New Report Finds Bank Carbon Principles Did Not Curb Financing of Coal

Rainforest Action Network (RAN) recently released The Principle Matter: Banks, Climate & The Carbon Principles, a new report assessing the impact of the much-lauded 2008 Carbon Principles signed by six of the country’s leading banks. In reviewing bank investment from January 2008 to June of 2010, the report found that there is no evidence that the Carbon Principles stopped or slowed financing to carbon-intensive projects. In addition, the report found that there is no evidence that the Carbon Principles spurred investment in clean energy in greater levels.

Three leading banks, Citi, JPMorgan Chase and Morgan Stanley announced the Carbon Principles in February 2008. The Carbon Principles were the outcome of a nine-month bank led process to evaluate and address carbon risks in the financing of electric power projects in the United States. The Carbon Principles represent the first time that financial institutions jointly committed to advance a consistent approach to the issue of climate change in the U.S. electric power industry. Since the Principles were released, Wells Fargo, Bank of America and Credit Suisse have subsequently become signatories.

“The Carbon Principles were a significant step in establishing carbon risk as important for banks to consider. Based on the serious threat posed by global climate change, however, it is time leading financial institutions develop a more robust framework of policies and practices that concretely reduce emissions from electric power,” said Amanda Starbuck of Rainforest Action Network.

When the Carbon Principles were created, they were one of the first industry-wide statements from the banking sector specifically addressing climate change and carbon-intensive investments. The Principles were designed to address the risks associated with regulatory uncertainty of carbon emissions, and were also a direct response to growing public concern over plans for more than one hundred new coal-fired power plants.

RAN’s report compared the financing of major utilities building new coal fired power plants over a two year period and found that there was no discernable difference in financing patterns between banks that signed on to the Carbon Principles and those that did not. The report did find that the Carbon Principles placed stricter due diligence conditions on banks for financing the construction of new coal fired power plants in the United States.

“In short, have the Carbon Principles restricted financing to coal-fired power plants or encouraged greater levels of clean energy investments? Sadly, the answer is no,” continued Starbuck. “Our research reveals that, while the broader economy has been shifting away from coal for myriad reasons, if the Carbon Principle banks want to take leadership in addressing coal and climate change in the financial sector they must do more.”

As a case study, RAN’s report reviewed the financing of two American Municipal Power (formerly AMP-Ohio) coal-fired power plants, which were both funded by banks that signed on to the Carbon Principles. Needing to secure nearly $4 billion from a bond placement for one of the plants, AMP contacted JPMorgan in early 2008 with concerns regarding how the Carbon Principles might affect the company’s ability to raise capital. On February 7, 2008, a response from JPMorgan, which was leaked to the press, assured AMP that “[n]othing in the Principles prevents us from underwriting debt or providing financing for AMP-Ohio’s projects or is intended to do so.”

The RAN report recommends that leading financial institutions develop a more robust framework of policies and practices to address climate risk, which would include:

• Performance, not just procedural, standards for financial transactions and client engagement

• Phase out support for new and existing coal-fired power plants

• Phase out support for new and existing coal extraction and delivery projects

• A commitment to dramatically increase support for financing emissions reduction technology, renewable energy production and energy efficiency in all business lines

In compiling this review, RAN compared Carbon Principles with non-Carbon Principles bank underwriting in the U.S. electricity sector; reviewed signatory bank reporting of Carbon Principles implementation; interviewed bank and civil society participants in the Carbon Principles process; and examined alternative policy frameworks.

The full report and supporting data can be found at ran.org/carbonprinciples
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