A new report by Universal Owner Initiatives finds that recently established private funds designed to wind down coal assets will fail to meet any of their objectives.
The report, Refinancing Coal, claims the funds will fail to meet a 1.5ºC scenario, will pay out excessive sums to coal owners and fail to support a just transition, despite claims made to the contrary.
Many large private financial institutions have proposed the purchase of billions of dollars of coal assets in order to retire them earlier than their forecast lifespan, to accelerate the transition away from coal.
One of these schemes is led by the Asian Development Bank (ADB), backed by Prudential and HSBC. In 2021, Citi proposed another scheme, called C20.
The report found two inherent flaws with these funds. As private investment vehicles, they must provide market rate returns to investors, which can only be achieved by continuing to run plants for profit. This locks in future emissions.
Without legislation, there is little leverage to bargain with owners and the funds are likely to overpay in order to buy out coal assets.
The report also questions whether alternatives such as South Africa’s Just Transition Transaction would provide a superior model to maximise the reduction of emissions within the context of the 1.5ºC trajectory, while generating positive economic and social impacts.