Frequently Asked Questions

Any delay in phasing out coal would jeopardize meeting the 1.5°C target while continuing to pose very serious health risks for the populations concerned. According to the International Energy Agency, air pollution from outdoor sources caused more than four million premature deaths in 2021, 85% of which were in emerging markets and developing economies, mainly in Asia (Coal in Net Zero Transitions, 2022).

Adding new coal projects (thermal or metallurgical coal mines, coal plants, or coal-related infrastructure) is thus strictly incompatible with a 1.5°C scenario, in addition to the additional health risks this will entail.

Nevertheless, there continue to be numerous expansion plans within the coal sector:

• According to Global Energy Monitor’s Coal Plant Tracker, the total coal power capacity under development exceeds 550 GW. Under current projections, the global coal power fleet could reach 2,240 GW by 2030, while a capacity consistent with a 1.5°C scenario should not exceed 1,470 GW by 2030 (Boom and Bust Coal, Global Energy Monitor et al., April 2023). An expansion plan can refer to both a new project (announced, pre-/permitted, under construction), or expansion of an existing project.
• These projects are carried out by numerous companies. All forms of investment and other financial support for such companies should be prohibited to prevent them from pursuing their expansion plans. In 2023, the Global Coal Exit List developed by Urgewald included 577 companies with expansion plans in the thermal coal sector.

Most importantly, financing subsidiaries belonging to corporate groups with coal assets and/or coal expansion plans must also be covered by sector policies.

When it comes to banks’ coal sector policies, many only restrict project financing and do not address corporate financing. Yet, fossil fuel companies tend mostly to raise finance at the corporate level (lending and underwriting with no specific use of proceeds): according to the Banking on Climate Chaos 2023 report, project financing accounted for only 4% of the total financing of fossil fuel companies between 2016 and 2022.

This is why it is an absolute necessity to adopt coal sector commitments targeting both project and corporate finance.

A robust phase-out strategy for financial institutions involves phasing out all types of exposure in thermal coal mining and coal power by 2040, with an interim target of 2030 for Europe/OECD. Furthermore, additional commitments must be made immediately, such as excluding all companies with coal expansion plans.

In the near term (gradual escalation between 2024 and 2026), companies without exit plans aligned with the above-mentioned deadlines and lacking a detailed asset-by-asset closure plan should progressively be excluded. Other criteria resulting in progressive exclusion include planning to convert coal plants to gas and/or biomass, intending to sell (rather than closing) the assets, and not planning a sustainable transition plan for workers, local communities and the environment.

Financial institutions can be tempted to exempt some of their activities from their coal sector policy. Reclaim Finance is penalizing players who do so.

For each type of financial institution, Reclaim Finance shares detailed recommendations.

For banks:

For re/insurers:

 For investors (asset managers, pension funds, etc.):

It can prove very difficult to identify which companies have coal expansion plans, or what the coal share of revenues or power generation is for a given company.  Urgewald’s Global Coal Exit List provides an exhaustive set of data for over 1,400 companies (Group-level) and 1,900 of their subsidiaries active along the entire thermal coal value chain. It notably identifies companies with thermal coal mining, power or infrastructure expansion plans, along with relative and absolute threshold for companies most exposed to the coal industry. Reclaim Finance recommends the use of the Global Coal Exit List, which is updated each year, to implement a coal policy. For additional information about this database, you can contact them via email at info@urgewald.org.

Despite strong initial commitments or exclusion thresholds, loopholes and exceptions in a coal sector policy can remove all substance from a policy.

Here are some of the most common, worrying weaknesses seen in policies:

• Limited definition of the coal value chain: Some policies only apply to specific segments of the coal value chain. For instance, BlackRock, the world’s largest investor, has set an exclusion threshold only for thermal coal mining companies, and not coal power companies.
• Selective application of the policy: Certain policies may not cover all assets for investors, perhaps only applying to ESG funds. In the case of banks, policies may apply solely to lending activities and not underwriting or advisory services. For example, DZ Bank excludes some thermal coal companies, but this exclusion only applies to lending activities.
• Weak or undefined transition plans: In some cases, financial institutions might not exclude companies if the latter have adopted some vague, undefined transition plans. UBS, for instance, allows financing for companies with a “transition strategy that aligns with the goals of the Paris Agreement” without sharing further details on what a transition strategy consists of. A transition plan should be aligned with the coal phase-out strategy introduced above (see also Reclaim Finance and Urgwald’s briefing on How to exit coal?).
• New client exemptions: Some policies only exclude new clients, leaving existing customers unaffected by the policy’s provisions. This approach has been observed in banks like BBVA and Commerzbank.
• Financial subsidiaries oversight: Some policies fail to cover financial subsidiaries, which are essential components of numerous thermal coal players strategies to secure financing. The Global Coal Exit List provides data to help identify these financial subsidiaries.
  
• Not excluding financing to a corporate group with subsidiaries engaged in coal expansion: banks such as BNP Paribas and HSBC exclude financing to specific coal entities, but allow financing at group-level. This seriously undermines the exclusion policy, as the group could use such financing to support its subsidiaries with thermal coal expansion plans.

Furthermore, many policies restrict financing for thermal coal but do not address metallurgical coal. This is a key missing aspect, rather than a loophole, but a widespread issue found in almost all coal-related policies.

An exception may be made for dedicated funding or subsidiaries dedicated to the energy transition (e.g., the deployment of renewable energy).  Dedicated funding (for example via the use of proceeds bonds) must be explicitly earmarked and must not be used for other activities.

Green bonds emitted by companies with coal expansion plans should never be tolerated. For companies emitting green bonds, active in the coal sector but with no expansion plans, financing can occur if the issuer’s definition of green is rigorously verified. A Second Party Opinion on the issuer’s framework alone does not guarantee the sustainable attributes of these debt instruments. It is recommended to have a public framework that clearly defines the projects that may be financed and to verify the compatibility of the overall strategy of the issuer with such commitments.