To avert climate crisis, banks must not finance Indonesian coal giant Adaro

A subsidiary of Indonesian coal mining giant Adaro has a US$350 million loan maturing this July. Adaro is one of the largest coal producers in Indonesia and is planning to ramp up coal production without a concrete phaseout plan.

Major banks - including HSBC, SMBC, Mizuho, CIMB, OCBC, UOB, Bank of China, QNB, DBS, Bank Permata and Bank Mandiri - must not refinance this loan.?

Do you think these banks should stop funding Adaro? Comment below with your thoughts.

Last month HSBC came under fire for a statement made by Stuart Kirk, the bank’s Head of Responsible Investment, downplaying the impacts of the climate crisis.

Despite the bank’s scramble to control the damage in the wake of the public relations disaster that followed, Mr. Kirk’s statement seems more reflective of HSBC's real attitude towards climate change, as the bank is still providing financial support to the polluting fossil fuel industry. In this, HSBC is not alone.?

Some banks including HSBC and Sumitomo Mitsui Banking Corporation (SMBC) have announced net zero by 2050 commitments and tightened their coal financing restrictions, but their financing of companies expanding fossil fuels are inconsistent with these pledges. These banks are still supporting Adaro and its subsidiaries.?

HSBC and SMBC were among the banks that provided a US$350 million loan to Adaro’s subsidiary, coal mining services contractor Saptaindra Sejati, in 2020. The loan also includes other major banks: Mizuho, CIMB, OCBC, UOB, Bank of China, QNB, DBS, Bank Permata and Bank Mandiri.

Yet Saptaindra Sejati and its parent, Adaro, are expanding coal mining, something the International Energy Agency (IEA) makes perfectly clear is not consistent with the goal of net zero emissions by 2050.??

Adaro’s Business Plan is Consistent with the Failure of the Paris Agreement

Adaro derived 96% of its revenue from coal in 2021 and has plans to continue expanding its coal production, according to its 2021 Annual Report.

While the world is striving to halve emissions by 2030 to align with the Paris Agreement goals and with many companies racing to cut emissions, Adaro is running in the opposite direction. Adaro says coal will remain in the ‘DNA’ of the company, and remains bullish about a growth in demand for coal.?

Adaro’s coal mining activities are causing harmful impacts to local communities in South Kalimantan, Indonesia. Wonorejo villagers were forced to relocate due to Adaro expanding its nearby coal mine. Their village has since been transformed into a complex of settling ponds for coal mining. In response to these and other harmful impacts, Adaro’s mining activities have drawn protests by youth and climate activists in Indonesia.?

Adaro has no plans to phase out coal, making its claim of transitioning to a ‘green’ business spurious at best. Instead, the company plans to increase coal production to 58-60 Million tonnes (Mt) this year, even higher than its 2021 production at 52.7Mt. As recently as last year, Adaro was still exploring for new coal in East Kalimantan.??

Companies expanding coal mining don’t deserve bank finance?

We can discuss the speed at which we need to transition out of coal, oil and gas, and how? countries and markets are being treated differently as we manage down fossil fuels and replace them with renewable energy to meet the goals of the Paris Agreement.

But one thing that climate science and energy economics has been aligned on for years is this: there is no room to expand coal mining if we are to keep global warming to 1.5oC. That moment passed many years ago yet Adaro is still trying to increase coal mining in open defiance of the Paris Agreement’s goals.?

As banks like HSBC face increasing scrutiny for greenwashing and public outrage for downplaying the impacts of the climate crisis, business and reputation risks are mounting for failing to align financing with climate rhetoric.

In the case of Adaro and other companies attempting to expand coal, the answer should be clear. As long as these companies are attempting to bring on additional coal production, and as long as these companies have no plan to manage down their fossil fuel assets, they should not enjoy the support of banks.

Once these companies clean up their act, they should be able to approach lenders again.?

There is an opportunity now for these banks to demonstrate they take their climate commitments seriously. The $350 million loan to Adaro’s Saptaindra Sejati is maturing this July.

Banks can demonstrate their commitment by not refinancing the loan when it matures and stating this intention publicly, so other companies expanding coal can know what to expect from their lenders.?