Key points

  • Coal usage is a significant obstacle to achieving net zero and a just transition.
  • Banks’ coal divestment policies, which either limit, reduce or eliminate financing, are a critical tool.
  • Research shows that coal power plants owned by firms which are financed by banks with divestment policies are more likely to be retired.

According to the International Energy Agency (IEA),1 coal is the largest source of electricity generation, accounting for 36% in 2021, and the largest source of global carbon dioxide (CO2) emissions – 15 gigatonnes (Gt) in 2021. Coal usage is a significant obstacle to achieving net zero and a just transition.

The UN has called for coal usage to be phased out by advanced economies by 2030, with the rest of the world following by 2040. Countries in developing markets where the coal dependency remains high, such as Indonesia, China and India, face the hardest challenge to transition.

The Banking on Climate Chaos Fossil Fuel Finance Report 20232 showed that, of the world’s largest 60 banks, 47 have some form of a coal project financing exclusion policy in place. 39 also have at least a minimal exclusion/phaseout policy for coal financing at the corporate level, while 25 have coal phaseout measures in place but with varying levels of robustness.

Of the $13 billion in financing that went to the world’s 30 largest coal-mining companies in 2022, 87% was provided by banks in China. While financing to coal companies has declined overall since 2016, Canadian and US banks modestly increased financing to these companies between 2021 and 2022.

Of the financing to the world’s top 30 companies in coal power in 2022, 97% was provided by Chinese banks. These companies, which plan to expand coal power capacity, received $29 billion from the profiled banks in 2022. Only 20 banks participated in coal-power financing in 2022, down from 29 in 2021.

The data indicates that coal financing is dominated by Chinese banks. No Chinese bank has joined the Net-Zero Banking Alliance, whose members commit to setting a 2030 target for the most greenhouse gas-intensive sectors. Our research suggests that, generally, bank coal policies are more vigorous in Europe compared to the US. However, the robustness of individual policies varies greatly. Many policies have low thresholds, loopholes and vague commitments.

Nevertheless, we believe banks’ coal divestment policies are one of the key ways to reduce coal dependency.

The latest IEA report1 shows that the rollout of new unabated coal-fired power plants has been slowing but 175 gigawatts (GW) of capacity is under construction. The energy crisis has made the transition more complex. A major factor is the financing that is provided to the industry. Policies and financing for green sources of energy are also another key method to reducing dependencies on fossil fuels like coal.

A 2022 Harvard Business School3 study asked if banks’ coal divestment policies affect the supply of capital to the fossil-fuel industry and, if so, to what extent does this decrease investment in carbon-intensive activities and reduce carbon emissions?

Divestment policies should reduce the supply of capital to targeted projects and firms, leading to an increase in their cost of funding and/or rationing of their capital. However, material effects can only be realised if substitution to other sources of capital is limited.

The coal industry is highly capital-intensive and mostly relies on bank financing. There is a reliance on relationship-based bank lending as well as the large amount of capital required for coal projects. This should make it hard for companies to find replacement capital when lenders have divestment policies in place.

The study used global data covering the period 2009-2021 for 333 parent companies, representing 56% of worldwide coal production and 65% of installed coal power capacity. This covered 4,633 power plants and 1,514 coal mines globally. In the US, it covered 486 coal plants and contained detailed annual data on the emissions and the ownership of each plant. The conclusion of the study was that coal power plants owned by firms which are financed by banks with divestment policies are more likely to be retired.

As an engaged investor, we engage for change where we believe it to be in the best long-term economic interests of our clients.


1 IEA, Coal in Net zero Transitions, World Energy Outlook Special Report

2 Banking on Climate Chaos, Fossil Fuel Finance Report 2023

3 Can Finance Save the World? Measurement and Effects of Coal Divestment Policies by Banks, Daniel Green, Boris Vallee, Harvard Business School, 16 June, 2023


Newton responsible investment team

Newton responsible investment team

Responsible investment team


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