Asia’s top banks are financing coal due to loopholes: report

Despite major Asian banks, namely in Singapore and Japan, announcing coal exclusions in recent years, growing captive coal power in Indonesia and lax restrictions on corporate finance to developers offer new coal financing “havens”, a study finds.

Half of Asia’s biggest banks still have no restrictions on coal finance, and the rest that do, namely the major Singapore and Japanese banks, only have weak restrictions with narrow project finance screens, a new study found.

Since 2021, all three Singaporean banking giants DBS, OCBC and UOB committed to cease financing new coal power projects. Japan’s megabanks Mizuho, MUFG and SMBC have also pledged to stop funding new coal mining projects as of 2022.

But lax restrictions in corporate finance to coal developers, alongside the expansion of captive coal power in Indonesia as well as coal developers increasingly seeking out domestic banks and private equity investors to finance their operations, are creating new coal financing “havens” in the region.

“Even though Singapore and Japanese banks, who are leaders in relative terms, have some policies on restricting project finance for coal, none of them are showing any interest in restricting corporate financing,” said Will O’Sullivan, a climate campaigner at Dutch non-governmental organisation (NGO) BankTrack. The campaign group analysed the coal policies of 30 major banks with over US$8 trillion in collective assets under management across India, Indonesia, Japan, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand.

Most Asian banks whose coal investment policies were evaluated across five criteria (projects, expansion, relative threshold, absolute threshold and phase-out) scored zero across all criteria, meaning they have no public commitments to exclude coal from their investment portfolios. Image: BankTrack’s Coal Havens report.

Globally, loans to specific coal-fired power projects are on the decline. Coal project financing outside of China hit a 12-year low in 2022 of US$544 million, according to United States-based think tank Global Energy Monitor. But scrutiny that focuses on project finance overlooks massive loopholes in the coal policies of Asia’s top banks: corporate finance and capital markets.

Though banks might have stopped giving out project finance, they can continue to lend to the developers of those same coal power projects through general purpose corporate lending and capital markets facilitation, such as bond underwriting. The shift towards corporate finance for coal makes it more difficult to trace how the money gets spent, especially when extended to companies with sprawling commercial interests. For instance, it would be almost impossible to identify the end use of a general purpose corporate loan to the Filipino conglomerate San Miguel Corporation, which is one of Southeast Asia’s largest coal and gas developers, and simultaneously involved in producing beer and batteries.

Based on data from Toxic Bonds Network, a global coalition of NGOs tracking the bond market’s financing of fossil fuels, Singapore’s DBS and OCBC as well as Japan’s MUFG were involved in underwriting $750m of global bonds issued by Indonesia’s largest coal company Adaro, which are set to mature later this October.

Meanwhile, India’s largest private coal mining company Adani Group has 15 bonds worth $7.8b that were underwritten by a consortium of international banks that included DBS, Mizuho, MUFG and SMBC, set to mature in September.