Fool's Gold The financial institutions risking our renewable energy future with coal - Europe Beyond Coal
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Fool’s Gold
The financial institutions
risking our renewable energy future
with coal
1 | Fool’s Goldabout this briefing
This briefing is an initiative of the Europe Beyond Coal campaign.
The individuals who contributed to the briefing: Kaarina Kolle (lead author), Greg McNevin (producer).
With help from:
Joshua Archer, Carlota Ruiz Bautista, Diana Best, Katrin Ganswindt, Kuba Gogolewski,
Kathrin Gutmann, Alastair Jackson, Jiri Jerabek, Dave Jones, Hanna Hakko, Vera Kauppinen,
Ernst-Jan Kuiper, Yann Louvel, Jeanne Martin, Lorette Philippot, Lucie Pinson, Felix Reitz,
Regine Richter and Antonio Tricarico
Disclaimer
This publication and related materials are not intended to provide and do not constitute financial or investment advice.
The Europe Beyond Coal campaign or the organisations that have contributed to the development of this briefing
make no representation regarding the advisability or suitability of investing in or divesting any particular company,
investment fund or other vehicle or of using the services of any particular entity, pension provider or other service
provider for the provision of investment services. A decision to invest in or to divest should not be made in reliance on
any of the statements set forth in this publication. Whilst every effort has been made to ensure the information in this
publication is correct, we cannot guarantee its accuracy and the Europe Beyond Coal campaign or the organisations
that have contributed to the development of this briefing shall not be liable for any claims or losses of any nature
in connection with information contained in this document, including (but not limited to) lost profits or punitive or
consequential damages or claims in negligence.
For enquiries, please contact : Kaarina Kolle, kaarina@beyond-coal.eu
Supported by:
Published: July 2020
Fool’s Gold | 2Contents Executive summary 04 Introduction 06 1. Result 07 European Investors 07 Largest investor: BlackRock 11 European creditors 13 Significant non-European creditors: Japanese megabanks 17 The insurance sector 19 2. Focus utilities 20 Coal-related emissions are steadily decreasing 20 Focus utilities 21 Utilities coal operations outside of Europe 22 Selling coal assets instead of closing them 22 ‘Scope 4 emissions’ – the harmful impact of the lobbying practices 23 3. The science behind 1.5 degrees Celsius 28 4. Methodology 31 Annex I - Europe Beyond Coal Principles Criteria for 32 Financial Institutions for Developing Thermal Coal Exit Policies Annex II - Financial data 36 Annex III - Sources 42
Executive summary
The coal phase-out across Europe is happening based CO₂ emissions: RWE, PGE, EPH, ČEZ,
faster than anyone thought it would. In 2019, Enel/Endesa and Fortum/Uniper. Most of the
Europe saw a record number of coal retirements assessed utilities show signs of a coal exit but
and several countries announced coal phase-out not in the timelines required by science or with
plans and power utilities have taken new steps problematic design for the transition of their
towards decommissioning their coal assets. energy portfolios. Financial ties are defined as
Coal was already in structural decline 1 but issued loans and underwriting services, bonds
COVID-19 and the associated social distancing and investments. We bundle investments
measures have led to the further downfall of and bonds under ‘investors’ while those
coal. The exact impact of the pandemic is yet financial institutions associated with loans
to be determined but with electricity demand and underwriting are described as ‘creditors’.
significantly reduced, a low gas price, booming These financial institutions have been dubbed
renewables and carbon price still holding up the ‘Exposed Eight’ as their financial ties to coal
well, the European coal sector is in trouble. have left them reputationally and financially
vulnerable. Bond and shareholdings were
The recovery from the pandemic offers us a included according to their most recent filing
once-in-a-lifetime opportunity to rebuild our dates at the time of the retrieval: mainly in
economy and to tackle the most important near- February 2020. The financial data for loan and
term measure to climate-proof the post-COVID underwriting deals by creditors is November
energy system: a just and rapid transition from 2018 - December 2019.
coal to renewable energy. This is where the
financial institutions must join the collective This research finds that the most coal-exposed
effort and recalibrate their financial ties with investor associated with these utilities, the
the European coal companies. Norwegian Government Pension Fund, has
invested €1.5 billion in shares and bonds.
Therefore, any financial ties to Europe’s most Other highly important investors include Crédit
polluting utilities must either be coupled with Agricole, Allianz’s through third party assets,
forceful coal company engagement calling for a and Deutsche Bank. In total, the investment by
coal phase out in Europe, OECD countries and the four largest investors equalled €5.0 billion.
Russia by 2030, or support to these companies
must cease altogether. Based on the limited On the creditor side, UniCredit was the
1.5 degrees Celsius global carbon budget, coal largest bank, providing €2.8 billion in loans
emissions have to fall extremely fast this decade and underwriting services, followed by BNP
in all The Intergovernmental Panel on Climate Paribas, Barclays and Société Générale since
Change (IPCC) 1.5 degrees Celsius emissions the IPCC 1.5 °C report was released in October
pathways leading to reductions by around four- 2018. In total, the crediting has amounted up
fifths in 2030 relative to 2010*. In short, the to €7.9 billion.
success of the Paris Agreement is intimately
linked to the success of quickly phasing out coal
in the electricity sector.
The report takes a close look at eight European
financial institutions with the most significant
ties to eight significant coal utilities in Europe
that are responsible for half of all EU coal-
* The non-overshoot scenario (P1 scenario)
Fool’s Gold | 04Norwegian 1 - 300
Government
Pension Fund 301 - 600
601 - 900
investor
901 - 1200
Over 1201
(€ million)
creditor
Figure 1 : The ‘Exposed Eight’ and the financial ties to European coal companies. The investors also represent
the asset managers. Source: Bloomberg Terminal and Thomson EIKON. Data compiled by Profundo. Shares
and bonds data extracted February 2020, based on the most recent filing date. Loans and underwriting data
reflects the period from November 2018 until December 2019.
