HSBC exit from thermal coal tightens financing tap even further for the sector

Thermal coal financing is set to become even more challenging with London-based Hong Kong and Shanghai Banking Corporation (HSBC) announcing that it is closing loopholes in its previous energy policy that allowed it to fund projects in developing countries.

In response to criticism from activists, the bank stated that it amended its policy aimed at phasing out coal support, removing the previous exemption of Bangladesh, Indonesia and Vietnam.

While the bank retains legacy coal assets in its portfolio, the latest move means that it will end its involvement in funding the proposed Long Phu 1 coal project in Vietnam.

It comes after US bank Citigroup moved to stop providing underwriting and advisory services to the sector while cutting its credit exposure in half by 2025. It plans to eliminate its exposure entirely by 2030.

Other major banks that have cut off funding for coal include Standard Chartered Bank and Japan Bank for International Cooperation.

Meanwhile, Morgan Stanley has tightened restrictions on coal-related financing activities, saying it will no longer directly fund new coal-fired power plants or thermal coal mines.

Eco-Business quoted Australian non-governmental organisation Market Forces’ research coordinator Jack Bertolus as saying that HSBC’s decision was another sign that the industry’s days were numbered.

“Banks know coal is by far the world’s most emissions-intensive source of power and the one most easily replaced by alternative, low-emissions technologies. Coal is the first one to throw under the bus,” Institute for Energy Economics and Financial Analysis director of energy finance studies, Australasia Tim Buckley said.

The news comes as the UK broke its record for the longest stretch without the use of coal-fired power generation since the industrial revolution began in 1882.

Data from the UK National Grid indicated that the country’s energy system has not used its coal plants for more than 438 hours, or more than 18 days.

This is due in part to lower power demand during the COVID-19 lockdown and greater use of solar power.

Just four plants that make up 2.1 per cent of the UK’s total power mix last year remain in operation as the UK moves towards a total ban on coal generation from 2025.

Energy and carbon consultancy RepuTex has also flagged that Australia could source 90 per cent of its electricity from renewable sources by 2040 while keeping bills in check if the Australian Energy Market Operator’s (AEMO) more ambitious “step change” scenario is adopted.

The step change scenario uses a carbon budget in line with the Paris agreement but will require federal policy to encourage investment in new renewable energy generation before ageing coal-fired plants close.

Even under current policies, Australia would reach 50 per cent renewable energy by 2030 and 75 per cent by 2040.

South Australia is significantly ahead of the pack with AEMO noting that renewable energy could make up 87 per cent of the state’s electricity generation by 2024.

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