Under the cover of COVID-19, Asian financial institutions and corporations have been stepping up and out of coal financing, finds a new briefing note by the Institute for Energy Economics and Financial Analysis (IEEFA).
In the last month alone, Japan’s two largest institutional banks, Sumitomo Mitsui Financial Group and Mizuho Financial Group, the Japan Bank for International Cooperation, and Ayala Corporation of the Philippines announced the end of financing for new coal-fired power projects. This follows coal exit announcements in 2019 by Singapore’s United Overseas Bank, DBS Bank, and Overseas Chinese Banking Corporation.
Also this month, China released a draft renewable energy policy focusing on building a low carbon, innovation-driven, safe and efficient domestic clean energy system, while the South Korean government’s Green New Deal manifesto sets a commitment to zero emissions by 2050, and introduces an effective carbon tax and the phaseout of domestic and overseas coal financing by public institutions.
Tim Buckley, author of the IEEFA note Southeast and East Asia Catching Up in Global Race to Exit Coal – Historic Announcements Across Japan, Korea, China, and the Philippines Augur Well says that with Sumitomo Mitsui and Mizuho excluding new coal-fired power plant financing, a domino effect across other coal lending financiers in Asia is likely.
“Mizuho is the world’s largest private financier of coal developers which means other financial lenders keep a close eye on its activities,” says Buckley, IEEFA’s Director of Energy Finance Studies, Asia Pacific.
“Now that they’ve announced a coal exit which indicates to the market that coal is a very poor investment, we expect other lenders to also announce a policy shift away from coal.
“The impact on coal developers means coal financing will be even more difficult than it already is to attain.
“Ayala Corp’s recent divestment of two coal-fired power plants and its investment in wind, solar and geothermal is an important indicator for the region; corporations reading the energy transition correctly are also moving away from expensive coal.”
Leading Japanese trading houses are also divesting away from coal, including Marubeni Corp, Mitsubishi, Mitsubishi Materials, Mitsui, and ITOCHU. Sojitz recently announced it is selling one of its last thermal coal mine exposures: a 10% stake in the Moolarben mine in New South Wales, Australia.
Global banks, insurers and asset managers/owners primarily from Europe, Africa, Australia and the United Kingdom have been announcing coal exclusion policies at an average rate of one every two weeks for the past couple of years.
“Realigning policies towards low emission targets in the Paris Agreement is obviously becoming more urgent, particularly as governments nearly everywhere continue to lag,” says Buckley.
“When the world’s biggest asset manager BlackRock announces a coal exit policy as they did in January 2020, decision-makers take note.
“Although some financial institutions may be driven by climate-related goals in their exodus from the extraction and burning of coal, LNG/gas and oil, most are driven by the numbers and the need to stay relevant as the technology driven energy transition accelerates and permanently undermines the economics of fossil fuels.
“Renewables including wind and solar are now the lowest cost source of energy in the world, and very low emitters. This obviously ticks boxes.”
IEEFA expects the deflation of renewable energy costs to continue over the coming decade, accelerating the realisation of stranded asset losses for aging and obsolete coal-fired power plants and other fossil fuel technologies. The record low US$13.50/MWh solar tariffawarded this week in Abu Dhabi underscores this point, given this record is 15% below the latest record low reached only a few months back.
Nearly 130 globally significant financial institutions have announced coal exit policies to date, with many now also starting to include tar sands and Artic oil and gas drilling exclusions.
“With Asian financial institutions also moving towards a more renewable future, further policy momentum away from coal and the fossil fuel – gas, is likely,” says Buckley.
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