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May 01, 2012

US Banks Receive Failing Grades for Financing Coal
    by Robert Kropp

While most of the nation's largest banks have publicly stated commitments addressing mountaintop removal coal mining and coal-fired power generation, the financing of such projects continues.

SocialFunds.com -- A report published in December by BankTrack, a Netherlands-based nongovernmental organization (NGO), surveyed the financing by banks of new coal-fired power plant construction. The report stated, "While banks are employing a lot of 'climate speak', this is more or less a smoke screen to continue their financing of the coal industry."

The report found that the four banks providing the most financing of coal-fired power plant construction are based in the US.

The third annual coal finance report card published this week, by BankTrack, Rainforest Action Network (RAN), and the Sierra Club, studies the financing by US-based banks of mountaintop removal coal mining and coal-fired power generation. The report examines bond and loan underwriting transactions undertaken by the banks between January 1, 2010, and March 1, 2012.

"An increasing number of US and European banks are waking up to the environmental, social, regulatory and reputational risks that arise when doing business with the coal industry," the report states. Yet among the US banks included in the study—JPMorgan Chase, Bank of America, Citi, Wells Fargo, Goldman Sachs and Morgan Stanley, as well as PNC and GE Capital—the stated policies are too often at odds with actual lending practices.

For example, the report reveals, Bank of America has publicly stated it intention to "phase out financing of companies whose predominant method of extracting coal is through mountain top removal." Yet at present, Bank of America underwrites more than 43% of mountain top removal coal mining in Appalachia. Likewise, referring to financing coal-fired power generation, Bank of America has announced that it has committed to reducing emissions in its utilities portfolio. But according to the report, "Bank of America has regressed in this policy area." The bank abandoned its emission reduction policy in 2009, and told the report's authors that it aspires to be the "number 1 underwriter of coal power."

While Bank of America topped the report's list of worst banks on coal financing, the other banks included did not fare much better. The study found that discrepancies between stated policy commitments and actual lending practices exist at most of them, and a few—Goldman Sachs, Citi, Bank of America, and GE Capital—actually own coal-fired power plants.

The enhanced exposures to risk associated with financing coal production include regulatory uncertainty and community opposition. In addition, the report details several failed investments that in some cases are likely to lead to losses in the hundreds of millions of dollars for banks.

The recommendations offered by the report are straightforward. No more financing of new coal-fired power plants or mountain top removal. In addition, banks should not support companies seeking to build infrastructure for exporting coal. Banks should, on the other hand, support renewable energy and energy efficiency projects.

"Coal is the ultimate subprime investment for the climate," Amanda Starbuck of RAN stated. "We cannot solve climate change if banks continue to prop up this risky and outdated industry. When it comes to protecting our air and drinking water, the health of our communities, and our climate we don’t grade on a curve."

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