Postal Savings Bank of China’s recent 300 million yuan (US$47 million) “sustainability linked loan” to a state-owned coal producer in Shanxi province has raised concerns among global climate think tanks, who fear it could undermine Beijing’s carbon reduction goal.
The move by PSBC to decouple the loan from any goals to reduce emissions or other environmental impact could also put China out of step with other parts of the world, the think tank said. Shanxi is China’s top coal producing province, churning out 1.06 billion tons of raw coal in 2020, about 28 per cent of the country’s total output.
The state-owned bank’s disclosure earlier this month on the “innovative green loan” it extended to Jinneng Holding Shanxi Coal Industry came after the State Council made a 200 billion yuan special refinance facility available to Chinese banks to support the country’s carbon emission reduction efforts.
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The State Council said banks can use the facility to back their lending to projects that involve the “clean usage of coal” – a term many market observers said defeated the object of Beijing’s own carbon reduction goals. They said PSBC’s move to offer a “green loan” to Jinneng Holding provides an early example of how Chinese banks could continue to finance new coal investment as they heed the government’s call.
“The so-called clean usage of coal is getting all kinds of support in China. We don’t agree with that, as we fear that this is an excuse for coal expansion,” said Lauri Myllyvirta, an analyst at the Centre for Research on Energy and Clean Air based in Finland.
The loan from PSBC could set a trend for banks to continue financing the coal industry with the state’s endorsement, said Myllyvirta. This would ultimately undermine President Xi Jinping’s pledge for carbon dioxide emissions to peak before 2030, and reach net-zero by 2060, he said.
PSBC has provided US$7.9 billion of financing to fossil fuel projects in the five years since the Paris Agreement was signed in 2016, ranking it 52nd of the 60 global banks that have provided a combined US$3.8 trillion, according to a study released in April by six NGOs including Rainforest Action Network, and Reclaim Finance.
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The PSBC loan in question is pegged to the coal miner’s “intelligent mining” system on the 5G network that aims to boost Jinneng Holding’s efficiency. Starting from the third year of the loan term, the interest rate it pays will be pegged to a benchmark showing how close to completion the new system is, it said.
However, there is no mention of how the new system might result in any climate benefits such as greenhouse gas reduction. Such environmental pledges are key performance indicators hard-wired into most sustainability linked loans in other markets, according to the think tanks.
“With the State Council’s refinancing facility, banks can now get lower-cost funding from the government to finance coal projects. What this PSBC loan shows is that the borrower can show no alignment in its commitment to help the country limit global warmingto 1.5 degree Celsius,” said a source at another non-governmental organisation.
Jinneng Holding did not reply to emails requesting comment. It described its approach in the PSBC’s statement as “green extraction of black coal”.
PSBC declined to comment on the loan.
According to Jinneng Holding’s interim results, it produced 16.7 million tonnes of raw coal in the six month ended June this year, raking in 6.8 billion yuan in sales, up 9 per cent and 41 per cent respectively from the same period a year ago.
A sustainability loan seeks to align its terms with the borrower’s performance against preset sustainability goals. While trade bodies such as the Loan Market Associations have published principles for such financial innovation, these are often voluntary, recommended guidelines for banks.
Italian energy giant Enel is one of the active users tapping the sustainability linked loans market. In the largest ever revolving credit line pegged to sustainability goals, in March, Enel obtained a €10 billion (US$11.34 billion) credit line from 35 financial institutions. The terms are tied to its goal of capping greenhouse gas emission at 148g of CO2 equivalent per kilowatt hour, by the end of 2023.
HSBC, which aims to phase out thermal coal financing globally by 2040, has also been active in sustainability loans. Its goals for borrowers include greenhouse gas emissions reductions, use of renewable energy, the diversion of waste from landfill and reduced water use.
