Marion O’Donnell, Director, Sustainable Investing, Fidelity International
The power of active engagement: As the most heavily polluting fossil fuel, coal should have no future in the global energy mix. Through our active engagement, which is the cornerstone of our sustainable investment strategy and a crucial component to our role as stewards of client capital, we are continuing to play our part in making this a reality.
As long-term investors, we recognise that tangible action is needed to tackle the urgent climate crisis we face. Phasing out financing for coal-fired power plants (CFPPs) is a crucial step towards a more sustainable global economy and for this reason we initiated a thematic engagement with banks on their financing of such plants in Asia. Initially, we focused on Singaporean banks, but we have since expanded our engagement to banks in Japan and China.
Through the Paris Agreement signed in 2015, nearly every nation on earth committed to limit the average global temperature rise to 2 degrees Celsius, and to pursue efforts to limit the increase to 1.5 degrees. In the four years since the Paris Agreement was adopted (2016-2019), the biggest global banks have funnelled $2,7 trillion into fossil fuels1. Continued bank financing for coal projects undermines the Paris Agreement. In fact, the disruption unleashed by Covid-19 has highlighted how much worse the consequences of climate inaction could prove.
Coal-fired power plants release more greenhouse gases per unit of energy produced than any other electricity source2. In fact, the UN’s Intergovernmental Panel on Climate Change has said that coal-fired electricity must end by 2050 if we are to limit global warming rises to 1.5 degrees Celsius3. While financial support for coal projects across the globe is declining, in South East Asia the pipeline of financing for coal power is growing. As a result, we initiated our engagement in the region back in 2018, initially focussing on Singaporean banks due to their critical signalling effect for the region.
The power of engagement
Over the years, Singaporean banks have introduced climate change and responsible finance policies, with the aim of reducing their financing of CFPPs where appropriate. However, in our view, the original policies were not specific enough and continued to permit new CFPP financing in emerging markets.
With this in mind, Fidelity’s Asia banks analyst and our Sustainable Investing team engaged with the chief sustainability officer of a leading Singapore bank, discussing its sustainability strategy and approach to CFPP financing. The bank committed to speaking with its lending partners in the region about their coal exposure and to report in accordance with the Taskforce on Climate-related Financial Disclosure (TCFD) recommendations. TCFD recommendations on climate-related financial disclosures are structured around four thematic areas: governance, strategy, risk management, and metrics and targets. We have been urging banks to report on all four areas, with a focus on risk management.
In addition, we collaborated with several institutional investors through a Singaporean-based ESG consultancy, with the aim of encouraging the major banks in the country to forego short-term opportunities in coal and to improve their climate change strategies.
Representatives from each asset manager, together with the consultancy, collaborated on a joint statement calling on Bank A, as well as other banks (B and C), to implement an outright ban on coal financing. Before the statement could be read out as intended at the banks’ AGMs in April 2019, Bank A announced it would no longer offer financing to coal-fired plants anywhere (except its current projects, to which it remains contractually obliged), thus conceding to the wishes of a significant proportion of its shareholders.