A growing number of investment firms have categorically stated they will no longer invest in the coal sector – an industry they believe contradicts the ethical responsibility every business has towards building a sustainable future for planet Earth.
The objective to eradicate coal completely is not a realistic short-term goal, particularly for developing countries, says Standard Bank Group, who’s recently published Fossil Fuels Financing Policy outlines a strategic approach that will continue to see the business selectively invest in coal, writes LAURA CORNISH.
The new policy – officially launched at a digital media briefing in December last year – is not aimed at encouraging coal investment but rather aims to showcase Standard Bank’s objectives when considering any coal-related investment as part of its efforts to improve its management of environmental, social and governance (ESG) risks, and contribute to the sustainable development of Africa.
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The Fossil Fuels Financing Policy says the following in its opening statement:
“Energy is essential in underpinning economic growth in emerging markets, specifically in Africa, where affordable and reliable energy access is fundamental to Africa’s development. As fossil fuels will likely remain key to ensuring energy security in many African regions requiring broad access to electricity as well as transportation, Standard Bank Group has taken a proactive approach regarding its position and defined prudent parameters for its involvement in fossil fuels.
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This is in line with [our] purpose of driving Africa’s growth and role of providing financial services to meet the needs of Africa’s people, businesses and economies.”
The bank will likely be scrutinised for its almost standalone approach on coal investment, when in reality, it is one of the few institutions taking a ‘smart’ approach to the energy reality many countries find themselves in. In essence, the policy showcases its objective to finance environment-responsible coal projects – based on a range of strict conditions including compliance with the Equator Principles, International Finance Corporation’s (IFC) Performance Standards and the World Bank’s Environmental, Health, and Safety Guidelines.
The policy covers the provision of financial products and services to:
- Thermal coal mining projects (new and expansions) and all associated mine-site activities (including planning, development, processing, rehabilitation and mine closure);
- Existing and new thermal coal mining corporates (where greater than 50% of revenue is from coal mining) involved in the ownership, development and operation of thermal coal mining assets; and
- Existing coal-fired power generation utilities (where greater than 50% of power generation is from coal fired power) involved in the ownership, development and operation of coal fired power generation assets.
Financing parameters (as outlined in the policy)
The financing parameters apply to exploration, extraction and processing of thermal coal. In evaluating thermal coal mining transactions, Standard Bank will consider, as appropriate, as part of its due diligence:
- The energy situation in the region and future energy demand in relation to government energy strategy, climate change, carbon commitments, and adaptation plans;
- Transition plans or initiatives that reduce a client’s carbon footprint and improve their environmental performance;
- Analysis of technically and financially feasible and cost-effective power generation alternatives that are available in the same industry and country;
- Compliance with the bank’s normal lending requirements, including the development of projects in compliance with the Equator Principles, International Finance Corporation (IFC) Performance Standards and World Bank Group Environmental, Health, and Safety Guidelines, and applicable laws and standards;
- Compliance with host country environmental and social laws, regulations and standards, including rehabilitation, closure planning and financial provision requirements;
- Compliance with international conventions, standards and treaties regarding greenhouse gas emissions in host country/region;
- Impact on human settlements, natural habitats and resources, as well as protected areas and how such impacts are mitigated;
- Effectiveness of mechanisms for tailings disposal, rock dumps, emissions and waste management;
- Health and safety practices and track record;
- Adequacy of environmental rehabilitation provisions;
- Accommodation and transportation of staff;
- Whether policies are in place regarding prevention of child labour or forced labour in their operations and associated activities;
- Whether headquarters are located in countries that are not under financial sanctions from UK, the European Union, the US or the United Nations;
- Opportunities for involvement of local communities, establishment of initiatives to benefit local communities as well as effective ongoing community stakeholder engagement;
- Level of disclosure and transparency towards all stakeholders; and
- ESG policies and performance track record, including review of ESG controversies.
“The publication of our Fossil Fuels Financing Policy is another important step forward for Standard Bank. We are fully aware that climate change is a material risk to our ability to generate value for all stakeholders over time, and to our purpose of driving sustainable development across the continent,” Wendy Dobson, Head of Group Corporate Citizenship at Standard Bank said during the briefing.
The bank believes that the transition to a lower-carbon economy should be just and fair to developing countries, and to affected stakeholders. The Paris Agreement recognises that this transition will take longer in developing countries, especially in Africa, where access to reliable and affordable energy continues to constrain socio-economic development.
The publication of the Fossil Fuels Financing Policy follows the release of the group’s first climate-related financial disclosure report, which is aligned to the principles and recommendations of the global Task Force on Climate-related Financial Disclosures (TCFD).
“We continue to engage with our clients to find solutions that enable them to understand and manage their climate risks, adopt good ESG risk practices, and grow their businesses sustainably,” Kenny Fihla, Chief Executive: Corporate and Investment Banking at Standard Bank Group concluded at the briefing.