Globally significant financial institutions distance themselves from coal

Globally significant financial institutions distance themselves from coal | Insurance Business Australia

Environmental

Globally significant financial institutions distance themselves from coal

Report identified prominent trends redefining capital markets

Environmental

By
Roxanne Libatique

Over 200 globally significant financial institutions have stopped supporting the coal industry, according to the Institute for Energy Economics and Financial Analysis’ (IEEFA) latest report.

The report noted that it took nearly six years for the first 100 institutions to adopt coal exclusion policies. However, the number has since doubled in just over three years.

Christina Ng, debt markets leader for Asia Pacific at IEEFA, identified two prominent trends redefining capital markets.

More financial institutions commit to investment policies that are moving away from fossil fuel; and
Many institutions revise their policies and strengthen them as the market becomes more knowledgeable about climate risk as a source of systematic risk to the global financial system.

“Institutions are getting tougher on what they will finance, and they have identified coal as a risky investment. They see climate risk as a financial risk,” Ng said. “Interestingly, it’s not the largest asset managers who are leading the way. It’s more the medium-sized ones who recognise their duty to clients. This is a reflection that the market is learning and learning fast amid regulators getting tough on greenwashing. Collectively, the whole finance ecosystem is working together to find where the issues are.”

Insurers and reinsurers leaving the coal industry

Many insurance companies, which had been acting as risk managers and underwriters for coal projects, have also been rapidly shunning coal.

The IEEFA report found that 51 globally significant insurance and reinsurance companies have established a formal coal exit policy, with the number having more than doubled since organisation started reviewing global coal exclusion policies in 2019.

“Over the last two years, there has been a substantive rise in the number of insurers/reinsurers with coal exit policies. In our list, 30 insurance companies either announced a coal exit policy for the first time or upgraded their policy in 2021 and 2022,” the report said.