New Report Finds Bank Carbon Principles Did Not Curb Financing of Coal

Today Rainforest Action Network (RAN) released The Principle Matter: Banks, Climate & The Carbon Principles,
a new report assessing the impact of the much-lauded 2008 Carbon
Principles signed by six of the country's leading banks. In reviewing
bank investment from January 2008 to June of 2010, the report found that
there is no evidence that the Carbon Principles stopped or slowed
financing to carbon-intensive projects. In addition, the report found
that there is no evidence that the Carbon Principles spurred investment
in clean energy in greater levels.

Three leading banks, Citi, JPMorgan Chase and Morgan Stanley
announced the Carbon Principles in February 2008. The Carbon Principles
were the outcome of a nine-month bank led process to evaluate and
address carbon risks in the financing of electric power projects in the
United States. The Carbon Principles represent the first time that
financial institutions jointly committed to advance a consistent
approach to the issue of climate change in the U.S. electric power
industry. Since the Principles were released, Wells Fargo, Bank of
America and Credit Suisse have subsequently become signatories.

"The Carbon Principles were a significant step in establishing
carbon risk as important for banks to consider. Based on the serious
threat posed by global climate change, however, it is time leading
financial institutions develop a more robust framework of policies and
practices that concretely reduce emissions from electric power," said
Amanda Starbuck of Rainforest Action Network.

When the Carbon Principles were created, they were one of the first
industry-wide statements from the banking sector specifically addressing
climate change and carbon-intensive investments. The Principles were
designed to address the risks associated with regulatory uncertainty of
carbon emissions, and were also a direct response to growing public
concern over plans for more than one hundred new coal-fired power
plants.

RAN's report compared the financing of major utilities building new
coal fired power plants over a two year period and found that there was
no discernable difference in financing patterns between banks that
signed on to the Carbon Principles and those that did not. The report
did find that the Carbon Principles placed stricter due diligence
conditions on banks for financing the construction of new coal fired
power plants in the United States.

"In short, have the Carbon Principles restricted financing to
coal-fired power plants or encouraged greater levels of clean energy
investments? Sadly, the answer is no," continued Starbuck. "Our research
reveals that, while the broader economy has been shifting away from
coal for myriad reasons, if the Carbon Principle banks want to take
leadership in addressing coal and climate change in the financial sector
they must do more."

As a case study, RAN's report reviewed the financing of two American
Municipal Power (formerly AMP-Ohio) coal-fired power plants, which were
both funded by banks that signed on to the Carbon Principles. Needing
to secure nearly $4 billion from a bond placement for one of the plants,
AMP contacted JPMorgan in early 2008 with concerns regarding how the
Carbon Principles might affect the company's ability to raise capital.
On February 7, 2008, a response from JPMorgan, which was leaked to the
press, assured AMP that "[n]othing in the Principles prevents us from
underwriting debt or providing financing for AMP-Ohio's projects or is
intended to do so."

The RAN report recommends that leading financial institutions
develop a more robust framework of policies and practices to address
climate risk, which would include:

• Performance, not just procedural, standards for financial transactions and client engagement

• Phase out support for new and existing coal-fired power plants

• Phase out support for new and existing coal extraction and delivery projects

• A commitment to dramatically increase support for financing
  emissions reduction technology, renewable energy production and energy
  efficiency in all business lines

In compiling this review, RAN compared Carbon Principles with
non-Carbon Principles bank underwriting in the U.S. electricity sector;
reviewed signatory bank reporting of Carbon Principles implementation;
interviewed bank and civil society participants in the Carbon Principles
process; and examined alternative policy frameworks.

The full report and supporting data can be found at ran.org/carbonprinciples