The report also explores some of the most the financial institutions associated with coal
important international financial institutions are highly likely to also be supporters of other
backing the chosen European coal utilities fossil fuels, such as gas, oil and tar sands. In
for this report: BlackRock and the Japanese fact, nearly every coal company featured in
megabanks. BlackRock is the world’s largest this report has fossil gas expansion plans.
investor and the Japanese megabanks the biggest Ultimately, these financial institutions must
lenders to coal plant developers worldwide 2. have a comprehensive set of policies to ensure
BlackRock’s investments in the eight European that all high carbon assets are decommissioned
coal power utilities total €7.0 billion. Mizuho and have an all-encompassing approach to the
Financial Group, Sumitomo Mitsui Financial fossil fuel industry.
Group (SMBC) and Mitsubishi UFJ Financial
Group (MUFG) have provided loans and European capital is deserting coal: restrictive
underwriting for European coal corporations policies by European banks, investors and
with €1.9 billion between November 2018 and insurance companies have been adopted at an
December 2019. increasing rate. Unfortunately, the frequency of
new policies does not necessarily reflect their
It is noteworthy that many financial institutions quality. Coal policies are now commonplace
provide additional support beyond lending but are often ridden with exceptions and tepid
and investment in the form of insurance and corporate engagement practices. The European
reinsurance lines of business. The insurance coal utilities are, in effect, too often treated
sector plays a critical role in perpetuating the with kid gloves. Instead, deeper exclusions and
use of coal, but that role falls outside the remit appropriately forceful engagement are required
of the data analysis presented herein. to change the course in Europe in order to
achieve a coal phase-out by 2030, as well as in
Furthermore, the other forms of fossil fuels the rest of the OECD and Russia, and by 2040
are not part of the research. Unfortunately, globally.
05 | Fool’s GoldIntroduction crisis has erased the remaining profitability of
most coal power plants. However, many utilities
In Europe, coal power is a dead man walking. may not feel the full force of this as they sold
Thanks to the tidal force of economics, in their electricity before prices crashed*. In
unregulated markets where coal does not short, a coal phaseout by 2030 in Europe is not
benefit from subsidies, coal-power generation guaranteed. More is needed from the decision-
is largely unprofitable 3. The EU ETS (Emissions makers and, importantly, from those financial
Trading System) price, which has been fairly institutions that are still bankrolling coal.
resilient despite the COVID-19 crisis that made
the European economies contract, coupled Consequently, those private finance institutions
with a low gas price and highly competitive that support coal companies have the
renewables have ensured that coal is now falling responsibility to usher in the low-carbon
behind competing sources of energy 4. transition. Fortunately, the European financial
institutions have demonstrated to the rest of
The European power utilities mostly responsible the world what is possible. Between January
for burning European coal are demonstrably and June 2020, European financial institutions
transitioning. Even in the most notorious released nearly one new policy per week
coal countries such as Poland and Germany limiting financial ties to coal companies 6. Coal
companies have started to introduce long-term policies by European banks, investors and
plans where coal no longer features. However, insurance companies have been adopted at an
it is also increasingly clear that these coal increasing rate since the Paris Agreement 7 and
exits are not taking place in a straightforward most coal policies are, in fact, already revisions
manner. They are often only prompted by and updates rather than completely new ones.
national government mandated phase-outs, and Therefore, it can be maintained that coal
they generally take place too sluggishly. In many policies have become the starting point and a
countries the process is marred by converting staple of financial institutions’ climate policies.
coal plants to burn fossil gas or unsustainable
biomass instead. These same plans also often However, it is evident in the ‘Results’ chapter of
involve highly dubious political maneuvering this document that the European coal policies
to maximise the handouts given on the basis of do not yet reach far enough. In order to step up
early closures. Coal in Europe was already in to the plate the financial institutions must strive
structural decline prior to the COVID-19 crisis, for better quality policies and close existing
with historic drop in generation in 2019 5, that loopholes.
only solidified a multi-year trend. The COVID-19
Financial Institutions behind Europe’s most polluting coal power utilities
Investors € billion Creditors € billion
Norwegian Government
Pension Fund 1.5 2.8 Figure 2: The
‘Exposed Eight’
1.4 2.1 and their capital
flows into RWE,
PGE, EPH, ČEZ,
1.1 1.7 Enel/Endesa and
Fortum/Uniper.
1.0 1.3 Source:
Bloomberg
Total Total Terminal and
5.0 * Loans and underwriting since the IPCC Special 7.9 Thomson EIKON.
* Shares and bonds (extracted Feb 2020, based on
the most recent filing date). billion Report on Global Warming of 1.5 C published
October 2018 until December 2019.
billion Data compiled by
Profundo.
* For example, Fortum/Uniper and RWE have all stated that they remain largely unaffected by the crisis due to hedging.
Fool’s Gold | 061. Results
This report explores the financial flows from institutions, and provides more detail on each
shareholding, bonds, lending and underwriting of the assessment criteria.
benefiting the eight most significant European
coal companies measured in annual coal-based It is crucial to highlight that the financial
emissions: RWE, PGE, EPH, ČEZ, Enel/Endesa institutions below are not only associated
and Fortum/Uniper. The results are presented with coal but are, in fact, usually significant
for European investors, BlackRock, European supporters of the fossil fuel sector as a whole** .
creditors and the Japanese megabanks. The Fossil fuels like oil, gas, tar sands and shale
detailed methodology can be found in chapter 4. oil are far less comprehensively tackled than
coal, and feature infrequently in financial
Each section includes details on the financial institutions’ exclusion policies. Therefore, the
data and the interpretation of the results analysis below does not reflect the financial
in the context of each financial institution. institutions’ overall climate change policies
Furthermore, since every financial institution – only their approaches concerning coal, the
highlighted in this report has existing coal dirtiest of fossil fuels in absolute climate terms.
policies in place, the analysis will shed light on
their respective weaknesses and where they Furthermore, financial institutions often play
should be improved. The coal policies have multiple roles as investors, creditors and
been analysed taking into account the entire insurers. The coal policy analysis below has
coal supply chain going beyond the European been conducted to reflect the part of the
coal utilities, and covering the following business that is relevant for the data presented,
central elements: e.g. split along the lines of asset owners and
asset managers (bonds and shares) or banks
• Project finance (not relevant to asset (loans and underwriting).
owners and asset managers).
• Coal developers.
