JP Morgan (NYSE:JPM) joins big banks shunning coal finance
It doesn’t take long for financial institutions to start acting like a herd. “We believe the financial services sector has an important role to play as governments implement policies to combat climate change,” said JP Morgan in a policy statement on its website published last week.
JP Morgan Chase & Co (NYSE:JPM) – as it is formally known – became the latest big bank to shun coal investment last week, announcing that it would no longer finance new coal mines around the world. ‘Divestment,’ it seems, is no longer a scary and inappropriate word for bankers to embrace.
The New York bank is ending its support for new coal-fired power plants being developed in the more than 30 high-income countries belonging to the Organization of Economic Co-operation and Development, or OECD. Among the financial institutions already embracing such policies are Bank of America (NYSE:BAC), Citigroup Inc (NYSE:C), Morgan Stanley (NYSE:MS) and Wells Fargo & Co (NYSE:WFC).
Coal is increasingly losing its appeal as an energy source among global considerations on climate risk and tougher standards on emissions. According to data compiled by Bloomberg, the combined market capitalization of coal miners in the United States is now less than $7 billion, a serious nose-dive on the $74.4 billion it measured five years ago – in 2011.
JP Morgan said it expects its business to reflect “the decline of coal as an energy source.” The bank said it plans to shrink its exposure in the medium term to those companies generating most of their revenue from coal mining and sales.
JPMorgan has been one of the top 10 backers of coal-fired power plants and its previous limits on coal financing were confined to potentially eye-catching and contentious operations such as mountain top mining, where large parts of a mountain or ridge are removed to extract coal.
Now, the bank is to maintain corporate lending relationships with big mining groups that produce a range of commodities including coal, but will not provide specific project financing to develop new coal mines.
It is not just coal mining that attracts the attention of JP Morgan in its environmental and social policy statement. Child labor is also on its list of “prohibited transactions” in the new version of its policy published on its website.
These latest steps by one of the world’s biggest banks add credence to the view that Environmental, Social and Governance (ESG) concerns are moving to the forefront of mainstream investment at quite a pace in 2016.
Investors have been filing a growing number of shareholder resolutions with large U.S. energy companies urging them to explain how they plan future competitive strategy away from fossil fuels.
The investment market value of the coal holdings of major institutional investors was also rocked by poor performance in the fourth quarter of 2015. The 25 top institutional holders of coal held positions worth about $2.30 billion as of the end of the fourth quarter 2015, down from $2.84 billion in the prior quarter and down from $7.42 billion a year-ago.
“Of the top 25 investors in coal that held positions in the fourth quarter of 2014, only two have seen the value of their positions grow, and several of the top investors saw their coal positions shrink by more than 80 percent”, according to SNL data. SNL Financial combines analysis and in-depth data in real time for the banking, financial services and insurance industries.
Since the third quarter, the value of SNL Energy’s coal index has decreased 32.8 percent while the S&P 500 index has climbed 3.1 percent in the same period, said Taylor Kuykendall and Junaid Daher for SNL.
Dina Medland is an independent writer, editor and commentator with a strong focus on issues around corporate governance, ethics, the workings of the boardroom and sustainable business. She is on the team of contributors to @ForbesEurope and is an ex-Financial Times staff member who has been a regular contributor in recent years. Further details about her background and a portfolio of work – including her commercially sponsored blog ‘Board Talk’ are available on her website http://www.dinamedland.com