Coal-Fired Power Plants (CFPPs) - Research Paper Example

Coal-Fired Power Plants (CFPPs) 1. Introduction Coal-fired power plants (CFPPs) are the largest contributor of carbon dioxide (CO2) emissions worldwide1. To help protect our environment from climate change, major banks and financial institutions have designed and implemented several CSR policies when it comes to funding CFPPs. Below is the summary of CSR initiatives of banks and financial institutions on this matter. 2. Summary of CSR Sector Policy on Financing and General Acceptance of CFPPs 2.1 BNP Paribas BNP Paribas is a retail banking corporation and investment banking that serves the need of 79 countries worldwide2. Because of its dedication to fight the global climate change, BNP Paribas created its coal-fired power generation policies last September 20113. Being the 4th European bank” that has issued CSR policy on projects related to coal-fired power plant4, BNP Paribas’ policy objectives is to “integrate climate change issue in coal-fired power generation sector by taking into account greenhouse gas (GHG) emissions” and “avoid investing in companies with low environment and social standards”5. BNP Paribas set a minimum efficiency standard of 43% in high-income countries and 38% in low-income countries for its generic greenfield CFPP projects and a maximum emission requirements of not more than 550 CO2/kWh in high-income countries and 660 CO2/kWh in low-income countries for other greenfield CFPP projects6, 7. For brownfield CFPP projects, BNP Paribas require the applicants to comply with “IFC Environmental, Health and Safety Guidelines for Thermal Power Plants” to meet the required level of emission and/or at least 10% increase or improvements from the required level8. CFPPs projects that were not in compliance with BNP Paribas’ policy on coal-fired generating projects were purposely turned down (i.e. projects in Turkey and Vietnam in 2011 and India in 2012)9. As of 2011, BNP Paribas avoided additional 70 MteqCO2 each year10. 2.2 Credit Agricole Credit Agricole Corporate & Investment Bank is Europe’s 4th biggest bank and the world’s 5th biggest bank which aims to serve client’s investment banking needs11. Credit Agricole’s policy on CFPP projects are based on the guidelines set by the Climate Principles initiative, Environment Health and Safety Guidelines, IFC Performance Standards, International Energy Agency (IEA), Intergovernmental Panel on Climate Change (IPCC), Kyoto protocol, United Nations Framework Convention on Climate Change (UNFCCC), and the World Coal Association12. Before granting a financial support to CFPP projects, Credit Agricole will analyze a set of its ESG criteria which includes the plant location, quality of coal utilized in generating electricity, compliance with national and international regulatory frameworks, technology used in generating electricity, limit in the emission of pollutants, etc.13, 14. 2.3 Citibank Citibank is a US-based banking corporation. For the past 200 years, Citibank managed to establish a strong connection in more than 1,000 cities and 160 countries around the world15. Back in 2003, Citibank implemented its Environmental and Social Risk Management (ESRM) Policy16. Unlike the other banks and financial institutions, Citibank has been recognized as one of the biggest financiers of CFPP projects worldwide17. Since 2008, Citibank was able to finance almost 150 CFPP projects in US alone18. Even though Citibank plans to sell its shares in the Indonesian coal producer of Adaro Energy, Citibank is very much decided not to remove or cut down its active participation in the financing process of new CFPP projects19. 2.4 Société Générale Société Générale is a French multi-national banking and financial institution that is currently operating for more than 149 years in history20. As part of its environmental sector policy, Société Générale created its E&S laws and regulations which require all clients to comply with their requirements before applying for a financial support on CFPP projects. Part of the bank’s policy on CFPP projects is to comply with the guidelines set by the Carbon Disclosure Project, GHG protocol, International Energy Agency (IEA), UN Framework Convention on Climate Change (UNFCCC), World Coal Association, and WRI21. Similar to BNP Paribas and HSBC, Société Générale also came up with a set of E&S criteria which will be used in assessing its potential clients. A significant part of the E&S criteria include: (1) the need to comply with both the national and international laws on GHG emissions (i.e. IFC Performance Standards and IFC Environmental, Health and Safety Guidelines on CFPPs); (2) the need to require all CFPPs to observe further improvements with regards to the use of technology; (3) Société Générale implements a minimum thermal efficiency standard of 43% in high-income countries and 38% in low-income countries for its generic greenfield CFPP projects; and (4) all applicants are required to create their own strategy on how they can effectively reduce GHG emissions22. 