• Exclusion thresholds for corporate European Investors
finance (based on revenue, production
or capacity).* The research finds that at the end of the year
• Absolute thresholds for well-diversified 2019 the top four European investors held
coal companies (Mt of coal produced or €5.0 billion in shares or bonds in the eight
GW capacity). focus coal companies. It is as much as the
• Phase-out policies adopted by the European Investment Bank’s contribution to
financial institutions and phase-out the EU response to Covid-19 given to vulnerable
plans requested from coal companies countries outside European Union 8. Bond and
(considered as a powerful form of shareholdings were researched as of their most
engagement). recent filing dates: for bonds in the timeframe
• Just transition. November 2018-19 and for shares mainly
February 2020. A detailed analysis of the
current coal policies are compiled in table 1.
Annex I of the report includes a comprehensive
set of recommendations on coal to financial
* In Europe, power utilities’ coal share of revenue is currently extremely low. Therefore a revenue based metric is inappro
priate and should be reserved only for mining.
** F
or example, both Amundi and Axa voted against a climate-related resolution filed at the Total AGM. Access at (in
French): https://www.connaissancedesenergies.org/afp/sous-les-pressions-la-finance-francaise-sort-lentement-du-
charbon-200619. Furthermore, BNP Paribas was the biggest European fossil bank in 2019, despite its policy on
unconventional oil and gas financing. Access at: https://www.ran.org/wp-content/uploads/2020/03/Banking_on_Cli-
mate_Change__2020_vF.pdf
07 | Fool’s GoldWhile the report focuses primarily on the mining and production assets. Therefore,
European financial institutions, the largest Crédit Agricole has not yet fully implemented
investors through share and bond holding are the divestment phase. However, if the policy is
largely headquartered in the US. Therefore, in followed through as intended the company’s
order to truly shape the companies’ behaviour exposure to European coal should decrease
or economic outlook through shareholder soon, depending on the assessment process. It
activism – or divestment – it is not enough is to be noted that Crédit Agricole plays a dual
just to focus on the European finance actors. role as investors and creditor and the policy
Inevitably, many company engagement covers both businesses**.
interventions will also require US and other
globally relevant financial institutions to adopt Allianz is in third place among European
strict coal policies to exclude companies, and to investors with €1.1 billion, mostly in Enel.
boldly unleash biting engagement practices. Structurally, Allianz’s business operations
cover both insurance and asset management,
Similarly to the previous Fool’s Gold report of this report only reflects the latter. As of
2019, The Norwegian Government Pension December 31st, 2019, in the same time period
Fund remains the largest European investor as the financial data used in this report, it
with €1.5 billion in shares and bonds. The had approximately €2.3 trillion assets under
Fund had already excluded the Central and management, with €1.7 trillion of third-party
Eastern European (CEE) power companies in assets, making it one of the largest asset
2017, therefore all financial ties are associated managers in the world. Allianz’s exposure
with the Western utilities. Since retrieving to European coal comes through in the data
the financial data (dated February 2020) the primarily due to the third-party assets that
exclusion list of the Fund has been updated 9,10. are managed through subsidiaries: Allianz
Norges Bank, tasked with the management Global Investors and PIMCO. Allianz introduced
of the Fund, now excludes RWE from its a divestment decision in 2015 and also a coal
investment universe. Until May 2020, the Fund policy in 2018, which has since been tightened.
has been RWE’s third biggest investor *. Endesa However, the data demonstrates that the third-
has been on Norges Banks’ observation list party assets remain a blind spot for the asset
since 2016, and Enel was added this year. Also, owning giant.
Uniper is now under observation, making its
parent Fortum the last remaining focus utility Finally, Deutsche Bank is the fourth largest
that the Fund has not extended its policy to. investor with €1.0 billion. Deutsche Bank also
plays a significant dual role as an investor and
The second largest investor is Crédit Agricole a creditor ***. As an investor, mostly through
with €1.4 billion. The main sources of capital DWS **** and Deutsche Asset Management,
flows into the focus utilities come from Amundi Deutsche Bank is one of the few European
and Pioneer Investment, both Crédit Agricole investors that is associated with every coal
asset managers. However, in 2019 the group company featured in the report. It therefore has
Crédit Agricole announced a new coal policy 11 a substantial coal exposure and, consequently,
that placed rather strict expectations on coal a heightened stranded asset risk. At the time
companies. Crédit Agricole committed to of writing, Deutsche Bank has also one of
phase out coal in its investment and assets the weakest coal policies among the major
under management portfolios by 2030 in the European financial institutions, since neither
EU and OECD countries, this is aligned with the bank nor its subsidiaries limit general
the recommendations of Europe Beyond Coal. corporate finance to power utilities 12.
As part of the policy, companies are asked
to provide Crédit Agricole by 2021 with a
detailed phasing out plan of their coal-sector
* Municipalities not counted (KEB Holding and City of Essen)
** Crédit Agricole’s loans and underwriting services to the eight focus utilities November 2018 - December 2019 total €0.5
billion.
*** Deutsche Bank’s loans and underwriting services to the eight focus utilities November 2018 - December 2019 total €1.3
billion.
**** Listed on Frankfurt Stock Exchange; Deutsche Bank is majority shareholder.
Fool’s Gold | 08Table 1: Heat map for the quality of the coal policies of the
investors. The assessment matrix is based on the thermal Policy aligned with
EBC thermal coal
coal recommendations by Europe Beyond Coal and Reclaim recommendations
No policy
Finance 13. Please note that the policy analysis excludes the (Annex I)
insurance sector since the financial data of the report does
not explicitly touch upon insurance activities.
Relative threshold Absolute
Financial (% of capacity, Phase-out / Just
Type Developers threshold
Institution production or engagement transition
revenue) (Mt/GW)
Exclusion of 20MT/
Norwegian mining and 10GW
Government power companies However,
Asset
Pension No above 30% of the Fund No No 15
Owner
Fund revenues or power allows
(GPFG) 14 generation from exceptions
coal. *, **
Social and
human rights
Exclusion of Full phase-out commit-
mining and power strategy by ments
companies above 2030 in the included
25% of revenues OECD and in the
from thermal coal 2040 in the rest policies for
but with large of the world. the Metals
Exclusion exceptions and and Mining
Crédit Asset of all coal using the wrong By 2021, a Sectors. For
No requirement
Agricole Owner developers metric revenues example,
from 2021. instead of power for coal Impact
generation. companies on local
to have a communities
Companies above phase-out plan (physical
25% of revenues by according and
are assessed until to these economic
2021. deadlines. population
displace-
ments).16
Full phase-out
strategy by
Exclusion of 2030 in the
Exclusion OECD and
mining and power of mining
companies above 2040 in the rest
Crédit companies of the world.
