While some European lenders are phasing out lending to the coal industry, their coal policies are "full of loopholes," and they need to end coal financing to reach the climate goals set out by the 2015 Paris Agreement on climate change, according to research by a group of nongovernmental organizations, or NGOs.

The research singled out Japanese and Chinese banks as the top lenders and top underwriters to coal respectively, but it also showed that European banks account for 25% of global lending to top coal-plant developers despite undertaking commitments to phase out coal.

European banks HSBC Holdings PLC, Standard Chartered PLC and ING Groep NV rank eighth, ninth and 10th, respectively, in the ranking of top lenders to coal through lending to coal-plant developers, the report said, even though all three have committed to reduce financing to coal.

Standard Chartered said in September that it would stop financing new coal-fired power plants. The report said that the British bank's corporate lending to top coal-plant developers in China, Indonesia, Japan and the Philippines rose to $1.18 billion in the first three quarters of 2018 from $373 million in 2017. However, the bank did not sign off on any direct financing to coal-plant developers in that period. ING, which aims to phase out financing of coal-power companies by 2025, provided almost $500 million to coal-plant developers through loans and underwriting in 2018.

Urgewald, a German environmental NGO, and the Netherlands-based BankTrack, an NGO that focuses on finance and climate change, collaborated with 26 NGO partners to produce the research. Their report was released Dec. 5 at the 24th annual session of the Conference of the Parties to the UN Framework Convention on Climate Change, more commonly referred to as COP24, in Katowice, Poland.

Policies

HSBC said in April that it would end financing of new coal-fired power in all countries apart from Bangladesh, Indonesia and Vietnam. The three countries make up one sixth of the world's coal plants in the pipeline, Greig Aitken, a climate campaigner at BankTrack, told a press conference on the sidelines of COP24.

"These examples show that banks' coal policies are still full of loopholes. If large banks do not shut the door on corporate loans and underwriting for coal-plant developers soon, it will be impossible to achieve the Paris Climate Goals," Heffa Schücking, director of Urgewald, said in a statement.

Pierre Sorbets, the vice chairman of global banking at HSBC France, recently told a conference in Paris that while the lender had phased out coal investments in many countries, it was continuing coal investments in those three Asian nations because coal offered the energy that those particular populations needed.

According to the NGOs' data, the finance industry invested more than $478 billion in the world’s top 120 coal-plant developers between January 2016 and September 2018.

Japan and China

Japanese banks accounted for almost a third of all coal lending, and lenders Mizuho Financial Group Inc., Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. ranked first, second and fourth, respectively.

"What has been happening in Japan in the last six months is that the three major Japanese banks, Mizuho, Sumitumo, and Mitsubishi, have made some welcome steps in policy terms to restrict their financing for coal power ... but these were largely baby steps not going far enough and the extent of the finance figures shows that Japanese banks must kick on quickly to bring down this financing which is so dominant," Aitken said.

"The fate of the Paris climate goals will depend on changing the behavior of Japanese and European lenders," Schücking told the news conference. The Paris accord aims to limit global warming ideally to 1.5 degrees C and to 2 degrees at the most, and a recent report by the United Nations Environment Programme said the world will fall far short of the current goals.

In terms of underwriting, Chinese banks scored the worst, accounting for 72.6% of the global figure, while they account for 12% of direct lending to coal-plant developers. In a ranking of 30 underwriters, Chinese banks feature among the top 15, led by the Industrial and Commercial Bank of China.

Stranded assets

As banks continue to invest in coal projects, they run an increasing risk of holding stranded assets.

"Stranded assets are becoming more and more of a specter and a reality," Aitken said. "There is evidence in India in the last six to nine months coal that more plants are representing major problems for certainly Indian banks."

A report by the Institute for Energy Economics and Financial Analysis in August 2018 pointed to the $40-60 billion risk of rising stranded assets to India's banking sector from coal-fired projects because of the hike in imported coal prices, low capacity coupled with high financial leverage, and project delays.

Just having coal assets declared as stranded was "optimistic," Schücking said at the news conference.

"If those coal plants are built we are looking at a global temperature rise of somewhere between 3 and 4 degrees and a real live possibility of creating a cycle of runaway climate change," she said.