TODAY’S STUDY: BANKS ON COAL

U.S. Banks at the Bottom of the Class; Coal Finance Report Card 2012

May 2012 (Rainforest Action Network and Sierra Club)

Introduction

From the cradle to the grave, coal is a risky business. Each stage in the life cycle of coal–extraction, transportation and combustion–presents increasing health, environmental, reputational, legislative and financial risks. Burning coal to make electricity is the largest source of carbon pollution in the United States, and the U.S. is the 2nd largest coal producer in the world. Coal-fired energy generation is responsible for pollutants that damage cardiovascular and respiratory health and threaten healthy child development. To protect our climate and public health, the country must decrease its reliance on coal while building demand for a clean energy economy. Coal mining, burning, and storage all carry significant risks to public health and to the climate. No bank or power utility should invest even one more dollar in coal.

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Coal not only represents serious social and environmental risks, but it also poses a financial risk for those who invest in it. The fluctuations in domestic coal markets mark an uncertainty for coal’s future role as a cheap or reliable fuel source. In addition, there is unprecedented regulatory uncertainty in the areas of coal mining and coal-fired power production, and significant litigation challenges for proposed coal export terminals. As shown in this report, in recent years several investors have made the wrong bet on coal and lost big sums of money in the process.

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Key Findings

This is the third annual coal finance report card conducted by Rainforest Action Network (RAN), the Sierra Club and BankTrack. In the last two years, the report reviewed the top banks exposed to mountaintop removal coal mining, and analyzed their policies in dealing with the controversial practice. This year, exposure to and policies focused on coal-fired power plants (CFPP) have been added to the report card. In the last three years, RAN, the Sierra Club and BankTrack have found that an increasing number of U.S. and European banks are waking up to the environmental, social, regulatory and reputational risks that arise when doing business with the coal industry. In order to address these risks, banks have developed an assortment of enhanced diligence processes around such transactions and in some cases have set limits as to the amount of exposure they are prepared to accept.

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The Coal Finance Report Card 2012 sets out to identify the exposure of banks to some of the most controversial coal mining companies and to the riskiest coal-burning utility companies in the U.S. The report card focuses on two specific aspects of the coal industry that have come under increased regulatory scrutiny in recent years as a result of public pressure and litigation: mountaintop removal coal mining and coal-fired power generation. In addition, it assesses the range of approaches taken by the banking sector to address the risks associated with these practices.

The banks examined in this report are the largest six U.S. banks, based on total assets as of March 31, 2011, JPMorgan Chase, Bank of America, Citi, Wells Fargo, Goldman Sachs and Morgan Stanley, as well as two banks with a significant history of exposure to the coal industry, PNC and GE Capital.

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Banks own a surprising number of coal-fired power plants. Whether it is Citi (Powerton and Joliet), Bank of America (Boardman), Goldman Sachs (Cogentrix), or General Electric (Homer City) their relationship to and control over these dirty dinosaurs is something they don’t publicize or easily admit to.

This report finds that the top 5 worst banks on coal financing are: 1. Bank of America 2. JPMorgan Chase 3. Citi 4. Morgan Stanley 5. Wells Fargo

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These findings are based on Bloomberg data of each bank’s number of transactions with mountaintop removal and coalburning utility companies from 2010 to 2012.

In addition, this report has graded each bank on its mountaintop removal (MTR) and coal-fired power plant (CFPP) policies with an A-F criterion. Since each bank treats its mountaintop removal coal mining investments and policies differently from its coal fired power plant investments, banks are given multiple grades to accurately reflect their roles in different parts of the coal sector...

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Conclusion and Recommendations

As this report reveals, most of the banking sector coal policies reviewed focus solely on the financial risks posed by coal. However, this report urges the country’s leading banks to take serious their climate and energy leadership, and the increasing environmental and health risks posed by their energy investments. The policies reviewed in this report reveal that there is no lack of words spent by banks on how to deal with the climate and environmental health risks of the coal industry; what is lacking are serious policies that are implemented in earnest. Continuing to be a major financier of coal is not going to save banks’ hard-won reputations, support their long-term financial stability or protect our climate.

The first step is for banks to assess and report on the carbon emissions associated with their loans. The methodology for this already exists. The second step is for banks to establish ambitious emission reduction targets across their lines of business. Our organizations are committed to working with the banking sector to achieve these.

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Rainforest Action Network and the Sierra Club advocate the following policies for all financial institutions:

☐☐ No financing for companies pursuing new coal-fired power plants and life extending retrofits of existing coal fired power plants.

☐☐ No financing for companies engaged in mountaintop removal coal mining.

☐☐ No financing for companies pursuing coal export infrastructure.

☐☐ Shift the balance of energy financing to support renewable energy generation and energy efficiency that is less threatening to our health and environment.

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