25% of revenues
Agricole Exclusion above 100
from thermal coal By 2021, a
Asset of all coal Mt of coal
Amundi but with large requirement No ***
Manager developers production
& Pioneer exceptions and for coal
from 2021. per year
Investment using the wrong companies
metric revenues with some
large ex- to have a
instead of power phase-out plan
generation. ceptions.
by according
to these
deadlines.
* BHP Group Ltd/BHP Group Plc has not been excluded despite extracting more than 20 Mt thermal coal per annum.
Access at: https://www.nbim.no/en/the-fund/news-list/2020/exclusion-and-observation-of-coal-companies/
** “ Evaluation based on an overall assessment of relevant considerations including, inter alia, emissions and emission
intensity, forward-looking plans and frameworks on climate.” Access at: https://www.regjeringen.no/en/aktuelt/styrker-og-
klargjor-de-etiske- retningslinjene/id2640405/
*** Has taken part in PRI’s Just Transition work. Source: Amundi - Responsible Investment Policy 2019.
09 | Fool’s GoldRelative threshold Absolute
Financial (% of capacity, Phase-out / Just
Type Developers threshold
Institution production or engagement transition
revenue) (Mt/GW)
Exclusion
takes place
if companies
fail to present
a credible
transition
strategy.
Companies
that directly
or indirectly
(through entities
they control, Exclusion of
minimum of companies
50% stake) above 30% of Proprietary
breach the revenue, or power investment
following generation from portfolio to
thresholds: thermal coal fully phase out
with lowering of coal by 2040
1. Planning
threshold over at the latest
Asset more than 0.3
Allianz 17 time (i.e. 25% as No with lowering No
Owner gigawatts (GW)
of thermal
of December 31, of exclusion
coal capacity 2022). thresholds
additions. over time and
Proprietary exclusion of
2. Whether a investment coal plant
company is portfolio to fully developers.
planning and/ phase out coal by
or building 2040 at the latest.
additions of
more than 0.3
GW in coal
power capacity,
e.g. allowing
retrofitting or
refurbishment of
existing plants,
but to avoid the
building of new
plants.
Allianz
Allianz Asset
No No No No No
Global Manager
Investors
Allianz Asset
No No No No No
PIMCO Manager
Deutsche
Bank
Asset
Deutsche No No No No No
Manager
Asset
Management
Fool’s Gold | 10Relative threshold Absolute
Financial (% of capacity, Phase-out / Just
Type Developers threshold
Institution production or engagement transition
revenue) (Mt/GW)
Deutsche
Bank Asset
No No No No No*
Manager
DWS
The full list of investors can be found at the end of the report (Annex II)
Largest investor: BlackRock BlackRock’s holdings in the major European
coal companies are not only significant in
At the end of 2019, BlackRock held shares absolute terms but it is also a major investor
or bonds in every European coal company in relative terms (see figure 3). Given that
included in this report. €7.0 billion in total, BlackRock has a significant global presence, its
exceeding the amount held by all the investors local offices are involved in Europe its London
included in the ‘Exposed Eight’. BlackRock is and Frankfurt offices are central (see figure 4).
the world’s largest asset manager with €5.8 Put differently, BlackRock’s decisions on how it
trillion** in assets under management as of uses – or doesn’t use – its share- and bondholder
March 31st 2020 (decreasing significantly due rights can determine whether climate-related
to COVID-19). It is therefore unsurprising that shareholder initiatives pass or not.
BlackRock emerges from the data as the most
significant investor in European coal.
Share of BlackRock’s investments relative to other institutional investors
*only bonds
28 %
11%
10%
10%
8%
8%
4%
4% *
0 10 20 30 40 50 60 70 80 90 100 (%)
BlackRock Other institutional investors
Figure 3: Share of BlackRock’s investment to RWE, Uniper, Endesa, Fortum, ČEZ, Enel, EPH and PGE relative
other institutional investors * * *. The holdings in EPH are bonds as the company is not listed on any stock
exchange. Source: Bloomberg Terminal and Thomson EIKON. Data compiled by Profundo.
* Part PRI working group on a Just Transition in 2019
** $6.5 trillion
*** The data excludes, ie. national governments, municipalities, private individuals (see the chapter on Methodology).
ČEZ, Enel, Fortum and PGE have also governmental shareholders.
11 | Fool’s GoldRecently, BlackRock has taken the first tentative
9%
steps in addressing coal in its portfolio. It
announced in January that by the middle of
2020 it would exit certain investments, a
BlackRock process which has now been completed19.
Investments
per 30 %
manager • Companies with 25% or higher revenue
60 % country from thermal coal production will be
excluded from all actively managed
Germany
funds.
United Kingdom
• Thermal coal will be out of all
United States Environmental, Social, and Governance
(ESG) funds.
Figure 4: BlackRock’s European coal related • No direct thermal coal investments
investments mostly originate from the US, the through alternatives business at same
UK and Germany.
exclusion (25% revenues from thermal
Source: Bloomberg Terminal and Thomson coal production).
EIKON. Data compiled by Profundo
According to analysis, the new policy affects
less than 20% of the coal industry 20 and leaves
out passive investment. BlackRock’s policy
for actively managed investments only covers
BlackRock has both active and passive invest- businesses that sell thermal coal and not the
ment strategies, accounting for ¼ and ¾ of companies that actually burn coal. Also out of
assets under management (AUM) respectively. the policy’s scope are diversified coal companies
This is important to appreciate because the and developers of new coal infrastructure. This
company is often characterised as primarily means that, even if they do mine their own coal,
a passive investor. Eschewing the traditional the European utilities are not affected by the
“active” role of the fund manager, passive funds policy. BlackRock is the biggest shareholder of
track market indices algorithmically without the world’s most significant lignite miner and
needing individual managers to select the Europe’s biggest CO2 emitter, RWE 21 (see also
contents of a portfolio. This is done primarily Figure 3).
