Published on May 15th, 2018 | by Joshua S Hill0
Barclays Declares “No Appetite” For Greenfield Thermal Coal Mining, Moves To Protect World Heritage Sites
May 15th, 2018 by Joshua S Hill
This article has been minimally edited to better reflect Barclay’s position.
Barclays, one of the four “Big Banks” in the UK, has silently made big news last month, shifting its policies regarding financing coal mining and coal-fired power plants, as well as declaring “no appetite” for finance for projects in World Heritage Sites or Ramsar Wetlands locations, and greenfield thermal coal mining.
Barclays, a leading British multinational investment bank and financial services company headquartered in London, issued two policy statements in April to key external stakeholders that modified the bank’s positions on financing mining, oil, gas, and power projects, and thermal coal mining operations, effectively halting all such financing in some situations — such as in and around World Heritage Sites or Ramsar Wetlands locations — and committing to reduce their financial exposure to coal projects over the medium term.
The bank declared in the first of two policy statements (PDF) it had “no appetite” for project financing that supports development or expansion of projects in World Heritage Sites and Ramsar Wetlands locations unless in both cases there is prior consensus that such development will not adversely affect the site.
All Corporate Banking and Investment Banking client activities will be subject to the new policy guidelines, focusing specifically on the mining, oil and gas, and major infrastructure industries. All project finance transactions are subject to screening by Barclays’ Environmental Risk Management (ERM) team which will check the project or asset in question against the World Heritage Sites list (1,073 sites worldwide) and the List of Wetlands of International Importance (2,306 sites worldwide). If a project or asset is found to be linked to such a site, Barclays declaration of “no appetite” for such projects will apply, unless mitigating factors are found, at which point the issue will be elevated to enhanced due diligence.
This move has been long in the making, according to Vicky McAllister, Director of Sustainability at Barclays.
“We have been in dialogue with WWF on this topic for a couple of years and participated in their research,” she told me via email. “It’s an issue that we did already consider in our due diligence processes but had not formalised in an external commitment. As part of on-going efforts to improve our transparency on [Environmental Social Governance (ESG)], we decided to publish this statement along with our position on the coal mining and coal power industry. We hope to publish more over the coming months on additional industries/themes.”
“The World Heritage Centre welcomes Barclays’ statement on World Heritage and Ramsar Wetlands,” proclaimed Mechtild Rössler, Director of the UNESCO World Heritage Centre. “While currently restricted to project finance transactions, the Centre believes this is an important step towards ensuring that Barclays capital is not funding activities which could impact World Heritage sites. We appreciate the intention of Barclays to further broaden the scope of the statement beyond project finance in the future and look forward to seeing an even stronger policy in the coming year.”
And, in fact, Barclays will be continuing its exploration of these sites and, as Vicky McAllister explained to be, Barclays “will investigate over the coming months expanding the scope of this statement to include other, project-linked financial services.”
“Barclays is committed to minimising environmental and social impacts occurring as a result of client activities. As outlined in the Statement, we will no longer provide project finance to activities occurring in or around WHS or RW sites. If we become aware of a client with operations in either of these sites, we will engage directly with the company on this issue, even if we are not being asked to finance the project in question.”
In addition to its commitment to protecting the Ramsar Wetlands, Barclays also published a lengthier, more in-depth policy statement regarding how it will do business with Corporate Banking and Investment Banking clients involved in the coal mining and coal-fired power sector. All such clients and their specific individual transactions will be reviewed on a case-by-case basis against a wide array of considerations ranging from adherence to the Equator Principles, use of efficient technology, and a client’s potential for stranded asset risk.
Unlike Barclays’ policies regarding World Heritage Sites and Ramsar Wetlands, its coal policy (PDF) is much more nuanced and detailed, describing specific policies for specific aspects of the coal industry.
For example, Barclays declared simply that it “has no appetite for project finance transactions for the development of greenfield thermal coal mines anywhere in the world” but had a much more detailed policy for mountaintop removal coal mining (MTR) given its legal recognition in the United States but the bank’s acknowledgement that this mining method “is also one that has been subject to intense political, judicial, and regulatory debate over the last decade.” As such, Barclays will “not directly finance MTR projects or developments” and will “apply enhanced due diligence to all credit and capital markets facilities involving clients which practice MTR.” Further, financing for companies which are significant producers of MTR-sourced coal will be provided “by exception only.”
Barclays also declared “no appetite” for project financing supporting the construction or material expansion of coal-fired power stations in high-income OECD countries (though such power plants utilizing carbon capture storage or sequestration technology will be considered on a case-by-case basis) or the construction or material expansion of coal-fired power stations in non-high-income OECD countries unless they use super-critical or ultra-critical technology — and such transactions will be subject to enhanced due diligence on a case-by-case basis.
Additionally, while Barclays will continue to provide general corporate financing for existing corporate clients that own and operate existing coal-fired power stations, the bank will review each of these arrangements on a case-by-case basis and, in instances where a company generates over 50% of its power from coal, Barclays will “engage with the client to understand its plans for transitioning to a lower carbon energy mix over the medium term.” Specifically, Barclays “expect such companies to manage environmental impacts in line with national, regulatory, requirements; use the best available technology appropriate to and available at the site location and demonstrate how the continued operation of such power stations aligns with host country NDCs.”
Finally, “Barclays will continue to reduce credit exposure to clients that derive the majority of their revenue from thermal coal mining and power generation clients where more than 50% of their power generation mix is coal-fired.” Barclays’ aim is to reduce its lending exposure over the medium term “as thermal coal declines in proportion to other power generation fuel sources globally.” However, as Barclays goes on to say, “If a client is involved in both thermal coal mining and power generation, the combined revenue of both activities would be considered and if it constituted the majority of total revenue, it would fall into this category.”
There are those who disagree with the decisions of banks and investment institutions that fail to cut-and-run from any and all coal mining and power generation — and, as I have said in the past, it’s a valid strategy and complaint. However, as I have also said in the past there are two options at hand, and Barclays has taken an active hand in the second of these options.
“We believe that engagement with clients on their own transition to a low carbon economy is preferable to simply exiting relationships,” Vicky McAllister said via email. “Barclays would like to help finance this transition and explore commercial opportunities in the green finance space.”
Additionally, Barclays will be actively seeking to better its coal policy in the next few months. “We welcome feedback on our statement and consider this the first stage in a longer journey,” Vicky McAllister explained to me. “We aim to collate feedback from stakeholders and will incorporate this into a review of the Statement over the coming months.”
Barclays has been working hard of late to modify its green offerings and policies, supported by its Green Product Framework which was developed in partnership with Sustainalytics, a leading environmental social governance (ESG) research and ratings company. Barclays has also launched a first-to-market green mortgage product and was the UK’s first bank to issue its own green bond.