Sumitomo Mitsui Financial Group’s decarbonisation pledge came a day after Mizuho’s. Activists say if loopholes built into the lenders’ new policies are exploited, the banks could keep funding coal regardless.
Two major Japanese banks that are among the biggest funders of coal power have announced that they would no longer back new projects that burn the world’s dirtiest fossil fuel.
A day after Mizuho Financial Group released its new policy to mixed reactions from environmentalists, Sumitomo Mitsui Financial Group followed suit on Thursday (16 April), announcing it would stop lending to new coal-fired power plants from 1 May.
Revealing its new stance on coal financing on Wednesday, Mizuho—the world’s ninth-largest financier of fossil fuels—said it would halve its 300 billion yen (US$2.8 billion) in loans to coal power projects by 2030 and reduce the sum to zero by 2050.
While the bank said it would no longer invest in new coal-fired power plants, environmentalists are concerned that loopholes built into the policy will enable continued support for coal through corporate finance.
Specifically, the exceptions in the new policy will allow Mizuho to keep financing coal through loans and underwritings it provides to developers with other business interests besides coal power, as well as through shares the bank holds in such companies, said climate activism group 350.org.
“Mizuho would say that if they know the money will go to the construction of new coal-fired power plants, they will no longer provide it. But it is hard to tell how corporations will use the money if it is provided as corporate loans as opposed to project finance, when the lender knows where the money goes,” Eri Watanabe, 350.org’s Japan campaigner, told Eco-Business.
Mizuho does, however, list coal mining as a sector with high transition risks, saying it will confirm how its business partners deal with such risks, said 350.org.
Mizuho’s peer, Sumitomo Mitsui, has left similar loopholes that would allow continued lending to coal power projects. Whether both banks will stay invested in Vung Ang 2, a controversial 1,200-megawatt coal-fired power plant in Vietnam, is up in the air. 350.org said that Mizuho’s policy, which takes effect only in June, could mean it will not pull out of Vung Ang 2.
As for Sumitomo Mitsui, Watanabe said it is unlikely to withdraw because its new policy “contains loopholes that enable it to keep supporting ultra-supercritical coal power plants”. Ultra-supercritical coal power plants burn less coal per megawatt-hour, leading to reduced emissions, higher efficiency and lower costs.
Mizuho, Sumitomo Mitsui and three other Japanese banks behind Vung Ang 2’s construction—Japan Bank for International Cooperation, Mitsubishi UFJ Financial Group and Sumitomo Mitsui Trust Bank—have been slammed for supporting the contentious project.
Mizuho’s new policy comes two weeks after an announcement by some shareholders that they intend to back a motion urging the financial group to reduce its financing for coal and other fossil fuels.
Takayoshi Yokoyama, 350.org’s Japan representative, said: “We are glad to see the announcement by Mizuho that it will not provide financing or investment that will be used for the construction of new coal-fired power plants. Mizuho’s move to tighten its climate policy is a needed response to the growing voices of environmental groups, young people in Japan and investors.”
However, the bank’s policy revision remains inconsistent with the Paris climate goal of keeping global heating to well below 2 degrees Celsius, he said. Last year, Mizuho signed the United Nations Principles for Responsible Banking, pledging to align its business strategy with the Paris Agreement and the Sustainable Development Goals (SDGs).
Faced with global pressure to act on global heating as well as the risk of stranded assets, a growing number of lenders have recently shifted away from coal. Both Oversea-Chinese Banking Corporation (OCBC) and Standard Chartered Bank have pulled out of coal projects in the region, including Vung Ang 2, drawing praise from environmentalists.
“While Mizuho’s new policy on coal-fired power plants is a step forward, the bank is far behind its international peers, which have adopted more comprehensive policies regarding coal phase-out. Those policies apply to not only project finance, but also corporate finance,” noted Watanabe.
Fears that Mizuho’s lending to corporates could undermine its commitment to phasing out coal lending aren’t unfounded. Between 2017 and September 2019, the bank provided US$31 billion in loans and underwritings to more than 250 coal developers worldwide, said Watanabe.
Although the coal industry is in decline in the developed world, Japan appears reluctant to move away from it. Among members of the Organisation for Economic Cooperation and Development (OECD), an association of wealthy nations, Japan was among the biggest drivers of new coal power last year.
Since the Paris Agreement was signed, Japanese biggest banks have poured US$282 billion into fossil fuels, revealed a report released last month. With US$103 in investment, Mizuho ranks as Japan’s second-largest financier of fossil fuels, after Mitsubishi UFJ Financial Group. The latter stopped financing new coal power projects last year.
Beyond Japan’s borders, its banks are behind 24.7 GW of coal power, larger than the entire coal fleet of Australia. In developing Asia, Japan is funding coal power plants so polluting they would fall short of the nation’s own domestic emissions standards.
The announcements by Sumitomo Mitsui Financial Group and Mizuho come on the heels of Japan’s failure to ratchet up its already unambitious commitments to reducing carbon emissions. In a year when countries are expected to submit tougher national climate targets, this has drawn heavy criticism from experts as well as architects of the Paris climate deal.