for cost-cutting reasons, which explains why
the passive funds are on the rise and account In 2020, BlackRock appears to have turned
for an increasing share of trading activity, and a new leaf on its engagement practices. On
have surged in market share. January 9th, the firm joined the Climate Action
100+, a major investor effort to pressure the
Since indices are generally made of a list of biggest polluting companies. Prior to this, as
stocks representing a segment of the market, has been found in several studies tracking its
there is a very high likelihood that coal voting results 22, 23, BlackRock has been found
companies are part of the investment portfolio. to largely ignore its responsibility in engaging
Influence Map’s research confirms that the with corporate giants. The experience of the
Thermal Coal Intensity (TCI) of BlackRock’s AGM season 2020 suggests that the asset
funds differ: its passive funds had a higher manager is still not exercising its shareholder
TCI than its active funds 18. Therefore, without powers to the full extent to push companies into
direct management discretion and with a needed transition (see Box 1 below). BlackRock
very thinly resourced corporate engagement voted against the company management when
team*, “In the past, numerous stakeholders it considered progress insufficient, including
have voiced concern about the silent blessing Uniper, Fortum, ČEZ and PGE, but it did not
BlackRock has given to coal companies’ lack of support climate-related initiatives.
progress on phase-out plans. This silence has
provided cover for status quo on coal finance.”
* Its investment-stewardship team, although the largest among fund managers, numbers less than 50, meaning each
member is responsible for as many as 500 companies.
Fool’s Gold | 12BlackRock’s engagement litmus test: Fortum’s Annual General Meeting (AGM)
In the 2020 Annual General Meeting (AGM) season, only one climate-related shareholder initiative
was tabled for the focus utilities AGMs. The World Wildlife Fund (WWF) Finland submitted a climate
risk shareholder proposal for voting consideration at Fortum’s 2020 annual meeting, asking the
company to “Include Paris Agreement 1.5-degree Celsius Target in Articles of Association”. The
proposal included an implicit request, as part of the supporting statement, to phase out coal in the
geographies where Fortum and Uniper operate coal plants.
BlackRock has been transparent in its voting, by publishing its stewardship practices 24. Therein,
it is shown that BlackRock voted against the approval of the board and president’s discharge
because the “decision by the board to significantly increase its exposure to coal energy generation
(by acquiring Uniper) calls into question the board’s integration of climate risks into its corporate
strategy”. However, it also abstained from voting on the abovementioned shareholder resolution.
Based on the empirical evidence, a much more pronounced ramp-up in the ambition and forceful
stewardship will be necessary to achieve the required changes in the coal sectors.
Box 1 : BlackRock’s engagement with European coal utilities during the AGM 2020 season.
European creditors policy but, as can be seen from the data in table
2, the policy has not stopped controversial deals
For this research, the time period for the from taking place. The main loophole of the
financial data for loan and underwriting deals by policy protects existing clients by only asking
creditors is November 2018 - December 2019. them to be in line with Nationally Determined
The 2019 Fool’s Gold report derived its cut-off Contributions (NDC) of the countries where
year from the UN Paris Climate Agreement that their operations are located. The Czech-owned
was signed in 2016. Since then banks should energy group EPH, infamous for buying up
have drastically recalibrated the financial old coal assets all over Europe, is UniCredit’s
relationships vis-a-vis their corporate clients. In existing corporate client. Since EPH operates
order to capture those financial institutions that in countries where the NDCs are largely
have most actively avoided their responsibilities inadequate* to meet the Paris Agreement, the
as good corporate citizens, this report brings exclusions are not enforced. Therefore, the data
the assessment period forward to the second confirm that the bank’s new coal policy has
significant milestone in climate governance: the limited real life impacts on the European coal
release of the IPCC special report on 1.5 degrees companies.
Celsius global warming (see chapter 3 for more
information). BNP Paribas is the second most significant
financier of these companies, with €2.1
Therefore, this document uses the IPCC 1.5 billion. In July 2020, the bank introduced
degrees Celsius special report as a crucial point in a new coal-fired power generation policy 25
time that confirmed the necessary plummeting for company-level financing with substantial
coal trajectory. Any financial transaction exclusions affecting the focus utilities, in line
benefitting the coal industry thereafter has no with its thermal coal exit timeframe by 2030
excuse that could be explained with the time in the EU/OECD countries and by 2040 in the
needed for the financial institution to prepare rest of the world introduced in May 2020 26.
themselves. In 2020, its power clients planning new coal
capacities or without an exit strategy that is
On the creditor side, UniCredit is the most consistent with the timeline will be gradually
significant bank providing €2.8 billion in excluded - even when a subsidiary is concerned.
loans and underwriting, similarly to last year’s Furthermore, it discourages coal acquisitions
findings. The bank has published a new coal by stating that no capacity additions to power
* Climate Action Tracker ranks the NDCs of all European countries as ‘insufficient’. Access at: https://climateactiontracker.org/
13 | Fool’s Goldportfolios are allowed, including development plans aligned with the Paris climate goals. If
or commissioning of coal-fired power plants. the plans do not align with the 2030/2040
However, it does not formally require from coal phase-out timelines the clients should be
clients the closure of companies’ coal assets, excluded without delay.
which can lead them to be sold instead. Based
on the information compiled in table 6, this Société Générale comes fourth with €1.3
policy could lead to the exclusion of ČEZ, billion. In July 2019, the French bank committed
Fortum/Uniper, EPH and PGE already this year. to exit the thermal coal sector by 2030 for
BNP Paribas will conduct a review in 2021 to companies with assets in the European Union
assess whether the clients are in line with the and the OECD, and by 2040 in the rest of the
bank’s set deadlines, followed by an exclusion world. Based on the short-term criteria, few if
if that is not the case. In 2021, we expect RWE any of the European coal utilities mentioned
to be excluded if they have not brought their in this report are excluded from its financial
coal exit date by 2030 and possibly Enel later services. This is supported by the results of table 2
without sharpened plans. An annual review of showing that loans and underwriting have taken
the companies’ strategies to exit coal will be place since the introduction of the 2019 policy,
conducted and companies that fail to comply including loans to and underwriting of EPH.
