Japan’s Sumitomo Mitsui to end corporate finance exposure to coal mining by 2040

SINGAPORE – Sumitomo Mitsui Banking Corporation (SMBC) will phase out corporate and project finance exposure to coal mining by 2040 but does not have a concrete timeline for reducing support to trade finance, a senior company official said on Thursday, February 9.

The main banking arm of Sumitomo Mitsui Financial Group said in disclosures to investors last year it would halt funding for new mines, expansion of existing ones, and related infrastructure, but stopped short of giving a timeline on ending corporate finance for companies linked to coal mining.

Rajeev Kannan, SMBC’s managing executive officer and co-head of Asia Pacific Division, told Reuters on Thursday there would be no project and corporate finance exposure to coal mining and coal-fired power plants by 2040.

Critics have previously pointed to the ambiguity on corporate financing potentially providing a loophole to banks lending to pure-play coal miners.

However, “some level of trade finance” could still be available for coal dealers shipping critical fuel supplies for power plants, Kannan told Reuters in an interview.

“But even that kind of support, over a period of time, will go away,” he said.

Top global lenders – under pressure from investors, Western governments, and campaigners – have squeezed credit lines that finance projects based on fossil fuels in a bid to achieve net-zero emissions across their financing portfolios.

Government and industry officials in some countries call this discriminatory, as it impedes their ability to provide reliable energy to their citizens.

“That’s a moral decision which we as a financial institution can’t take,” Kannan said in a response to a question on lack of funding to coal projects critical to energy security of countries.

“We have to basically work with the global thought processes,” he said.

Energy funding opportunities

Environmental activists are increasingly pushing Japanese “megabanks” away from investing in, or financing, fossil fuels like coal, which still has strong support in Japan. All the banks have committed to stop lending to new coal-fired power plants.

Japan’s second largest bank by assets was getting most of its new energy funding opportunities in the renewable energy sector, followed by hydrogen, Kannan said, adding that the group would progressively reduce exposure to gas-related transactions.

A February 2022 report by 28 nongovernmental organizations showed SMBC’s rivals Mizuho and Mitsubishi UFJ Financial Group (MUFG) were the biggest financiers of the global coal industry, which received $373 billion in loans in nearly three years ending November 2021.

SMBC’s bigger rival MUFG has since halted financing new coal mines, but has not laid out its funding policy for existing mine expansion. Smaller lender Mizuho Financial said last year it would stop lending to new clients who are pure-play coal miners.

Kannan said decisions on offering financial support to carbon capture were “not easy” as it would still mean developing a coal-based utility, but called ammonia co-firing a “good option” provided power generated from coal was quickly displaced by ammonia.

“Big picture, we are focused on our finance emissions targets. We’ll have to see how does the portfolio reduce the total quantum of finance emissions over a period of time.” – Rappler.com