Source: Institute for Energy Economics and Financial Analysis
For more than two centuries coal has powered homes, businesses, and economies, providing the fuel of the industrial revolution and becoming an essential part of the world’s fuel mix. However, the days of thermal coal use could be numbered according to a recent Institute for Energy Economics and Financial Analysis (IEEFA) report.
The report shows more than 100 leading global financial institutions had effectively pulled the plug on funding, imposing restrictions on investments into the sector and making the climate significantly more challenging. This “progressive strangulation” is resulting in “coal companies’ inability to access capital markets for expansions, mergers or acquisitions,” as well as cutting the avenues for insurance it said.
The World Bank was the first to announce this type of policy back in 2013; the end of 2018 saw the 100th such announcement coming from European Bank of Reconstruction and Development. Since then five more – including Barclays Bank UK, Export Development Canada, Nedbank of South Africa, Varma of Finland, and Austria’s Vienna Insurance Group – have announced policy rethinks. From a slow beginning the pace of policy announcements has ramped up significantly, now coming as frequently as every other week.
“You always have the leaders and the market generally ignores them, calling them idealistic or whatever,” says the report’s author and Director of Energy Finance Studies for Asia Pacific, Tim Buckley. “Once you start to get 108 or 109 globally significant financial institutions all exiting the door, and doing it faster than expected, everyone seems to evaluate and ask, ‘what are they seeing that we’re missing?’ That has happened in the last six months and that is globally significant.”
Buckley says there are three trends, each building in momentum, all relating to the thermal coal market. The first is India and its growing hunger for renewable power, something he thinks is a considerable factor given the strong growth of the country’s population and economy today. “India is the third largest electricity market in the world and has absolutely embraced the huge energy security opportunities of renewables. They are now the low-cost source of supply…That is an absolutely critical fact.”
The second significant factor is climate change, or more precisely, a changing climate for corporate and social responsibility. “Banks are not altruistic entities. They are very profit motivated, without a doubt,” Buckley says. However, they are being pushed, today with great vigour, by investors and regulators to wake up to their responsibility, he argues. Particularly given the majority of them signed up to acting by way of the Paris Agreement. Slowly, one by one, they’re realising that saying you’re committed to something actually brings about a fiduciary duty to have policies consistent with what you’ve said you’re going to do. Particularly around something as globally relevant as climate change.”
The third significant factor, according to Buckley, is Japan. “Japan is going from a global laggard to a global leader. It’s a hypothesis of mine and I’m a bit of a lone voice on this, but I look at what countries and companies do, not what they say they’re going to do.”