One of the points often made about the unfolding climate crisis and efforts to contain the greenhouse gas emissions widely blamed for it is that the burden of responsibility should not fall on poor countries. Such countries, with a heavy reliance on agriculture, often of the subsistence variety, are seen as the most vulnerable to the effects of climate change. Industrialised economies, by contrast, owe their affluence in part to decades of fossil fuel usage which powered their development. The latter should be making the cutbacks, while the former can hardly be expected to make such sacrifices at this stage in their economic journey.
This seems to be the thinking behind Standard Bank’s adoption of a “coal-powered finance policy,” which it unveiled on Wednesday 31 July. Referring to the Paris Agreement to reduce emissions, Standard Bank said:
“Coal-fired power has historically been an important source of energy supply in several countries in Africa including South Africa, and the Paris Agreement recognises that emission reduction will take longer for developing countries. There is, therefore, a clear requirement for the bank in its financing of power projects, to balance the need for broad access to electricity, with the choice of technology used to mitigate the risks of climate change as embodied in the Paris Agreement.”
To that end, Standard Bank said: “To be eligible for direct finance, coal-fired power plants must meet maximum emission and plant size parameters that are linked to the level of development of the country in question.”
Broadly speaking, plants that exceed certain emissions levels and installed capacity will not be eligible for financing under any circumstances, while in other cases only projects in International Development Association (IDA) countries will be eligible, and below certain emissions thresholds, coal-fired plant projects can be funded anywhere.
IDA countries are extremely poor – in 2019, the threshold was a gross national income (GNI) per capita of under $1,145. In Africa, Standard Bank said these countries include: Benin, Burkina Faso, Burundi, Cameroon, Cape Verde, CAR, Chad, Comoros, DRC, Republic of Congo, Cote d’Ivoire, Eritrea, Ethiopia, The Gambia, Ghana, Guinea, Guinea-Bissau, Kenya, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Niger, Nigeria, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, South Sudan, Sudan, Tanzania, Togo, Uganda, Zambia and Zimbabwe.
So, effectively most countries on the continent. This could be a signal regarding Standard Bank’s intentions regarding “coal-powered finance”. The bank has a large African presence and its stated group purpose is “driving African growth”. It also has a significant Chinese shareholder base and Chinese investors are keen on Africa and not exactly adverse to coal. Now that it has adopted a policy on the issue, expect it to act on it.
Standard Bank also said that aside from minimum eligibility requirements, “direct finance of new coal-fired power generation in African economies requires enhanced due diligence” which will include assessments of power generation alternatives to coal.
What the bank is saying is that coal-powered projects will be subjected to more scrutiny than other projects. This holds out the prospect that projects that meet the eligibility criteria may be rejected on other grounds.
That is broadly in line with global trends. According to a recent report by consulting and accounting group PwC, coal in 2018 accounted for 23% of mining revenue generated by the world’s top 40 mining companies but only 15% of capital expenditure.
This is because banks are becoming increasingly reluctant to fund coal projects. Standard Bank has signalled that coal is not a fossil yet when it comes to financing, especially in very poor countries with pressing power needs. But the thresholds to access such finance are getting higher. BM