(Bloomberg) -- Germany's KfW Group is pulling out of loans for new coal projects, joining other European development banks that have already followed orders of their governments to minimize exposure to the world's most widely used power-station fuel.
KfW will no longer finance the exploration or mining of coal or lend to coal power plant projects, the lender said Monday as it updated its investment code from four years ago. The firm hasn't made any new investments in coal projects since then and holds less than 2 billion euros ($2.26 billion) in outstanding loans in the fuel.
The move to formally exclude coal in Frankfurt-based KfW's business complies with the German government's decision this year to adopt strict sustainable strategies in its financial dealings. The decision will impact federal investments such as pension fund holdings in foreign utilities with coal assets. The government is also mulling selling green sovereign bonds.
European development lenders began to taper coal investments earlier this decade, but many have been slow to declare an official end to the practice. At the same time, coal remains the dominant fuel in power generation despite the world searching for cleaner alternatives, BP's Annual Statistical Review of World Energy showed last month. The fuel accounted for almost 40% of electricity last year, which has been roughly constant for 20 years.
The World Bank pledged in 2013 to stop direct financing of coal yet it's come under fire for lending indirectly to projects through its International Finance Corporation unit.
The European Bank for Reconstruction and Development said in December it would no longer invest in thermal coal projects, formalizing a practice adopted in 2013. The European Investment Bank effectively dropped new loans in coal power the same year.
The EIB stopped financing coal extraction 25 years ago and has not financed oil production in almost 20 years, a spokesman said. The lender aims to present a new revue of its lending practices in the energy sector later this summer, he said. The new principles are expected to reflect ambitious support for climate goals, according to the spokesman.
Leading corporate lenders are also winding down investments in coal. Some 21 banks including Commerzbank AG and Societe Generale SA have declared that they will forgo direct investments in the fuel, according to a February report of monitoring website Banktrack.
To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net;William Wilkes in Frankfurt at wwilkes1@bloomberg.net
To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Lars Paulsson, Rob Verdonck
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