Two of the world’s largest financial institutions, Deutsche Bank and World Bank, have decided that they will no longer finance coal related projects. In addition, 5 out of the 6 largest US investment banks have now committed to phase out coal mining financing, including JP Morgan, Bank of America, Citigroup, Morgan Stanley, and Wells Fargo. Coal power is unfortunately still necessary to close the energy gap until renewable sources have grown sufficiently. In doing business with the coal industry, companies should use the latest technologies to limit environmental impacts and meet sustainability criteria.
Coal, like railroads, steel, and other engines of the nation’s industrial expansion during the Industrial Revolution, helped drive profits for generations. More than a century later, the coal industry is in a free fall and the banks are pulling away. Some banks say they are trying to do their part to curtail climate change by moving away from coal projects and financing ventures that produce less carbon. But bankers also say the main reason for the shift is that coal companies are too risky and could ultimately prove unprofitable.
Coal companies are being squeezed by competition from less expensive energy sources like natural gas and by stiffer regulations. These trends and pressures show no signs of letting up. This shift is not only being used by big banks, but also private investors. Daring investors like hedge funds and private equity firms, which are usually eager to pounce on industries in distress, are shying away from coal because of deep uncertainty about its future. It is a starkly different scene in the oil industry, where investors are raising hundreds of millions of dollars to snap up the debt and equity of troubled companies that are struggling with an oversupply of oil. Despite the immediate stress, many investors expect the oil glut will burn off by next year and prices will rebound.
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