will be excluded - depending on the outcomes Société Générale should have mostly excluded, or
of the annual coal exit strategy reviews. considered excluding against additional criteria,
companies whose coal share of revenue exceeds
Barclays follows in third place with €1.7 50%. EPH, a regular client, has a very high coal
billion. The bank has been under relentless share of power production, as well as revenues*,
public and investor scrutiny for being Europe’s and is most likely classified as an “in transition
most significant fossil fuel financier 27,28. Despite company” ** that should be divested from if it
Barclays new restrictions, the financial support “has plans to expand their (sic)... coal-fuelled
to coal remains significant. In March 2020, power infrastructure” or “do not have an explicit
Barclays announced a new coal policy laying corporate strategy consistent with becoming a
out that it prohibits financing to clients with diversified company by 2025”. Given that 94% of
more than 50% of their revenue from thermal the 4,000 MW of the EPH capacity added in 2019
coal as of 2020, transitioning to 30% as of 2025, is fossil fuel-based, including 1,800 MW in new
and to 10% as of 2030. The policy is designed coal 29, it is possible that Société Générale has
to apply to the entity being financed, whether broken its own coal policy through its dealings
transacting with a group parent, subsidiary with EPH.
or joint venture. Due to the unprofitability of
coal in Europe any revenues-based metric is In July 2020, the bank announced that a new
unlikely to be effective. Both Fortum/Uniper thermal coal policy will be adopted 30 revealing
and Enel have reported that the coal share of its the high level updated exclusion criteria
revenue is only approximately 2-4% (see table (further details are not available at the time
6). Although Barclays detailed the long-term of the writing). It will henceforth exclude
coal phase-out pathways, it also indicated that companies from most financial services that: a)
no meaningful short-term exclusions would be generate over 25% of their revenues from the
introduced in the next five years as the next thermal coal sector and when no credible exit
‘tightening up moment’ of the threshold takes strategy is provided; b) develop new mining,
place only in 2025. In short, the new policy power plant or infrastructure projects related
cemented the very low level of ambition and to thermal coal. However, they will provide
therefore remains toothless in the context of financial services “dedicated to the energy
European power utilities. As an immediate step, transition” irrespective of the coal exposure
the thresholds should be significantly lowered and there are no requirements for companies
in the short term and pegged to the coal share of below the threshold. It is unsure how EPH and
production instead of revenues for coal power other companies will be impacted by this.
production. Barclays should also ask its coal-
heavy clients to publish credible transition
* According to the Global Coal Exit List, EPH’s coal share of revenue is more than 30% and coal share of production (based
on capacity) 50%.
** D
efined as either a) to have between 30% and 50% of their revenue linked to the thermal coal sector; or b) to have more
than 50% of their revenue linked to the power sector and between 30% and 50% of their power capacity fueled by coal.
Fool’s Gold | 14Table 2: How watertight are the coal policies? The financial data have been collected until February 2020 since
the adoption of the latest coal policy of the bank. Barclays and BNP Paribas have been left out since the banks
have updated coal policies in March and July 2020, respectively. Société Générale announced a new policy in
July 2020, at the time of writing. Source: Bloomberg Terminal and Thomson EIKON. Data compiled by Profundo.
Date of the latest Value of loans since the Value of underwriting deals
Bank
coal policy last coal policy since the last coal policy
€114 million (EPH)
UniCredit November 2019 N/A
€36 million (Enel)
€57 million (EPH)
Société €100 million (EPH)
July 2019 €638 million (Fortum)
Générale €170 million (Enel)
€36 million (Enel)
Table 3: Heat map for the quality of the coal policies of creditors. The assessment matrix is based on the
thermal coal recommendations by Europe Beyond Coal and Reclaim Finance 31.
Relative threshold Absolute
Financial (% of capacity, Phase-out / Just
Projects Developers threshold
Institution production or engagement transition
revenue) (Mt/GW)
Exclusion of mining
companies above
25% of revenues
Exclusion of from coal, and
some coal power companies
Exclusion of
developers above 30% of coal
thermal coal
based on capacity, and other
UniCredit mines and coal No No No
relative criteria for new
plants, includ-
share of coal clients, but large
ing retrofits.
revenues/ exceptions based
capacity. on NDCs and wrong
metric used with
capacity instead of
power generation.
Phase-out of
the coal power
and mining
Exclusion of mining sector in the EU/
OECD by 2030
Exclusion of companies above
and worldwide
thermal coal 50% of revenues
BNP by 2040 with
mines, and Exclusion of from coal. No new
mandatory
Paribas coal plants coal plant clients that derive No
requirement for
No 34
32,33 (including developers. more than 25% of
companies in this
retrofits) and its revenues from
sector to have an
infrastructure. coal-fired power exit plan aligned
generation. by the end of 2021
and exclusion
of all coal plant
developers.
15 | Fool’s GoldRelative threshold Absolute
Financial (% of capacity, Phase-out / Just
Projects Developers threshold
Institution production or engagement transition
revenue) (Mt/GW)
Yes.
Mostly a
The policy
good policy
includes
with some
intention
exceptions to provide
given to finance to
retrofitting of help train
plants. and upskill
current and
No project Financing to clients future work-
finance to with more than 50% force.
enable the of their revenue
construction from thermal coal It is unclear
or material as of 2020, whether just
expansion transitioning to 30% transition
of coal-fired as of 2025, and to is used to
power stations. 10% as of 2030. legitimise
Barclays extended
35 No project No No No
Using the wrong timelines
finance for the for the high
development metric of revenues
instead of power carbon
of greenfield industry,
thermal coal generation.
mainly in
mines. the context
The exclusions are
of Canadian
No general effective extremely oil sands.
corporate late. Just
financing that transition
is specified as should
being for new never
or expanded be used
coal mining to justify
or coal-fired unduly
power plant prolonged
development. phase-out
timelines *.
Strong policy
Exclusion of
on exclusions
companies with
to thermal coal Phase-out of
more than 25%
projects. coal mining
of revenues from
and coal power
thermal coal.
No finance to by 2030 in EU/
Includes large
Société thermal coal OECD and 2040
Exclusion of exceptions for
extraction, worldwide, and
Générale coal plant companies without No No
transport or exclusion of all
36,37 developers. a credible exit
transformation, coal developers.
strategy from
or coal- However, phase-
the coal sector.
fueled power out commitment
Furthermore, the
production only for lending,
wrong metric since
units and not underwriting.
revenues instead of
associated
generation is used.
infrastructure.
