Social Licence to Finance and Its Impact on the Coal Mining Industry

Abstract

By analogy with Social Licence to Operate, Social Licence to Finance refers to the pressure put by society as a whole on the finance industry not to fund projects that are considered as socially undesirable/irresponsible. Because of coal’s contribution to greenhouse gas emissions and hence to global warming, many environmentally active NGOs want to put an end to coal-fired power plants and are putting pressure on the finance industry to stop funding coal-mining. There have been three main impacts: firstly some banks involved in project finance (non-recourse funding of large projects) now refuse coal projects and other restrict funding to them; secondly, socially responsible pension funds no longer invest in coal companies (e.g. the Norwegian Sovereign Fund recently divested investments in thermal coal companies worth $8 billion), and finally the Financial Stability Board now requires international banks and insurance companies to evaluate the potential impact of climate change measures on their business. Going further, the Securities and Exchange Commission (SEC) and the New York Attorney General are putting pressure on mining and oil companies listed on the NYSE to provide much more explicit warnings to investors.

Keywords: Climate Change, Greenhouse Gas Emissions, pension funds, project finance