MONDAY, MARCH 07, 2016
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JPMorgan Chase Joins Other Wall Street Banks in Moving Away from Coal

Coal_mine_Wyoming_JPMC.jpg

 

On Friday, JPMorgan Chase (JPMC) took a significant step away from financing coal. The bank updated its Environmental and Social Policy Framework's sections on coal and is now the fifth major U.S. investment bank to commit to transition away from financing the global coal mining industry. This policy update also builds on the bank’s 2014 policy announcement to reduce its financing for producers of mountaintop removal coal.

 

Here are the highlights:

  • Cuts lending to coal mining - The bank committed to reduce its credit exposure to coal mining companies worldwide, following similar policy changes at Bank of America, Citigroup, Morgan Stanley, and Wells Fargo last year.

  • Prohibits financing for all new coal mines - JPMC also committed to an immediate end to financing for new coal mines. This follows last year’s call by Anote Tong, the president of the climate-vulnerable small island nation of Kiribati, for a global moratorium on new coal mines.

  • Ends financing for coal-fired power plant construction in some countries - The policy update includes a prohibition on financing new coal-fired power plants in high income countries.

  • Addresses the global commitment made to the 1.5 degree climate target at COP 21 in Paris - JPMC’s policy now acknowledges the global commitment in Paris last December to limit climate change to 1.5 degrees C.

 

The policy is far from perfect and has significant gaps, including the following:

  • Reduces, but falls short of ending all financing for the coal mining industry - The bank has committed to reduce its lending exposure to coal mining companies over the “medium term.” This falls well short of an immediate end to coal mining finance and also does not address JPMC’s involvement in debt and equity underwriting transactions for coal companies, which remain important avenues for these companies to raise capital.

  • Does not prohibit financing for coal-fired power in low-income countries - JPMC has committed to end financing for new coal-fired power plants in high-income countries, although most of these countries (with the notable exception of Japan) are shutting down coal plants, not building new ones. In contrast, low- and middle-income countries such as Bangladesh, India, Turkey, and Indonesia, have plans for significant new coal-fired generating capacity, which would have severe consequences for the climate and public health. Distressingly, financing these projects would continue to be allowed by the bank’s policy, provided they meet efficiency technology thresholds.

  • Lacks specific targets for addressing coal-fired power capacity of the bank’s electric power customers - Encouragingly, JPMC states that it “expects that the proportion of coal-fired technology contained in power generation portfolios financed by the firm will continue to decline.” However, it will be important for the bank to go further and set quantitative targets and deadlines for reducing - and ultimately phasing out - the coal-fired capacity of these customers. These targets and goals should be aligned with the Paris Agreement’s goal of limiting climate change to 1.5 degrees C.

 

Overall, JPMC’s policy update is an encouraging sign that major banks in the U.S. and Europe continue to move away from financing coal. However, the emissions reductions needed to meet the 1.5 degree climate target leave little room for error and require a rapid transition away from fossil fuel-based energy sources. Therefore, it will be critical for JPMC and its peers to report on the implementation of these commitments and quickly ratchet up the ambition of these decarbonization goals in the coming years.

 

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