The full list of creditors can be found at the end of the report (Annex II)
* E
xcerpts from the 2019 ESG report, “...we take responsibility for asking our clients the right questions about their
response to the displacement of individuals from the security of employment; particularly those from more vulnerable
groups.” and “We are committed to supporting this transition by identifying and financing the deployment of affordable,
sustainable and economically feasible technologies that provide energy security over the long term, which is crucial for
both developed and developing economies.”
Fool’s Gold | 16Significant non-European with €0.3 billion are the 9th, 19th and 29th
creditors: Japanese megabanks most significant creditors in European coal. In
total, the Japanese megabanks have financed
The data reveal another significant country European coal corporations with €1.9 billion
bankrolling European coal utilities outside of between November 2018 and December 2019*.
domestic and American financial institutions:
Japan. The Japanese megabanks have provided The SMBC Group demonstrates a relatively
funding in the form of loans and underwriting Central and Eastern European (CEE) client
associated with five out of eight coal-reliant base where the power utilities’ coal production
power utilities highlighted in this report. If can be extremely high. EPH is particularly
we include all financial institutions within problematic since the utility’s business model
and beyond Europe, Mizuho Financial revolves heavily around acquiring unwanted
Group with €1.0 billion, Sumitomo Mitsui coal plants in Europe and as an unlisted
Financial Group (SMBC) with €0.6 billion company it does not have to comply with the
and Mitsubishi UFJ Financial Group (MUFG) same reporting requirements as its peers.
The financial links between Japan's three megabanks and European coal power utilities
100 - 150
151 - 250
・
Sumitomo Mitsui
・
Financial Group
・
551 - 650
(€ million)
Mitsubishi UFJ Financial
Group
* In loans and underwriting
since the IPCC’s Special
Report on Global Warming
of 1.5° C published in
Mizuho Financial Group October 2018 until
December 2019.
Figure 5 : Mizuho Financial Group, Sumitomo Mitsui Financial Group and Mitsubishi UFJ Financial Group
(MUFG): loans and underwriting in European coal from October 2018 until December 2019. Amounts in euros.
Source: Bloomberg Terminal and Thomson EIKON. Data compiled by Profundo
Japanese Number of
Number of loans Total
megabank underwriting deals
Mizuho 8 (€937 million) 1 (€91 million) 9 (€1028 million)
SMBC 6 (€274 million) 3 (€291 million) 9 (€565 million)
MUFG 2 (€185 million) 2 (€114 million) 4 (€299 million)
Table 4 : Break-down of coal deals associated with the Japanese megabanks. Based on the break-down of
coal deals, the data reveal that most of the deals are loans.
Source: Bloomberg Terminal and Thomson EIKON. Data compiled by Profundo
* The historic exchange rate of EUR to JPY 31.12.2019 was 121.97512. Therefore, the financial deals totaled approximately
¥231.75 bn.
17 | Fool’s GoldThe Japanese megabanks have published below. Since the European utilities are mainly
and updated their coal policies in the recent supported through corporate finance, the
years, with newest revisions in April and May recently introduced coal policies do not have
in 2020 restricting new project finance to the material impact on them as they only focus on
coal sector. The new policies are assessed restricting coal project finance.
Table 5: The assessment of the coal policies of the Japanese megabanks.
Relative
Date of the threshold Absolute
Financial (% of Phase-out / Just
latest coal Projects Developers threshold
Institution capacity, engagement transition
policy (Mt/GW)
production
or revenue)
Commits to
reduce the
outstanding
credit
balance
for coal-
fired power
No new coal
generation
power projects
facilities from
with notable the FY2019
15.4. exceptions *. amount
Mizuho No No No No
2020 38 All loans for (around
JPY300
coal power
billion) by
projects ended
50% by
by 2050 39.
FY2030, and
achieve an
outstanding
credit
balance
of zero by
FY2050.
No new coal
16.4. power projects
SMBC No No No No No
2020 40 with notable
exceptions**.
No new coal
(13.5. power projects
MUFG No No No No No
2020) 41 with notable
exceptions***.
* The policy has three main exceptions: 1. It excludes businesses to which Mizuho is already committed as of the start
of this policy. 2. Where a proposed coal-fired power plant is essential to the relevant country’s stable energy supply
and will contribute to reduction of greenhouse gas emissions by replacing an existing power plant, Mizuho may provide
financing or investment for the project. 3. Mizuho will also continue to support development of innovative, clean,
and efficient next-generation technology that will contribute to the expansion of sustainable energy, as well as other
initiatives for the transition to a low-carbon society.
** Exceptions may be considered for projects which use “environmentally friendly” technologies such as USC pressure
and forprojects which have provided support before the revision. SMBC also supports the development of technologies
which contribute to carbon recycling such as CCS.
*** Exceptions may be considered where MUFG will take into consideration the energy policies and circumstances of the
host countries, international standards such as the OECD Arrangement on Officially Supported Export Credits, and
the use of other available technologies when deciding whether to provide financing. MUFG also supports the adoption
of advanced technologies for high efficiency power generation and Carbon Dioxide Capture and Storage (CCS)
technologies which contribute to a reduction in the emission of greenhouse gases.
Fool’s Gold | 18As the European coal exit accelerates it is A patchwork of insurance and reinsurance
likely that those utilities that can no longer agreements protect developers against certain
access capital markets will increasingly seek physical and transitional risks related to coal,
finance from further afield. This is why, to allowing them to delay phase-outs of existing
ensure that the entire market disincentivises projects.
business models that are not rooted in a timely
coal phase-out, coal policies must be tackled Since 2017, many European insurers have
globally. In Japan, unless the megabanks adopt announced commitments that limit their
stricter policies to cover corporate finance, underwriting services to coal utilities or
the European coal sector is likely to enjoy restrict coal financing on the project level 44.
financial support in the future too. This would Global insurers have also adopted coal
make Japanese megabanks fall behind their investment restrictions, which is notable given
peers, risking reputational damage, which is the size of capital flows in the sector 45. Even
already materialising in shareholder revolts. In now, many major insurers have limited policies
June 2020, the first-ever climate shareholder or no policy at all*.
proposal received massive international
investor backing. At Mizuho’s annual general This report does not present financial results
meeting, 34% of shareholders, worth well over for coal insurance and reinsurance, nor does it
US$500bn, were voting for the proposal 42,43. analyse the breadth of the financial institutions’
This included the support of ISS and Glass policies for insuring coal companies. This is
Lewis, the two prominent proxy advisory partly due to the lack of transparency and data.
services. The sector is, however, at the epicenter of coal
finance.
