To date, over 100 globally significant financial institutions have announced their divestment from coal mining and/or coal-fired power plants. When significant investors act, global momentum increases. New announcements are occurring on average every week.
One of the most recent to publish its policy on thermal coal financing is First Rand. The organisation says it recognises the urgent need to transition to energy sources which have a lower environmental impact and has identified climate change as a potential risk which needs to be assessed, managed and governed.
All stakeholders, as well as First Rand’s own operations, may be impacted by changing climatic conditions; or through legislative, regulatory or policy changes relating to climate change, such as carbon tax, or mitigation policies.
Scope and financing caps
The scope of this policy applies to the group’s thermal coal industry exposures, including direct exposure to revolving working capital, term lending and asset-based finance, and contingent exposures such as guarantees. The company’s definitions of thermal coal, the thermal coal industry and thermal coal financing can be found within this article. This policy will be reviewed annually.
The development of this policy considered a comprehensive review of the South African thermal coal sector and the economic net impact of transition to a low-carbon economy. The group takes a practical view of South Africa’s transition, given the current energy mix of approximately 90% coal, and the projected cost and timeframe associated with the transition. The group is cognisant that coal capacity is still needed in the short to medium term within the context of balancing social, economic and environmental considerations.
However, the group considers thermal coal financing for new capacity (greenfield mining or power generation) the most sensitive and high risk and will therefore limit new coal financing to below 0,5% of total group loans and advances. This, however, excludes Aldermore.
In addition, the total coal portfolio, which includes new coal financing, will, over the next five years, be limited to below 2% of total group loans, again excluding Aldermore. Going forward, lending to the coal industry is non- strategic and the group remains committed to a longer-term thermal coal divestment strategy.
Enhanced due diligence
All new thermal coal transactions are subject to an enhanced environmental and social due diligence, which requires clients to adhere to the most stringent industry best practices. These are outlined below. The group also encourages existing clients to implement these practices:
The group defines thermal coal, the thermal coal industry and thermal coal financing in the following way:
The group recognises two types of coal:
Thermal coal industry
Thermal coal financing
Basis of enhanced due diligence
The group’s enhanced due diligence requirements are based on the following best industry practices/standards:
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