Commitments by private sector banks to end dirty financing will ultimately fail to achieve the goal without action from governments, as they are the only entities that can prevent other, less scrupulous institutions stepping in with alternative funding, a leading banker has warned.
Two weeks ago, Standard Chartered pledged to no longer finance new coal power projects, a commitment made by 17 other major banks, according to the BankTrack project, an environmental pressure group that monitors loan commitments to polluting projects. But according to BankTrack, almost all the banks stepping out of coal are European-headquartered, with US-based PNC and US Bank and South African Nedbank the only exceptions.
Standard Chartered did not pull financing for the 14 projects in the pipeline when it made the announcement, although CEO Bill Winters said: “More than 1.1bn people still do not have access to reliable power but recent developments in technology mean that alternative sources are increasingly available to meet that need without the impact of coal-fired power on the environment.”
Olivier Osty, head of global markets at BNP Paribas, said it was up to governments to stop banks financing dirty polluting projects. “I don’t see who else can do it,” he told GlobalMarkets. “As banks we can only do what we’re able to do, and until governments step in, there will always be someone else ready to step in. I’d like to think that because we’ve stepped away, the cost of financing so- called ‘dirty projects’ has increased, but it’s hard to see that in [bond] spreads.”
BNP Paribas dropped thermal coal three years ago, and since then has pledged to finance no more new coal power plants. It has also committed to dropping “unconventional fossil fuels” — arctic oil exploration, shale extraction, tar sands, and related infrastructure such as pipelines.
This decision cost a lot of money — but without government action to stop other banks stepping in, it will have little effect, Osty said. “On sustainability, our CEO sets the tone in terms of what the bank is willing to finance, and we’ve taken pretty bold steps,” he said.
“Coming out of shale oil and gas means dropping a business where banks are very much present. The important thing is to stick to the goal of sustainable finance and not destroy the planet.”
The World Bank and International Finance Corporation have been slower to commit to culling coal than private sector banks in Europe. The US Treasury guidelines for multilateral development banks introduced under the Trump administration, say that the US vote should “help countries access and use fossil fuels more cleanly and efficiently”.
The IFC is mainly exposed indirectly, through its support for financial institutions in emerging markets.