March 23rd, 2021
A look at the Coal Industry, it’s financiers and how even after the Paris agreement investments in Coal Industry have not slowed.
By Aks Kuldeep Singh
Large conglomerates have continued to finance coal even after the Paris agreement. The reason being that coal is a cheap source of energy. Commercial banks are providing more money to the coal industry than in 2016.
As per Urgewald’s report, US investors hold 58% of institutional investments in the coal industry. Japanese banks are top lenders whereas Chinese banks are top underwriters. In January 2021, 4,488 institutional investors held investments totaling US $ 1.03 trillion in companies operating along the thermal coal value chain.
As investments in coal are increasing we are leaving the Paris climate goals behind and if we don’t do anything about it then those goals may well be out of reach. So let’s take a look at the present scenario.
Top Institutional Investors in the Coal Industry
The world’s largest institutional investor in the coal industry is the US mutual fund company Vanguard with holdings of almost US$ 86 billion. It is closely followed by BlackRock, which holds investments of over US$ 84 billion in the coal industry. Together, these two investment giants account for 17% of institutional investments in the global coal industry.
US investors are the single largest provider of institutional investment to companies on the Global Coal Exit List. With shares and bonds in value of US$ 602 billion, US investors collectively account for 58% of institutional investments in the global coal industry.
With holdings of US$ 81 billion, investors from Japan account for the second highest share of institutional investments in the coal industry. Japan’s Government Pension Investment Fund alone holds bonds and shares in value of US$ 29 billion in companies listed on the GCEL.
The third largest group are UK investors, whose collective holdings in the coal industry amount to US$ 47 billion.
The Biggest Lenders to the Coal Industry
Urgewald’s research identified 381 commercial banks that provided loans totaling US$ 315 billion to the coal industry over the past 2 years. The top 3 lenders are the Japanese banks Mizuho (US$ 22 billion), Sumitomo Mitsui Banking Corporation (US$ 21 billion) and Mitsubishi UFJ Financial Group (US$ 18 billion). The 4th and 5th largest lenders to the coal industry are Citigroup (US$ 13.5 billion) and Barclays (US$ 13.4 billion).
A regional breakdown of lenders from different countries shows that Japanese banks collectively provided US $ 76 billion in loans to the coal industry between October 2018 and October 2020. Next in line are banks from the United States (US$ 68 billion) and banks from the UK (US$ 22 billion). Commercial banks from these three countries alone accounted for 52% of total lending to companies on the Global Coal Exit List over the past two years.
The Biggest Underwriters to the Coal Industry
Over the same time period, 427 commercial banks channeled over US$ 808 billion to companies on the Global Coal Exit List through underwriting. The world’s top 10 underwriters are all Chinese financial institutions.
Commercial Banks’ Support for the Coal Industry has increased since the Paris climate agreement was signed.
Commercial banks’ are channeling more money to the coal industry than in 2016, the year the Paris climate agreement came into force.
In 2016, banks provided US$ 491 billion through lending and underwriting to companies listed on the GCEL. By 2019, this amount had grown to US$ 543 billion, an increase of almost 11%.
What Needs to be Done?
Ending the era of coal means ending the era of coal finance and investment. Companies need to realize that earning profits is less important in the current scenario we are in.
Climate change is a real threat that needs to be acknowledged. Investments from coal should be withdrawn. However, that is easier said than done.
The bulk of coal investment, lending and underwriting can be traced to financial actors in a dozen countries. The government of these countries should work in tandem with the companies that are funding coal to direct their investments into more environmentally friendly energy sources.
The views expressed in this article are those of the author alone and not the WorldRef.
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