2.5 HSBC Established in March 1865, HSBC is known as a British multi-national banking and financial institution that serves 55 million customers all over 80 countries worldwide23. Unlike the other banks and financial institutions, HSBC was known to be the 1st bank to create a policy in relation to the “carbon intensity standard”24. For many years, HSBC has been exerting a lot of effort to promote its desire to create a balance between environmental protection, economic activities, and social issues25. As part of the HSBC’s energy sector policy, the bank will refuse to financially support customers who will be proven to have violated the GHG regulations26. In short, HSBC would only finance coal-fired power plant projects with CO2 intensity standard lower than “550g CO2/kWh in high-income countries” and lower than “660g CO2/kWh” or not more than 850g CO2/kWh in low-income countries27, 28. Furthermore, HSBC refuses to extend loans on CFPP projects which aim to expand their business or those CFPPs with more than 500MW units29. 2.6 Unicredit Unicredit is one of the biggest European commercial bank that serves customers all over 22 European countries30. To protect the environment from climate change, Unicredit approved the Natural Capital Declaration (NCD) which was launched during the U.N. conference meeting with regards to sustainable development (a.k.a. Rio+20) last June 201231, 32. In response to the signing of NCD, Unicredit is currently in the process of drafting their own policy with regards to their future financing of CFPP projects33. Since then, Unicredit is active in promoting the need to protect our environment from the serious damages caused by the process of burning coal34. 2.7 World Bank Based in the United States, the World Bank is an organization that aims to provide financial and technical assistance to all developing countries worldwide35. The World Bank has been active in terms of discussing environmental issues related to climate change (i.e. World Development Report 2010)36. A significant part of the World Bank’s strategic framework with regards to its development and climate change include: (1) the need to provide financial assistance in the preparation of low carbon emission projects; (2) promote the use of the best technology that will enhance energy efficiency and lower GHG emissions; and (3) incorporate the use of environmental externalities when conducting a project analysis 37. 2.8 European Investment Bank (EIB) Considered as the bank of European Union, EIB works together with other EU institutions to create policies that are applicable to EU nations38. EIB recently announced its decision to stop supporting CFPP projects39, 40, 41. In response to EU climate policy, EIB will purposely revise its lending criteria of CFPP projects42. For example, new CFPP or refurbished CFPP are not qualified for financial support not unless CFPPs are able to emit not more than 550 gCO2/kWh43. Instead, EIB will focus on financing the development of renewable energy resources or an entirely new CFPP that uses the most advance technology to produce a more efficient energy44. 2.9 European Bank for Reconstruction and Development (EBRD) Established in 1991, EBRD is one of the biggest financial investor in central Europe, central Asia, and the eastern and southern Mediterranean45. Basically, EBRD is owned by the European Union, EIB, and 64 other countries worldwide46. Similar to EIB, EBRD also promotes the development of more efficient energy and low carbon emission47, 48. EBRD does not have its own policy when it comes to CFPP projects49. Instead, EBRD highly relies on its Environmental and Social Policy (ESP)50. Despite EBRD’s claim of supporting environmental sustainability, it is unfortunate that EBRD’s financial support on CFPP projects has significantly increased from €60M in 2006 to €262.4M in 201151. 2.10 Lloyds Bank Established back in 1765, Lloyds Bank is one of the oldest retail banks in UK52. By facilitating and financing the development of low-carbon and efficient energy resources, Lloyds Bank is considered as one of the banks that are environmentally responsible53. Aside from financing the development of renewable energy resources, part of Lloyds Bank’s environmental policy is to maintain the operation of its Environmental Management System (EMS), ensure that each of their clients are able to comply with national and international environmental legislation and practices, continuous improvement in the development of strategies that aims to reduce the use of water and energy, promote recycling practices, reduce waste production, promote public awareness on the importance of environmental protection, set targets for continuous environmental improvements, and monitor environmental performance among others54. To ensure that Lloyds Bank is able to contribute to the development of a sustainable environment, the bank regularly conducts “environmental risk analysis” on 600 to 700 financial transactions each month55. 