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Best European banks for coal phase-out

ShareAction report names Crédit Agricole and Crédit Mutuel as outperformers but finds sector still lagging

Crédit Agricole and Crédit Mutuel have been named by ShareAction for outperforming on phasing out coal compared with other European banks.

In its report Countdown to COP26: An analysis of the climate and biodiversity practices of Europe’s largest banks ShareAction analysed 25 of the largest banks across Europe on various sustainability areas.

Phasing out thermal coal, the most carbon-intensive fossil fuel, is seen as key to keeping global warming within a 1.5°C limit but ShareAction is sceptical the sector is genuinely motivated to achieve this.

“Banks are willing to restrict financing to coal-related activities, but first and foremost they want to help their clients transition. Some have even argued that phasing out coal financing is not compatible with this motto,” it said.

“Considering that reliable pathways to net zero foresee little room for unabated coal in the global energy mix, one is left thinking whether this is simply public relations semantics or genuine concern.”

The charity found only one bank, Crédit Mutuel, has put both relative and absolute thresholds in place for the coal power and mining sectors as recommended by Global Coal Exit List.

In its report ShareAction found of the 25 banks:

  • Seven have started enforcing corporate finance restrictions for companies expanding their coal capacity for coal mining and nine banks have started enforcing this for coal power.
  • Less than half have committed to a full phase-out of financing coal-related activities by 2030 in OECD countries and 2040 globally at the latest. ShareAction did note an increasing number of banks are aiming for earlier coal phase-out dates.
  • Seven require clients to publish a credible transition plan in line with their phase-out strategy by a specific date.

Crédit Agricole

Crédit Agricole was highlighted because its “policy excludes dedicated financing for thermal coal mines and coalfired power plants including expansions as well as coal infrastructure projects,” the report stated. The bank has also ruled out dedicated refinancing and is trying to avoid involvement that would expand the life of coal-fired power plants.

The report found Crédit Agricole restricts corporate finance for companies that derive more than 25 per cent of revenues from thermal coal. This is one the most stringent thresholds among European banks.

It also has policies around not working with clients which are expanding or which have expanded their coal capacity.

Crédit Mutuel

Crédit Mutuel was showcased in the report because it excludes asset finance for thermal coal mine, coalfired power and coal infrastructure projects. It also restricts corporate finance for companies where the coal share of revenue or the coal share of power production is more than 20%.

ShareAction commended how the bank was getting on track to meet its goal to phase out coal: “Crédit Mutuel is one of the very few banks that excludes corporate finance for companies developing activities in the coal sector throughout the entire value chain and has also committed to exit all positions taken by the investment and asset management business lines in such companies.”

It said the bank’s policy is linked to the goal of a global coal phase-out by 2030 and any relationship with companies with exposure to the coal sector is subject to the client adopting a plan to close all coal assets by 2030.

Escalating engagement

ShareAction assesses five themes: net-zero targets and alignments, high-carbon disclosures, fossil fuel policies (including coal), biodiversity and linking executive remuneration to climate-related metrics.

The paper’s authors suggested a number of ways investors can engage with banks to drive progress in these areas.

“Investors should set clear timelines and objectives for their engagement with banks and be prepared to escalate their engagement with banks that are showing little sign of progress,” they said.

“This should include publicly calling on banks that are lagging to improve their climate and biodiversity practices ahead of their 2022 annual general neeting, using their voting rights to vote against directors at banking laggards, and filing and voting for shareholder resolutions on climate change and biodiversity.”

On the topic of phasing out coal specifically, ShareAction suggested investors could put the following questions to their bank:

  • Does the bank restrict corporate finance for companies dependent on coal (relative threshold) and large producers (absolute threshold) in line with the Global Coal Exist List?
  • Does the bank exclude companies expanding coal capacity including companies acquiring existing assets if they don’t commit to wind them down by a specific date?
  • Is the bank’s policy articulated around a full phase-out coal exposure by 2030 in OECD countries and 2040 globally at the latest?
  • Does the bank require its clients to issue a coal phase-out strategy aligned with its own by a specific date, failing which they would be excluded?
  • Does the bank include all products and services (including asset management) in its phase-out strategy?