Welcome to yet another edition of Prime Vantage, the weekly newsletter only for our members, in which ET Prime’s domain specialists bring you insights from the sectors they love, and love to track. Today, we look at a topic related to the environment.
Media reports suggest that the State Bank of India (SBI) is preparing to lend INR5,000 crore for an Australian coal mine owned by Adani Enterprises, a project that has faced opposition because of environmental concerns. But would such a move, that tens of other large global banks have already refused to take, benefit SBI?
French asset manager Amundi has threatened to pull out of its investments by divesting the green bonds issued by SBI in 2018. Amundi owns about USD20 million of the USD650 million issue.
Not just that, in big or small percentages, several global behemoths, which have publicly announced policies to distance themselves from coal in general and this project in particular, hold shares in SBI. So, the pressure on the national bank to pull out of this project would rise.
BlackRock, for example, owns 0.54% of shares in SBI. Other minority stakeholders include BNP Paribas, HSBC, Deutsche Bank, Credit Agricole – all of which have policies to shift out of coal and have earlier turned down Adani’s mines project in Australia.
SBI itself had earlier backed out of a deal with Adani to fund the project in 2015, when coal demand was not shrinking at the rate it is today. But apart from the fact that coal is an environmentally thorny issue, would such a deal be a good investment?
The pressures on global investors, banks, and insurers to stop funding coal energy has been mounting over the last few years. In the wake of the pandemic, a large number of companies have clearly defined strategies to exit investments in coal mines and coal-based power plants.
In India, however, the trend has caught on more in the form of market forces than environmental concerns. Burnt by the massive debts piled up by the Indian power sector and the obvious value in renewable power, money has been flowing steadily towards renewables. New data shows just how skewed the balance has become – of all the funds invested in the power sector in 2019, 95% went to renewables. In actual numbers? Just INR1,100 crore went to coal power versus INR22,917 crore in renewables
But why is this relevant to Adani’s mines in Australia? It is because the number of customers for coal-based power is dwindling. The Covid-19 pandemic has changed much and, not least of all, the policies of countries that were thus far heavily dependent on coal power.
Japan and China, two of the biggest users of coal, have in the recent past announced plans to become carbon neutral. The fulfilment of any such targets would depend heavily on phasing out coal rapidly. More and more investors and lenders are, therefore, wary of investing in the sector. With each passing year, market forces and environmental pressures will make coal-based power increasingly undesirable.
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