10 August 2022
As a lender to Whitehaven Coal and Adani Enterprises, both companies investing heavily in expanding thermal coal mining, Deutsche Bank has been a financial institution of concern for some time. However the bank’s 2020 policy on thermal coal mining, stating “we will not provide any financing for greenfield thermal coal mining” (clarified as both direct and indirect financing) indicated that its involvement with these two companies was coming to an end. Disappointingly, at the time of publication, Deutsche Bank continues to be a financier of Whitehaven Coal and Adani Enterprises, even as these companies show no sign of slowing down their coal mining expansions (for more details see below).
As pressure on banks and investors to bring their activities in line with the Paris Agreement and net-zero emissions by 2050 continues to grow, there is a concern that these institutions will publish policies which look good on paper, but are simply then not followed. Due to this, Market Forces commissioned legal advice to ascertain what would constitute a breach of Deutsche Bank’s policy and what consequences there might be for the bank if so.
Advice from German law firm Rechtsanwälte Günther concludes that Deutsche Bank would be in breach of its coal exclusion policy by financing – whether through lending, bonds, or capital markets fundraising – companies building new thermal coal mines. The legal advice makes clear that the policy does not limit the bank to project finance:
“Given its open wording and clear intent, it does not matter whether the finance has a specific project reference or not. Since the Framework also prohibits indirect financing, the raising of substantial funds for any other purpose (e.g. a general corporate loan, or financing for an otherwise unrelated asset/activity) would also be a violation, as it would free up capital from elsewhere in the company to be allocated towards greenfield thermal coal mines.”
Put plainly, based on the wording of Deutsche Bank’s policy, any finance for a company building new thermal coal mines is prohibited.
The legal advice also warns that Deutsche Bank violating its policy framework could result in legal risks and challenges from multiple angles, including: consumer protection and competition law, general manager’s duties to protect against reputational and general risks, commercial law, due diligence obligations under new German legislation, and general tort law.
Lending to Whitehaven Coal
Whitehaven Coal is planning to build three new or expanded coal mines in Australia, Narrabri Stage 3, the Vickery mine, and Winchester South. Deutsche Bank has contributed to Whitehaven’s AU$1 billion syndicated credit facility since 2013, including its most recent refinancing in February 2020. Whitehaven has flagged it will seek to refinance this facility later this year. While financial news sources appear to have ruled out Deutsche Bank’s involvement in a bond issue for Whitehaven, the bank has not taken a public position on future deals.
Lending to Adani Enterprises
Deutsche Bank is also exposed to Adani Enterprises, which constructed, owns and operates the controversial Carmichael thermal coal mine and rail line in Australia. Adani is financing its mine and rail line with internal group funds, meaning any financing of the Adani Group frees up capital which could then flow to the Carmichael project. In July 2021, Deutsche Bank participated in a US$1 billion bridge loan to Adani Enterprises as part of its purchase of Mumbai International Airport. Deutsche Bank is also part of a group of banks that were working to issue bonds for Adani Enterprises, so it can refinance this bridge loan. In May 2022 Adani described Deutsche Bank as one of its “relationship banks”.
As the impacts of climate change continue to worsen, Deutsche Bank’s involvement with these companies already presents serious risks to its reputation. Continuing to provide finance to these and other companies while they pursue new thermal coal projects, in breach of Deutsche Bank’s own policy, raises even more grave reputational, legal and governance concerns for the bank.
The legal opinion clearly shows that to stay true to its own commitments, Deutsche Bank must immediately cut ties with all companies looking to build new or expand thermal coal mines.