2.11 Sumitomo Mitsui Banking Corporation (SMBC) Established in 1876, SMBC is a private bank based in Japan56, 57. A significant part of SMBC’s CSR initiative is to protect the people from global warming58. The three (3) major support given by SMBC include the need to reduce negative impacts in our environment, effectively manage “environmental risks”, and promote “environmental business”59. SMBC has no specific policy for CFPP projects. In general, SMBC’s group environmental policy is to offer the general public with environmental-friendly financial packages which can be use in the preservation of our eco-system, minimize environmental risks within our society, conserve energy resources, reduce unnecessary waste, comply with regulations and laws related to environmental preservation, the practice of disclosing the bank’s environmental activities, educating people about the need to preserve the environment, and implement the bank’s environmental management system (EMS) among others60. 2.12 KfW Bankengruppe KfW Bankengruppe is a German state-owned bank61. Part of KfW’s sustainability policy is to reduce CO2 emission by making electricity consumption more efficient62. KfW extend financing for the development of renewable energy resources (i.e. wind power)63. However, KfW is still financing CFPP projects provided that the client have a “minimum electrical efficient of 43% in industrialized, developing and emerging countries” whereas new CFPP projects should have at least 75% electrical efficiency with a relatively low level of CO2 emission64. 2.13 The Royal Bank of Scotland (RBS) Based in Edinburgh, RBS is one of the biggest international bank that offers financial services worldwide65. Stated under RBS’ environmental, social, and ethical (ESE) risk policy, the bank is responsible in ensuring that all transactions they deal with will company with the local and international regulations and laws on environmental protection66. As such, RBS would assess the energy sector through the use of their ESE questionnaires prior to making important financing decisions67. Specifically the ESE policy of RBS applies to all CFPP projects68. 2.14 Deutsche Bank Deutsche is a US-based bank that was established back in 187269. In relation to CFPP projects, Deutsche Bank conducts an ES risk evaluation process to ensure that potential customers would use the most advanced and efficient technology that can reduce CO2 emission within the host country70. Likewise, Deutsche Bank also ensures that the local and international regulations and laws on environment protection are not violated71. 3. Table Ranking of the Best Banks/Financial Institution (From Best to Worst) Rank Bank/Financial Institution Remarks 1 European Investment Bank (EIB) EIB focuses on financing the development of renewable energy resources or an entirely new CFPP that uses the most advance technology to produce a more efficient energy72. EIB decided to stop lending out funds for CFPP projects since 201073, 74, 75. 2 Lloyds Bank Lloyds Bank is focused on financially supporting the development of renewable energy resources76. 3 BNP Paribas Requires CFPP projects to comply with the regulations, local laws, and international convention in other countries77. As of 2011, BNP Paribas avoided additional 70MteqCO2 each year78. 4 The Royal Bank of Scotland (RBS) Because of RBS’ ESE policy, the bank is considered as one of the least active in financing CFPP worldwide79. 5 HSBC HSBC was one of the pioneer in creating and implementing CSR policy on CFPPs. Likewise, this particular bank is one of the least active in financing CFPP worldwide80. 6 Deutsche Bank Deutsche Bank requires the use of the most advanced and efficient technology in CFPP projects81. 7 KfW Bankengruppe KfW extend financing for the development of renewable energy resources (i.e. wind power) 82. KfW is still financing CFPP projects provided that the client have a “minimum electrical efficient of 43% in industrialized, developing and emerging countries” whereas new CFPP projects should have at least 75% electrical efficiency with a relatively low level of CO2 emission83. 8 Société Générale Managed to set a clear guideline with regards to its E&S policy on CFPP projects. 9 Credit Agricole Grounds for CSR policy were not clearly stated. 10 Unicredit Still in the process of drafting their policy on CFPP projects84. Recently granted US$484 million for a 400 megawatts CFPP project in Cankiri, Turkey85. 11 Citibank Citibank financed a total of 395 million Euro since 200586. 12 Sumitomo Mitsui Banking Corporation (SMBC) No specific policy for CFPP projects but strictly promotes environmental preservation. 13 European Bank for Reconstruction and Development (EBRD) EBRD does not have its own policy when it comes to CFPP projects87. EBRD’s financial support on CFPP projects has significantly increased from €60M in 2006 to €262.4M in 201188. 14 World Bank Even though the World Bank created a strategic framework with regards to its development and climate change, the bank remains active in lending out billions of dollars for the development of CFPP projects worldwide89, 90, 91. References BNP Paribas, "Corporate social responsibility sector policy - coal-fired power generation." 2012a, accessed October 27, 2013, http://media.bnpparibas.com/rse/rapport2012en/com/ipedis/publispeak/client/contents/mediatheque/files/1258.pdf. —, "BNP Paribas and the exercise of its Corporate Social Responsibility," November 2012b, accessed October 27, 2013, http://media-cms.bnpparibas.com/file/01/8/presentation_isr_laurence_pessez.28018.pdf. 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