Dirty money

For the first time, banks have been ranked by how much they facilitate global warming. Anna Petherick asks how this data should be used.

James Hansen, climatologist and for 30 years the director of NASA's Goddard Institute for Space Studies, believes that halting emissions from coal would solve four-fifths of the climate crisis. In 2010 he was arrested outside the White House1 as he protested against mountaintop removal mining. He has also written2 to an impressive roster of heads of state, pressing for a moratorium on the construction of new coal-fired power stations. Now Hansen has a fresh list of targets for his anti-coal mission that should keep him busy into his eighth decade: the banks that lend to those who burn and mine the stuff.

A report3 released in December 2011 by BankTrack — a network of civil society organizations that investigates the banking industry — lays bare the worst offenders (Fig. 1). Surprisingly, maybe, it finds that banks' total investments in coal in 2010 were almost twice what they were before the financial crisis, in 2005, when the Kyoto Protocol came into effect.

Figure 1: The 20 filthiest financial institutions.
figure1

JPMorgan Chase financed more coal-fired electricity around the world between 2005 and 2010 than any other bank. The data, shown in millions of Euros, cover project finance and capital raised through investment banking and corporate loans, and has not been adjusted to reflect the size of the individual banks. Figure reproduced with permission from ref. 3, © 2011 urgewald, GroundWork, Earthlife Africa Johannesburg and BankTrack.

It goes into some detail on a topic for which information is scant. This is because banks tend to foster secretive cultures, instinctually reluctant to discuss how much money they make and the pricing and design of financial products through which they make money4. But it is also because they have a limited understanding of their own businesses. “Initially when I began this, I wondered whether the bankers were lying when they said they didn't know what was in their [investment] portfolios, or occasionally they'd say something contrary to what was actually in their portfolios,” says Heffa Schücking, the report's main author and director of urgewald, a German non-governmental organization. “But over the years I've come to the conclusion that they really don't know, sort of like subprime housing.”

Most financing of coal comes under the broad umbrellas of big, general-purpose corporate loans and investment banking (the issuing of corporate bonds and shares) — and not, as with renewables projects, within much more clearly defined 'project financing'. So not even the banks' own IT systems hold much data about the amount of money they have invested in coal as opposed to other arms of their big-energy-company clients.

Dutch financial consultancy, Profundo, to which BankTrack's task was outsourced, therefore had to mine the archives of trade journals and specialized financial databases, and compare them with companies' stock-exchange filings. Profundo, based in Amsterdam, searched for deal announcements between 93 banks and 71 firms over five years. The companies selected for its analysis were those that topped worldwide lists of coal production or coal-fired electricity capacity in 2010; together they accounted for 44.4% of production and 50.8% of coal-generated power.

What of the results? Schücking is eager to point out the misleading greenwashing of the coal-friendly banks' public statements. For each of the 20 banks in Fig. 1, the report cites public climate change slogans, such as first-place JPMorgan Chase's “helping the world transition to a low-carbon economy” and second-place Citi's “most innovative bank in climate change”. “When you talk to banks about this they say they finance more renewables projects than fossil-fuel projects, which is technically not a lie,” explains Schücking. “But renewables projects are smaller and tend to be financed with project-targeted financing [so the banks have a record of how the money was spent, unlike with coal].” Back in July 2010, many banks in Germany sent representatives to a meeting at which they were shown Profundo's preliminary data and asked for input regarding the analysis, says Schücking.

Of several banks contacted for this article, only Bank of America responded. As the biggest underwriter of coal projects in the United States, it is the sole subject of a consumer boycott and of a report entitled Bank of America: Risking Public Health and the Climate Briefing by the Rainforest Action Network, a non-governmental organization based in San Francisco. Bank of America spokesperson Britney Sheehan points out that the firm aims to cut its own greenhouse-gas emissions by 15% of its 2010 levels by 2015, and that it has scored well among banks on measurements of openness about its emissions. But those reductions will exclude the coal projects it finances.

It is hard to tell how much damning reports and protest actually shift policy. To be sure, Hansen's antics generate media coverage, and anti-coal protests in Germany have proven effective at cancelling 16 new power stations. Similarly, BankTrack's publication of genuinely new data gives all parties something to work from. But radical labels such as 'killer banks' (as one of the BankTrack report's subchapters is called) surely risk engendering a more defensive tone of public relations from coalmen and bankers. And that, in turn, may lead to more public confusion rather than to new-style decisions made in the boardroom.

The key challenge is to influence the coal industry where it is dirtiest. Some banks have accepted performance standards for the financing of new coal-fired power stations in the developing world. But these lack bite: the current standards have set an emissions-intensity ceiling of 850 g CO2 kWh−1; meanwhile the average intensity of all China's existing power plants is 800 g CO2 kWh−1. These days, two new coal plants are opened every week in China — and the country already creates twice as much coal ash by mass as it does solid urban waste. India's coal expansion is also breathtaking. In 2010, a new coal-fired power plant was approved for construction in India every two days — yet India's Official Comptroller and Auditor General stated in September 2011 that Coal India, the biggest coal producer in the world, lacks environmental permits for 239 mines run through seven of its coal-producing subsidiaries.

Perhaps a balanced two-pronged approach would work best. Non-governmental organizations and scientist-activists such as Hansen might better encourage a race to be cleanest by applauding the best performers as loudly as they deride the worst. On that note, a short statement in BankTrack's report votes German bank WestLB's coal policy the “most concrete” among banks. WestLB does not fund coal power stations without evidence of the physical space necessary for an economically viable carbon capture and storage plan. Hopefully more firms will join it.

References

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    James Hansen arrested with 100 others at mountaintop removal mining protest in DC. Huffington Post (27 September 2010); available via http://go.nature.com/G6d3FX.

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    Tett, G. Fool's Gold. How Unrestrained Greed Corrupted a Dream, Shattered Global Markets and Unleashed a Catastrophe (Abacus, 2009).

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Petherick, A. Dirty money. Nature Clim Change 2, 72–73 (2012). https://doi.org/10.1038/nclimate1381

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