopping centers where they will soon ban the use of plastic bags. Hypocrisy reigns.

*roll eyes and prepare for more Thunberg scowling and camera snarling.

End of comments.





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