A new standard for financial institutions says that if banks want a science based climate plan, they shouldn’t finance metallurgical coal expansion. Yesterday, the Science Based Targets Initiative (SBTi) published its Financial Institutions Net Zero Standard, which sets out what banks must do in order to have a science-based climate plan. One of these requirements is for banks to immediately stop financing all new coal expansion activities - including coal for steelmaking. While the standard is imperfect, it’s welcome as a sign of growing consensus that banks must immediately end finance for all coal, whether burned in a power plant, or a steel plant. 

Currently, just 11 banks have policies in place that put some restrictions on finance for metallurgical coal, even though the International Energy Agency (IEA) made it explicitly clear in 2021 that, in order for the world to reach Net Zero by 2050, no new coal mines should be built. And yet, according to the Metallurgical Coal Exit List published by German NGO urgewald, there are still 160 companies building 252 new metallurgical coal mines. All existing investment policies of banks still allow finance to flow to these coal developers, as these policies overwhelmingly covers just project finance, with no limitations on corporate finance for coal developers. 

What does SBTi say about metallurgical coal?

There are several requirements for a bank to be SBTi validated. One of which is that it must adopt a policy to ‘immediately end financial activities provided to projects and companies involved in new coal expansion activities, across the entire coal value chain’. The definitions of “new coal expansion activities” and “coal value chain” are key, but also contain a labyrinth of definitions within them.  Let’s break it down: 

New coal expansion activities are defined as: 

• New coal mines, extensions or expansions of existing coal mines 
• New unabated coal-fired power plants

Importantly, it only counts as an “expansion activity” if the Final Investment Decision on the asset is reached after the bank's policy is published. 

The coal value chain at a minimum is defined as: 

• Exploration, extraction, and the development or expansion of mines for all thermal coal* grades
• Unabated coal-fired power plants

*Thermal coal grades are defined as: 

• All coal that is not anthracite, or low- and medium- volatile bituminous coal (>69% Fixed Carbon). 
• Any coal is unclassified (i.e. the company doesn’t give any information about the coal grade)

However SBTi also states that the coal value chain should also include: 

• Exploration, extraction, and the development or expansion of mines for all metallurgical coal grades
• Mining services 
• Dedicated transport and logistics
• Processing, storage, trading
• Coke making
• Coal gasification
• Feedstock production
• Advisory services
• Lobbying
• Abated power plants (that use coal)

Because of SBTi’s definition of thermal coal - some (but not all) metallurgical coal is included in the minimum definition of the coal value chain. Metallurgical coal is not universally defined, which has led to some miners selling “metallurgical coal” to power plants. SBTi’s definition would likely exclude banks from financing the development of new mines with ambiguous coal grades, like for example Glencores Bulga Coal Mine extension in Australia, which seeks to develop both mine and met. 

The standard is clear, however, that a “coal company” is any company on urgewald’s Global Coal Exit List, or generates 10% of their revenue from the coal value chain - and thereby must not receive finance. They also encourage banks to use the Metallurgical Coal Exit List in this definition. 

Which brings us to a major limitation of this standard: The difference between “should” and “shall” is a major cause for concern, and leads to a grey area in the validation process where it should be crystal clear. The IEA said no new mines, and no mine expansions of any grade of coal. Phasing out 14% of global coal consumption should not be merely a recommendation, it is a requirement for an inhabitable planet. 

What must banks do instead? 

If SBTi-validated financial institutions chose to follow all the recommendations, it is a good start. However, in order to be truly aligned with climate science, banks must: 

• Use Urgewald's Metallurgical Coal Exit List, and Global Coal Exit List, and end all financial services for companies expanding any new coal capacity.

• Adopt policies to immediately end finance for companies building new, or expanding existing coal mines. Include all coal grades in scope.

• Require all coal mining clients to adopt a credible transition plan, that includes coal phase out dates by 2030 in OECD countries, and 2040 in non-OECD countries.