Non-profit organisations step up pressure for action and concrete implementation plans.
M&G has joined a series of asset managers pledging to phase out coal from its investments but still faces criticism for its plans.
NGO Reclaim Finance reprimanded the UK asset manager for the long period it grants coal companies before divesting, which it said is in opposition with what is required by climate science.
M&G’s new coal position means the firm is committed to reducing its exposure to unabated coal by 2030 in OECD countries and the EU and by 2040 across the rest of the world.
Although this is broadly in line with UN guidance, Reclaim Finance notes that firms operating outside the OECD are given up to three years by M&G to come up with phase-out plans before being subject to exclusion and divestment. Further, the NGO says M&G does not provide sufficient clarity on the commitments expected of investee firms during engagement.
Lara Cuvelier, Sustainable Investments Campaigner at Reclaim Finance, commented: “It’s a shame that M&G is still leaving up to three years to these companies, which is at the opposite of what is needed to start transitioning.”
At the same time, the UK asset manager announced its membership in the Powering Past Coal Alliance (PPCA), a coalition of national and sub-national governments, businesses and organisations which commit to accelerate the low-carbon transition.
“I urge all OECD countries to commit to phasing out coal by 2030, and for non-OECD countries to do so by 2040. Science tells us this is essential to meet the Paris Agreement goals and protect future generations,” said UN Secretary-General Antonio Guterres in a video message to the alliance’s summit this week.
Net zero emission pledges by financial institutions are increasing, with Citi’s being the latest by a bank. This leaves Wells Fargo and Goldman Sachs as the last two major US banks without a net zero pledge, NGO Sierra Club said.
Non-profit organisations have claimed that the commitments act as a shield for inaction.
Patrick McCully, Climate and Energy Director at Rainforest Action Network, commented: “Vague net zero announcements for 2050 – an entire generation into the future – are masking financial institutions’ refusal to take decisive action now.”
According to research by NGO Urgewald, Citi is the fourth largest coal lender (US$13.5 billion) in the world. The top three are Japanese banks: Mizuho Financial Group (US$22 billion), Sumitomo Mitsui Banking Corporation (US$21 billion) and Mitsubishi UFJ Financial Group (US$17.9 billion). Vanguard leads the list as biggest investor in coal worldwide with holdings of almost US$86 billion.
Since the adoption of the Paris agreement 2015, 35 banks have provided US$2.7 trillion in lending and underwriting to the fossil fuel industry, with annual fossil financing increasing each year, a group of NGOs wrote in the 2020 report ‘Banking on Climate Change’.
A recent survey by Candriam, an affiliate of New York Life Insurance Company, has shown that some banks have taken action in terms of environmental disclosure.
It highlighted some progress by banks which join initiatives such as the UNEP FI’s Principles for Responsible Banking.
The principles are a framework for a sustainable banking system which has been joined by 214 banks.
The asset manager engaged with financial institutions to determine whether their statements have begun to improve disclosure and practices.
It began to engage with 27 banks and six insurers in 2019. The results of its engagement campaign showed a strong correlation between institutions declining to join climate initiatives also suffering from poor environmental policies and practices.
Candriam found that several financial institutions increased funding for fossil fuels by more than US$50 billion each since the Paris Agreement. Within this group, eight also scored poorly on its comprehensive score, reflecting a company’s transparency and the policy put in place, the survey said.
Of these eight high-risk organisations, five declined to respond to the asset manager’s questions. Only one institution assessed as high risk was also a signatory of an initiative.
“This demonstrates that the companies which make strong public commitments are at least heading in a more positive direction,” the survey noted.
Lucia Meloni, Lead ESG Governance Analyst at Candriam, told ESG Investor that the financial sector is waking up. She pointed specifically to rising pressure by NGOs and regulation which leads to more disclosure by financial institutions.
At the upcoming AGM season, Meloni explained that Candriam will act as a proactive and positive investor.
“We don’t want to blame any financial institution. The concrete plan is to engage even more with these companies and if we see a resolution, we will vote for more environmental risk disclosure.
“This year we expect to come across less than 10 shareholder resolutions,” she added.
Among these is a climate resolution at HSBC filed by NGO ShareAction, which is asking the bank to detail a strategy with short-, medium- and long-term targets how they want to achieve their net zero pledge in line with the Paris Agreement.
The Coal Policy Tool by Reclaim Finance tracks announced coal policies. Out of 254 institutions with a coal policy, only 19 are ‘robust’, it says on the tool’s website.
“The vast majority of banks’ coal policies have so many loopholes that their impact is almost meaningless,” believes Yann Louvel, Policy Analyst at Reclaim Finance.