Federal Bank to Discontinue Financing New Coal Projects
The International Finance Corporation acquired a 4.99% stake in the bank in July 2021
Federal Bank Limited will discontinue financing of any new-coal related projects, including coal-fired power projects. The announcement comes on the heels of the equity infusion from the International Finance Corporation (IFC) in July 2021.
In July 2021, IFC, the financial arm of the World Bank, acquired a 4.99% stake in Federal Bank for $126 million. The bank signed up to the IFC’s new Green Equity Approach that supports clients to reduce coal exposure to zero, or near zero, by 2030.
Federal bank’s Environmental and Social Management System will add to its exclusion list new thermal coal mines or significant expansion of existing mines, new coal-fired power projects, or growth of existing projects.
With this, Federal Bank is expected to enhance its environmental, social, and governance (ESG) portfolio by increasing green portfolio financing for projects, including renewable energy, energy efficiency, climate-smart agriculture, green buildings, and waste management.
According to a report by the Centre for Financial Accountability India and Recourse, IFC has provided over $200 million to Federal Bank in loans and equity since 2006. Federal Bank has provided extensive exposure to coal mines and power projects during that period.
A growing number of financial institutions are moving away from financing coal-related projects.
In May 2021, the Asian Development Bank announced that it would discontinue financing any new coal-fired capacity for power and heat generation or any facilities associated with new coal generation.
U.S.-based JP Morgan Chase announced that it had committed $50 billion (~₹3.59 trillion) towards green initiatives as part of a larger $200 billion (~₹14.37 trillion) commitment towards the United Nations Sustainable Development Goals.
Deutsche Bank is to end its global business activities in coal mining by 2025 to facilitate the transformation to a sustainable economy. The European Investment Bank pledged in 2019 to end financing fossil fuel-based projects by the end of 2021. Japan-based Sumitomo Mitsui Financial Group decided not to support new coal-fired power projects from May 1, 2020.
Mercom had earlier reported that 17 insurance companies had limited their cover for coal projects, accounting for 9.5% of the primary insurance market and 46.4% of the reinsurance market. This points to a growing trend among insurers as they move away from the coal sector.
Harsh Shukla is a staff reporter at Mercom India. Previously with Indian Express, he has covered general interest stories. He holds a Masters Degree in Journalism from Symbiosis Institute of Media and Communication, Pune.