Jakarta, 14 July 2022 – One of the largest United Kingdom banks, Standard Chartered, has confirmed that it is ending investment in Indonesia’s second largest coal producer, PT Adaro Indonesia and other banks need to follow suit in line with their energy and fossil fuel policies.
The UK-bank has confirmed through an email to Market Forces, that it will cut ties with Adaro ‘as it is 100% dependent on thermal coal at an entity level’, and Standard Chartered’s Position Statement on Power Generation prohibits further support for the Indonesian coal giant.
“Standard Chartered’s decision is long overdue, but it is a clear signal to other banks and investors that the time is right to end all financing for Adaro coal,” said Nabilla Gunawan, Indonesia campaigner, Market Forces.
“Other big banks including HSBC, SMBC, Mizuho, OCBC, and CIMB are still financing Adaro’s coal production, yet this flies in the face of their sustainability and coal exclusion policies.”
“If those coal exclusion policies are genuine, then these lenders must commit publicly to ending their investment in Adaro otherwise the banks and investors are window dressing their green credentials.”
Standard Chartered and other bank coal exclusion policies came into effect following public pressure from Indonesian and international environmental campaigners.
Adaro produced 54 million tonnes of coal in 2021 and plans to ramp up its coal production to 60 million tonnes in 2022. Adaro has no plans with clear metrics and targets to reduce its coal dependency, making it incompatible with the International Energy Agency (IEA) Net Zero Emissions by 2050 pathway, that states there is no need for new coal mines after 2021.
Since 2006, Standard Chartered has provided US$434 million in funding to the Adaro group. In April 2021, the bank took part in a lending syndicate which provided a further US$400 million for Adaro’s coal mining. This is despite Standard Chartered’s model for assessing climate transition risk in its clients. In the model, all coal components of a company are rated as being aligned with the risk of 6 degrees of global warming, which scientists have made clear would be catastrophic for the earth’s climate and humanity.
Standard Chartered policy also states that by 2024 it will only provide lending to coal companies which derived less than 80% of their revenue from coal, which excludes Adaro as it derives 96% of revenue from coal as of 2021, with no reduction plans.
“Indonesian coal will suffer economic loss from declining demand. The world is leaving coal behind and any companies that don’t restructure to embrace more sustainable options will be left in the dust. All Indonesian coal companies need to urgently change their business models,” said Ashov Birry, Program Director, Trend Asia.
Coal assets have a high transition risk. Such risks include a declining coal market in the medium and long run. A study from Australian National University (ANU) predicts that China’s coal export will shrink by 49% in 2025 from its decarbonisation policy. In 2021, 45% of Indonesian coal export was bought by China.
Coal financing is becoming scarce, and mining companies will have to rely heavily on their internal capital to finance their projects, according to the executive director of Indonesian Coal Association (APBI), Hendra Sinadia.
Adaro has been criticised by activists due to the environmental and social impacts of its mines. In particular, Adaro has been called out for the Wonorejo village incident, where the coal company gradually displaced the local civilians for its mining expansion.
“Adaro (mining activities) has displaced Wonorejo villagers in the area. That is why we are strongly against the extension of the Coal Mining Concession Work Agreement (PKP2B) for Adaro,” explained Kisworo Dwicahyono, Executive Director of WALHI South Kalimantan, an Indonesian Forum for Environment.
Adaro’s Coal Mining Concession Work Agreement (PKP2B) is expiring this October. The Wonorejo village is located in South Kalimantan and it used to be the home of transmigrants from Java. An investigation by Project Multatuli confirmed that this village is now deserted and has turned into Adaro’s coal settling ponds. Such practices risk tainting banks’ social and environmental safeguard and sustainability policies.
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