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Absa imposes strict new coal project financing criteria

16th April 2020

By: Marleny Arnoldi

Deputy Editor Online

     

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Absa has published an updated sustainability policy and standard for financing coal, affirming the bank’s commitment to responsible financing and doing its bit towards mitigating climate change.

The updated policy applies the Principles for Responsible Banking, which is the framework that establishes the role of the banking industry globally, in helping to meet the United Nations’ Sustainable Development Goals and the 2015 Paris Climate Agreement.

“As a leading African bank, we recognise the impact of climate change and believe that we can play a shaping role in enabling sustainable economic and social development for the societies in which we operate.

“Through this policy and standard, and by working together with our customers, we will continue to integrate sustainability into our strategy and operations to drive positive change,” says Absa CE Daniel Mminele.

Absa will not be funding new coal-fired electricity generation projects, nor coal-fired industrial boilers and greenfield coal mining projects, unless under extenuating circumstances, which will be governed under strict guidelines.

The bank encourages renewable energy technology such as wind and hydropower as a viable means to meet Africa’s power needs.

Absa will continue to finance existing coal sector clients, while supporting them to transition to more sustainable business models.

EXTENUATING CIRCUMSTANCES

When considering financing new coal projects, including coal mining, industrial and metallurgical use of coal, and/or coal-fired electricity generation power plants, Absa will take a balanced and measured view, informed by assessments from reputable independent technical experts based on economic, environmental and social considerations, as well as its clients’ needs.

Absa will not finance new coal-fired power generation plants, or industrial boilers and furnaces, except when no cost-effective alternative exists to deliver power within the same timeframe, as evaluated by its reputable expert independent technical advisers, and projects are evaluated using enhanced due diligence processes.

Enhanced due diligence for new coal projects comprise the Equator Principles (EP). Absa has adopted the EP framework and applies this to all qualifying transactions, countries and sectors.

The EP will be applied to all financial products in line with EP thresholds as agreed by EP finance institutions. Absa also applies the EP to financing expansions or upgrades of an existing project.

Absa will also apply the World Bank Group environmental, health and safety guidelines in its coal project evaluations, which contain the performance levels and measures that are generally considered to be achievable in new facilities by existing technology at reasonable costs.

Additionally, Absa will consider Organisation for Economic Cooperation and Development (OECD) guidelines. Absa will apply eligibility criteria using country, technology and plant size that are aligned to the OECD guidelines, to all transactions. These will be evaluated on a case-by-case basis for impact on pollution, water availability and climate change.

Further, Absa says all new coal finance transactions will be assessed against the specific country commitments as outlined in the country’s National Development Plan and Nationally Determined Contributions to the Paris Climate Agreements.

Applicants will also need to perform a climate-related transitional risk review, which needs to consider the impact on water quality, water availability and air pollution, and the direct greenhouse-gas (GHG) emissions related to the project in its design, construction and operation phases when considering alternatives available for fuel or energy sources.

The risk review also needs to compare other viable technologies used in the same industry and in the country or region, with the relative energy efficiency of the selected technology, and prove technical and financial feasibility.

Absa notes that an evaluation will be required to be performed by qualified and reputable independent lender technical and environmental advisers to assess cost effective and technically, financially and environmentally feasible options to reduce project-related GHG emissions.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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