- Standard Chartered has cut ties with Indonesian mining company Adaro Energy as the bank’s new coal policy takes effect.
- The bank’s support for Adaro had been heavily criticised and prompted a shareholder resolution last year from campaign group Market Forces.
- Standard Chartered says it ceased providing financial services to four clients that had not reduced the amount of revenue they derive from thermal coal to below 100% by the end of 2020
Standard Chartered has said it will no longer provide financing to Adaro Energy, Indonesia’s largest coal miner, as new restrictions on lending to the sector take effect at the bank and following sustained and public pressure from campaigners.
The British lender notified campaign group Market Forces – a high-profile critic of the bank’s financing of coal – that it had ended its relationship with Adaro Indonesia, a subsidiary of the Adaro Energy group, on 26 April. The move has come after Standard Chartered pledged to stop providing financial services to mining and power companies that derive 100% of their revenues from thermal coal.
“Our position statement on power generation prohibits us from further supporting Adaro as it is 100% dependent on thermal coal at an entity level,” says Shaun Gamble, a spokesman for Standard Chartered, whose climate strategy was approved by 83% of shareholders in May.
Market Forces says it understands that the bank’s only relationship had been with Adaro Indonesia, which has now ended, but that it is unclear whether the lender can or will still work with the wider energy group as the coal exclusion policy contains various loopholes.
Pressure on Standard Chartered paying off?
The bank’s move follows substantial and public pressure from activists and campaign groups. In May last year, Market Forces accused the bank of hypocrisy over its continued support for the company, then in October filed a shareholder resolution prompted in part by Standard Chartered’s refusal to stop working with Adaro Energy.
With a market cap of $3.56bn as of the end of February, Adaro Indonesia is the biggest subsidiary of Adaro Energy, Indonesia’s largest coal miner by market capitalisation. Its plans to expand production to up to 60 million tonnes of coal in 2022 from around 54 million tonnes in 2021 puts it on a path that is incompatible with the International Energy Agency’s call to end financing of new oil, gas and coal supply by the end of 2021.
In April 2021, Standard Chartered is widely reported to be one of several international banks that underwrote a $400m loan maturing 2026 to Adaro Indonesia. Since 2006, the bank has provided at least $300m in funding to Adaro Energy and its subsidiaries, according to analysis by Market Forces, as well as cash management services. Adaro Energy did not immediately respond to an email request for comment.
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Market Forces wrote to shareholders in April 2021 that Standard Chartered’s involvement in Adaro was incompatible with its commitment to align its operations with the aims of the Paris Agreement by 2050. The campaign group pointed out that, by the bank’s own analysis, Adaro Energy has a business plan aligned with a catastrophic 5–6°C of global warming.
Standard Chartered’s decision to end the relationship comes amid sustained pressure on the financial sector to stop financing fossil fuel expansion and criticism of weak policies that allow many banks to keep funding some of the world’s highest-emitting companies. Banks have been accused of stalling on more aggressive steps to exit relationships with clients in high-carbon industries by shareholders and non-governmental organisations alike.
Many lenders have resisted calls to drop clients in high-carbon sectors, however, arguing that engagement is a better tool than divestment. HSBC, for example, has maintained its commitment to help every one of its clients transition.
However, Deutsche Bank last year refused to arrange a $500m bond issue for Adani Ports, part of the controversial Adani Group, after internal concerns raised by its sustainability committee. And UK bank NatWest also said it would stop doing business with several coal and certain oil and gas companies after introducing tighter fossil fuel policies.
Cutting coal exposure
Standard Chartered’s cutting of ties with Adaro continues its steady reduction of coal financing on the back of restrictive policies the lender has had in place on the sector since 2018, when it announced it was “saying no to coal”. The lender ended its relationship with four other clients in the coal sector in 2020, citing their unwillingness to transition to net zero.
But the policies have not captured Adaro Group or any of its subsidiaries until now despite Adaro Group deriving 96% of its revenues from its mining division in 2021. These revenues come from thermal and metallurgical coal mining from coal assets located in Indonesia and Australia, according to its 2021 annual report, published in April.
Gamble tells Capital Monitor: “Our policy changed in October 2021 from group to entity level, hence why Adaro came into focus.”
More broadly, Standard Chartered is working to reduce the absolute financed emissions of its coal mining portfolio by 85% from 2020 to 2030 (from 3.34 to 0.50 million tonnes of carbon dioxide equivalent). Its exposure to the coal sector is far smaller than many of its peers. The bank reports its drawn loans and advances have decreased from $282m in 2019, to $180m in 2020 and $133m last year. It completed only one transaction in the sector related to a project or asset.
The group has committed to phasing out its provision of financial services to clients that derive more than 5% of their revenues from thermal coal by 2030. By 2024 it will only provide financial services to clients that are less than 80% dependent on thermal coal by revenues, and will reduce that figure to 60% by 2025 and 40% by 2027.
Adaro posting big profits
Adaro Energy, meanwhile, has seen profits soar this year after Russia’s invasion of Ukraine disrupted global energy markets. The company saw net revenue rise 77% year-on-year in the first quarter of 2022 to $1.22bn, while operational performance was up 209% to $755m. Adaro has shipped roughly 300,000t of coal to buyers in Europe this year.
In a bizarre blog posted in January, the miner lauded the failure of the Cop26 climate summit to secure an agreement to phase out coal, celebrating the surge in oil prices and the supply side constraints that meant those who were still investing were in for a “cash bonanza”. “Mining companies that have stuck with coal despite pressure to divest are making a killing,” the blog said, before demanding that the use of coal be addressed.
At the same time, Adaro Energy says it is looking to diversify into renewables and plans to use its recent profits to fund hydropower and solar projects and produce aluminium for electric vehicle components. While it has not set targets to reduce its carbon emissions intensity or reduce the contribution of coal to its top line, it is developing an ESG roadmap.
Index and ESG ratings provider MSCI upgraded Adaro’s ESG rating to BBB from BB in 2021. The upgrade was driven by “significant improvements in our environmental management practices", Adaro said in its 2021 annual report.
Market Forces has now turned its attention to HSBC, which it says is another large backer of the company. “The decision is important [in] that it gives a signal to HSBC that they are the last UK bank standing, but in terms of praise, they [Standard Chartered] shouldn’t have been in Adaro in the first place,” says Adam McGibbon, a campaigner at Market Forces.
The campaign group lists a catalogue of illegal mining, land grabs and unethical practices at Adaro, though these have not been independently verified by Capital Monitor. Adaro does refer to a fatal accident at one of its mines in 2021 in its annual report.
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