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Big firms rush for the exit on coal finance, but Goldman, BlackRock lag

U.S. fund managers BlackRock Inc.. and Vanguard Group Inc., and Wall Street bank Goldman Sachs Group Inc., have been excluded from a list of global financial firms that are exiting coal financing compiled by the Institute for Energy Economics and Financial Analysis.

The IEEFA, which researches financial issues related to the energy sector, and whose mission is to accelerate the transition to a sustainable energy economy, compiled a list of more than 100 global financial institutions have made "increasingly tight divestment/exclusion policies" around thermal coal since 2013.

This includes 40% of the top 40 global banks, as well as 20 globally significant insurers with more than $6 trillion of investments, or 20% of the industry's global assets. Since the beginning of 2018, 34 firms have made announcements regarding divesting from coal.

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Since January 2018, one bank or insurer a month has exited from coal mining and/or coal-fired power plants and a financial institution which had previously announced a divestment policy has tightened up their policies every two weeks, the report said.

Fund managers

But the report called out BlackRock and Vanguard, the world's top two fund managers with a collective $11 trillion of assets under management, for their progress in restricting coal investments, which it said had been "less than impressive."

"Both BlackRock and Vanguard have been underwhelming in terms of failing to vote against board members who are climate deniers," the report said.

In 2017, BlackRock stated "rather hypocritically" that "coal is dead," the IEEFA said, citing a December report by InfluenceMap that says the asset manager is the biggest fossil fuel owner globally.

Vanguard's actions on coal are "limited, particularly when it comes to proxy voting or excluding the worst corporates on climate/emissions intensity," the report said.

IEEFA also cited a 2018 Rainforest Action Network report, which said that from 2015 to 2018 Goldman was the leading arranger of finance for coal companies of the U.S. majors.

"While its direct lending book was relatively small, total exposure increased 50% over this period and there is no ongoing public monitoring of this policy," it said.

The report said that, since the start of 2018, 24 global financial institutions have announced restrictions on coal and 10 had tightened existing coal policies. Of that number, five institutions have exited coal or have enhanced their coal policies since the beginning of 2019, including South Africa's Nedbank Group Ltd. and Vienna Insurance Group AG.

Stranded assets

"The pattern of tightening existing policies combined with new lending restrictions is creating a domino effect within the global financial industry while resulting in a progressive strangulation of the thermal coal industry," said Tim Buckley, director of Energy Finance Studies at the IEEFA and author of the report.

"Stranded assets are a clear financial risk for any institutions left funding the coal sector," he added.

Eight insurers and reinsurers, including industry giants like Axa, Allianz SE, Swiss Reinsurance Co. Ltd. and Munich Re Co., have ended or restricted their insurance for coal projects, making it increasingly challenging for companies to find cover, the report said.

The leading global bank restricting coal financing is Morgan Stanley of the U.S., which first implemented its coal policy in November 2015 when it excluded financing for coal mining while constraining new coal mining lending. France's Crédit Agricole SA, Société Générale SA and BNP Paribas SA come second, third and fourth respectively, the report said.

"While initial measures vary in effectiveness, we found that the trend is for financial institutions to ratchet up the strength of policies once they are in place," Buckley said.

"With environmental and reputational concerns certainly driving factors for capital fleeing coal, investors are also increasingly aware that coal industry forecasts are increasingly dour," he said.