Policy & Practice: 2011 Reportcard on Banks and Mountaintop Removal

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Rainforest Action Network and the Sierra Club’s 2011 report card, Policy and Practice, ranks ten of the world’s largest banks on their financing of mountaintop removal (MTR) coal mining projects and lending policies. The report card reviews the financing practices of Bank of America, Citi, Credit Suisse, Deutsche Bank, GE Capital, JPMorgan Chase, Morgan Stanley, PNC, UBS and Wells Fargo.

Mountaintop removal is a mining practice where explosives are used to remove the tops of mountains to expose thin seams of coal. Once blasted, the earth from the mountaintop is typically dumped into neighboring valleys, which poses significant threats to water quality in Appalachia and undermines the objectives and requirements of the Clean Water Act. According to a 2005 environmental impact statement, nearly 2,000 miles of Appalachian streams have already been buried or contaminated.

Several banks in the U.S. and in Europe have adopted policies that limit, and even end their financing of this environmentally devastating practice. However, what impact do these policies have in practice? In 2010, Rainforest Action Network and Sierra Club took a first look at these MTR policies. This year’s version of the report card takes a second look at these banks and their mountaintop removal policies to see how they’ve progressed from 2010 to 2011. The report card reviews each bank’s current position on MTR coal mining and awards a ‘grade’ based on the strength of the performance threshold, scope of due diligence and public transparency.

The report card calls for the ten banks reviewed to strengthen their policies and cease their financial support for MTR. The ‘best practice’ recommended in the report card is a clear exclusion policy on commercial lending and investment banking services for all coal companies who practice mountaintop removal coal extraction.

Banks and financial institutions are key sources of financing for companies that practice mountaintop removal. However, with growing public opposition as well as regulatory and legislative scrutiny of the practice banks have been forced to address the issue with enhanced lending policies.

Regulatory & Financial Risk of MTR

From a regulatory perspective, the report shows that of all the MTR permits reviewed in 2010 by the EPA, 99 were denied or withdrawn, 84 are still pending and 18 have been approved. The report also finds that in 2010 coal production figures for the MTR sector declined; with mining giants, like Arch coal, moving away from Central Appalachia coal production, and focusing on new opportunities in Wyoming’s Powder River Basin and on the West Coast with export terminals.

Key findings:

  • Top Three Financiers of MTR: PNC, Citi, UBS (in first, second and third place respectively).
  • Number of Deals in 2010 Between Banks and MTR Operators: Since January 2010, the ten banks examined in this report card have provided financing for 16 loan and bond underwriting deals to companies practicing mountaintop removal coal mining. This represents more than $2.5billion.
  • Best Performing Bank: Credit Suisse. In 2010 the bank made its policy public and transparent. The bank has no exposure to coal-mining companies that practice mountaintop removal extraction.
  • Worst Performing Banks: Citi—despite announcing a public policy on MTR extraction in 2009, the bank has since doubled its exposure to the sector. UBS—immediately after announcing a policy stating that it “needs to be satisfied that the client is committed to reduce over time its exposure to this form of mining,” the bank acted as an advisor on the Massey-Alpha combination deal. That deal created the largest single mountain top removal company in the country, responsible for fully 25% of coal production from MTR mines.

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Billionaire real estate investor and legendary tax evader Leona Helmsley famously said: “Only the little people pay taxes.” It turns out Helmsley was all too right.
Two years ago no bank had a policy on coal mining, and Wall Street was providing finance and credit indiscriminately to the most destructive form of mining in the country. Bank of America, Citi, Morgan Stanley, Credit Suisse, JPMorgan Chase, and Wells Fargo have successively passed public policies limiting their financial relationships with coal operators that practice mountaintop removal (MTR) coal mining.