The investment arm of the world’s seventh-largest bank, BNP Paribas, announced plans this week to implement an enhanced coal-exclusion policy which will tighten the company’s exclusion policy on companies engaged in mining thermal coal and generating electricity from coal.
On Thursday, BNP Paribas Asset Management (BNPP AM) revealed that, starting at the beginning of 2020, it will exclude all companies that derive more than 10% of their revenue from mining thermal coal and/or account for 1% or more of total global production: The global production limit is intended to ensure the policy captures companies “whose share of revenue from coal is below 10%, but which nonetheless account for a meaningful level of production on an absolute basis.” When January 1, 2020 ticks over, this could see the group divest itself from as much as $1 billion in coal assets and investment.
Further, power generators whose carbon intensity is above the 2017 global average of 491 gCO2/kWh will also be excluded, and BNPP AM WILL subsequently follow the Paris-compliant trajectory for the sector as determined by the International Energy Agency (IEA) in its Sustainable Development Scenario which requires power generators’ carbon intensity to fall to 327 gCO2/kWh by 2025. and BNPP AM will, therefore, demand that companies reduce their carbon intensity between 2020 and 2025 at a rate consistent with this, and will exclude those that fail to do so.
“From an investment perspective the outlook for the coal industry looks increasingly uncertain as less carbon-intensive fuel sources, in particular renewables, become ever more competitive,” said Mark Lewis, Global Head of Sustainability Research at BNP Paribas Asset Management. “The main renewable technologies already compete favourably with fossil fuel power generation, and in the best locations for wind and solar globally, new build costs are actually below those of existing fossil-fuel plants. The trend will continue as costs for all renewable technologies continue to fall.”
The company’s rationale for excluding thermal-coal miners and coal-fired power generators is outlined in the company’s new policy: “to take a significant step towards our goal of aligning our portfolios with the Paris Agreement by 2025,” and “to reduce the economic risk in our portfolios as coal becomes increasingly uncompetitive as a fuel for power generation.”
The move is part of the BNP Paribas Asset Management’s commitment to tackling climate change and its 2025 target of aligning its portfolios with the Paris Agreement goal of keeping temperature rises well below 2°C above pre-industrial levels. Further, however, BNP Paribas acknowledges that its new policies will also reduce the economic risk in its portfolios, describing coal as becoming “increasingly uncompetitive as a fuel for power generation.”
BNP Paribas will consider exceptions “for those miners and power generators that make credible commitments to reducing their coal-based activities to levels consistent with the Paris Agreement within the required time frame.” This has been a consistent refrain from financial institutions implementing new coal exclusion and divestment policies, and as BNPP AM explains in their press release, they are seeking to “[acknowledge] the importance of encouraging companies to reduce their dependence on coal mining and coal-fired power generation in order to align their activities with the Paris Agreement.” BNPP AM will assess the “credibility of commitments” based on “quantitative and qualitative criteria, including disposal plans for coal assets or acquisition plans for lower-carbon generation capacity, and the extent to which management are prioritising a lower-carbon business model.”
Further, exemptions will only be granted on a half-yearly basis, and companies demonstrating their commitment to the policy will be expected to comply within two years.
The news was unsurprisingly welcomed by experts and campaigners around the world.
“BNP Paribas Asset Management is clearly showing the way to its competitors who hide behind their clients’ responsibility to not take any climate action, but also to the whole BNP Paribas Group, which continues to finance climate change through its loans and financial services to the coal sector,” said Lucie Pinson, European coordinator for the Unfriend Coal campaign and Senior campaigner with the Sunrise Project, speaking via email. “BNP Paribas must align itself with the best practices of these subsidiaries and put an end to all support for developers of new coal-fired power plants. Finally, the climate cannot be satisfied with policies applied solely to active management and it is urgent that major managers such as BNP Paribas Asset Management tackle the problem of increasingly passive management, whose absence of a driver leads us straight to a trajectory well above 2°C.”
Pinson also highlighted the possibility that BNPP AM’s failure to add a second criteria for the mining sector — a criteria which would exclude companies based on their absolute activity in the coal sector, and consequently on its concrete absolute real impact on climate — may allow some companies to slip through the cracks despite an important coal power activity or even despite developing some coal plants.
“BNP Paribas Asset Management announcement is another bang of the death drum for coal,” added Yossi Cadan, Senior Divestment Campaigner at 350.org. “Here we have one of the world’s largest asset managers announcing a strong coal divestment policy in its active funds – this is stronger than AXA IM’s announcement in December 2017, which was the first large asset manager to divest from any subset of coal. This is a proof point showing what asset managers including BlackRock can proactively do to save us from climate catastrophe.”