Nearly 130 financiers are now refusing to back thermal coal

The odds are stacked against the thermal coal sector thanks to falling demand, increasingly negative public opinion and difficulties in raising capital, and with the economic impact of the COVID-19 pandemic, things are not looking any better.

Securing credit for thermal coal developments has become increasingly difficult, with Citigroup the latest financial institution moving to halt all services by 2030.

The third largest bank in the US said in a statement that it will 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.

“Citi recognises that emissions from fossil fuel sectors in particular must be drastically reduced in the coming decade,” the bank noted.

“The shift away from fossil fuels in pursuit of renewable and other sources of low-carbon energy will have a significant effect on clients in coal-fired power generation, coal mining and certain segments of the energy sector.”

Citi joins Japan’s Sumitomo Mitsui Banking Corporation (SMBC) and the Mizuho Financial Group, both of which announced new coal financing restriction policies last week, as did South Africa’s ABSA bank.

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The Institute for Energy Economics and Financial Analysis (IEEFA) noted that including ABSA, there were now 127 globally significant financial institutions that have announced coal exit policies since 2013.

It added that Citi’s move was a significant update of its very weak coal restriction policy that it first introduced in 2015.

And it is not just financial institutions, governments and corporate leaders are also stepping – rather boldly in some cases – away from thermal coal.

South Korean President Moon Jae-in has moved to implement his Green New Deal after the Democratic Party won an absolute majority in the company’s parliamentary elections last week.

Under the policy, South Korea has pledged to reach net zero emissions by 2050 through large-scale investments in renewable energy, introducing a carbon tax and the phase out of domestic and overseas coal financing by public institutions.

Meanwhile, the Ayala Corporation of the Philippines and Austria’s Verbund AG have also announced their exit from coal.

The latest moves add to global fund manager Blackrock’s decision in January 2020 to divest thermal coal mining exposures from its $US1.8 trillion ($2.9 trillion) of actively managed funds.

Financial institutions were reading the state of play long before the economic lockdown. And the COVID-19 pandemic has provided some time for everyone else to catch up.

Signs that demand is falling became apparent even before the COVID-19 outbreak.

In March, the Jakarta Post reported that Indonesia’s Energy and Mineral Resources Ministry might lower the country’s coal production target this year due to a fall in Chinese demand.

Additionally, Australia’s Department of Industry, Science, Energy and Resources noted in its latest Resources and Energy Quarterly that India was expecting to reduce its thermal coal imports by 2.2 per cent per annum until 2025 as it ramped up domestic production.

Vietnam’s National Steering Committee for Power Development has also advised the government to scale down its coal plans and that 15 gigawatts of planned power projects should be abandoned due to the difficulty in securing finance.