Bank MTR financing policies: What's next?
Posted November 9, 2010
PNC bank has just announced a new policy on lending to companies that engage in mountaintop removal mining (MTR).
In doing so, PNC joins six other financial institutions that have recently adopted policies of one sort or another to address growing outrage over the disastrous environmental effects of MTR: Bank of America, Citi, Wells Fargo, JPMorgan Chase, Morgan Stanley, and Credit Suisse.
But what are the real-world results of these policies? With PNC joining the fray, it’s a good time to take a look at what the banks have actually accomplished with their MTR policies, and what’s left to do.
My colleague, Sami Yassa, has analyzed how the other six banks’ MTR policies have actually affected their lending decisions in this new paper. This is an important question because most of the lending guidelines adopted do not actually stop financing MTR coal producers as a matter of policy. Rather, they typically involve enhanced due diligence, and may apply only to companies for whom MTR mining is a “predominant” or “significant” part of their business. These are highly subjective assessments, and provide no guarantees that financing for MTR will stop.
Our new analysis examined Securities and Exchange Commission records to determine whether a bank’s MTR lending policy resulted in decisions to withhold financing agreements with any of the seven biggest MTR coal producers (Massey Energy, International Coal Group, Patriot Coal, Arch Coal, Alpha Natural Resources, Teco Energy, Consol Energy.)
The bottom line: Despite taking some initial steps to curb lending, most banks are continuing to support MTR in a significant way.
On the one hand, none of the six banks appear to be financing Massey Energy at this time, and five of them have not engaged in any new financing agreements with the International Coal Group. This is real progress.
On the other hand, the five other major MTR producers continue to be supported. Most of the banks have entered into new agreements with Teco Energy and Arch Coal, and several with Patriot Coal or Consol Energy. These coal companies are benefitting from policies that do not bar financing for MTR mining altogether.
Only one bank – Credit Suisse - expressly aims to end MTR financing relationships as a matter of policy. Not surprisingly, they are also the only bank with no new finance agreements with any MTR producers. They represent a model that other banks should pursue.
The fact that financial institutions are adopting MTR policies at all is a sign that the publicity around MTR impacts is making the practice less and less socially and politically acceptable. It’s also becoming more of a financial risk, as the government moves towards stricter environmental review of MTR projects. Banks deserve credit for taking on the issue. Now they need to evaluate the results and adjust their policies to create more significant changes in practice.