The insurance sector
The insurance sector plays a critical role in
allowing coal power generation and mining
operations to continue beyond 2030 in the
EU. In fact, before a developer can even break
ground on a new coal mine or thermal power
plant, it must secure insurance for its projects. * Lloyd’s of London market, Talanx and PZU, for example.
19 | Fool’s Gold2. Focus utilities
Coal-related emissions are steadily does not reduce emissions since they just
decreasing move from one company portfolio to another.
However, since some of the transactions have
Before the COVID-19 crisis hit, the European been between the eight focus companies our
coal utilities were already on their way out of numbers reflect real world closures fairly
coal. In the EU, a fall of one quarter in emissions accurately. Out of the focus power utilities,
took place in 2019 alone 46 and especially Endesa’s annual reduction in coal was
the use of hard coal has dropped. The pan- approximately a whopping 70% drop between
European trend corresponds well with the coal 2018 and 2019*.
phase-out pathways of the eight focus utilities
in the same year. Between 2018 and 2019, the It should be noted that the data excludes non-
power utilities featured in this report lowered European coal assets and does not reflect
their emissions by nearly 25% going from 334 the emissions that would be generated with
Mt down to 252 Mt year-on-year (see figure 6 alternative high-carbon fuels such as gas
and 7). In Europe, some of the company level or biomass**. Regrettably, Fortum/Uniper
“phaseout” has been achieved by selling rather has just installed a new coal power plant in
than decommissioning plants, which in itself Germany, and PGE is still developing more
Coal-based emissions over time 2010-2019
(Mt CO2-eq)
160
140
120
100
80
60
40
20
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Figure 6 : The annual emissions of the eight focus utilities since 2010 ***.
Source: own analysis. Data retrieved from Europe Beyond Coal coal plant database (accessed May 2020)
and The European Union Transaction Log (EUTL).
* Peninsular Spain coal generation in 2019 was 1.532 GWh (-69.2% with respect to 2018) and imported coal 4.115 GWh
(-72,5% with respect to 2018).
** Biomass is currently zero accounted under the EU ETS, while the immediate emissions are comparable to coal. The
emissions are, in theory, accounted for under the LULUCF regulation. In practice, a considerable amount of biomass
energy use goes unaccounted under the LULUCF Regulation as 1) the amount of biomass used for energy prior 2009
is considered carbon neutral and 2) allowing increased harvesting into forest management reference levels hides also
increased biomass use, which is then considered carbon neutral. See the analysis from Fern conducted in April 2020
showing the extent of forest harvesting plans by the EU states (National Forestry Accounting Plans): Fern. (May 2020).
Press release: EUROPEAN COMMISSION FACES MAJOR HURDLE TO PROTECT AND RESTORE FORESTS. Access
at: https://www.fern.org/news-resources/european-commission-faces-major-hurdle-to-protect-and-restore-forests-2148/
*** T
he 1.1 GW power plant Datteln 4 owned by Fortum/Uniper came online 30.5.2020 with annual emissions that can be
up to 8.4 Mt depending on the operating hours. At present, the Turów Power Plant owned by PGE is in the final phase
of construction of a modern power unit with a capacity of approx. 500 MW. Furthermore, PGE is currently expanding
Turow mine and ČEZ is planning to extend the operation of its Bílina lignite mine, which will indirectly contribute to coal
emissions. ČEZ is also planning a new CHP lignite unit planned to come online 2022. The graph does not include the
emissions data of Anllares coal plant, which is 33% owned by Endesa and the remaining 66% is under ownership of
Gas Natural Fenosa.
Fool’s Gold | 20coal capacities. This is not yet reflected in the brought online in 2020, or further in future, will
2019 emissions data (see table 6 for details). show up as additional coal-based emissions.
Despite UN secretary-general António Guterres’ However, the European coal fleet as a whole is
call for the 2020s to be a “decade of action” expected to further shrink.
calling for an end to new coal-fired power
stations after 2020 the utilities are going ahead
with their plans. Therefore, new coal plants
Aggregate change in coal-based emissions 2010-2019
(Mt CO2-eq) (RWE, PGE, EPH, CEZ, Enel/Endesa, Fortum/Uniper)
500
450
400
350
300
250
200
150
100
50
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Figure 7 : The aggregated annual emissions of the eight focus utilities since 2010 showing a downward trend.
The emissions only cover the EU and UK. The graph represents only the companies’ coal emissions - not the
overall emissions.
Source: own analysis. Data retrieved from Europe Beyond Coal coal plant database (accessed May 2020) and
The European Union Transaction Log (EUTL).
Focus utilities where coal phase-out is well underway there
is a genuine threat of coal-to-gas and coal-to-
While the overall phase-out rate is promising, biomass 47 conversions, including in Spain and
the decarbonisation plans of the coal utilities Italy. It is estimated that in Europe gas replaced
indicate that the coal phase-out will not be around half of the coal, solar and wind the other
achieved by 2030. This is particularly acute half 48. Many utilities also bank on hydrogen as
in three EU countries: Poland, Germany and a growth area while the genuinely sustainable
the Czech Republic. Several of those utilities hydrogen economy is in its infancy and it is
located in these countries have coal expansion unclear what its role will be. The success of
plans (see table 6 and Box 2) and they all still the coal phaseout is therefore also dependent
operate a sizable coal fleet. Therefore, drastic on the next stages of the transition since bad
shifts in company strategy, capital allocation, investment decisions can lead to stranded
technological deployment and accelerated coal assets and infrastructure lock-in. It is unclear
decommissioning plans are still a necessity for whether the power utilities are able to harness
the utilities in these geographies. renewable energy, while drastically limiting the
use of biomass, for their transition.
However, closing coal plants is only the first
step and does not address the wider issue of Please note that some of the focus power
the necessary transition in the power sector. utilities mentioned in this report have adopted
While the Western European governments have new business strategies that increasingly phase
shown remarkable political will in introducing out coal. This is most relevant in the context of
coal phase-out timelines - with the exception Enel and Endesa. However, because the data
of Germany, whose government has failed to only reflects end-2019 and early-2020, many of
adopt a Paris compatible coal exit timeline - the these developments had not taken place.
job is not yet done. In some of those countries
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