Barclays, HSBC and Standard Chartered could all face a legal challenge from the charity co-founded by billionaire hedge fund manager Christopher Hohn, who has promised to take action if the three banks do not stop lending money to coal-mining companies.
Sir Christopher, founder of $28bn activist hedge fund company TCI, has written to the chairmen of Barclays, HSBC and Standard Chartered urging them to phase out financing for fossil fuels such as coal.
“Banks must stop the financing of new coal projects as a matter of urgency,” said Sir Christopher, who wrote the letters in his capacity as co-founder of the Children’s Investment Fund Foundation.
Barclays, Standard Chartered and HSBC have together provided $23.9bn in financing since 2017 to enable the expansion of coal power, according to a report from BankTrack, a Dutch charity.
The letters ask the three banks to publicly disclose their coal loan exposures and to re-evaluate the risks of financing fossil-fuels projects.
“Coal loans are high risk and likely to become non-performing,” said Sir Christopher, whose charity CIFF provides donations of $150m to climate groups each year, drawing an analogy to the subprime mortgages that sparked the financial crisis.
TCI does not own any shares in Barclays, HSBC or Standard Chartered so it is unclear whether Sir Christopher’s letters will have any influence on the banks’ coal policies.
But in an exclusive interview on Friday with the Financial Times, Sir Christopher also revealed that he was prepared to mount legal challenges against the boards of the three banks for neglecting their fiduciary duty to their shareholders by continuing to participate in risky coal-lending activities.
“Failing to phase out coal financing exposes banks to an increasing risk of economic loss, reputational harm and litigation. Chairmen and boards of directors could be sued for breaching their fiduciary duty. My reputation as an activist is well known and we are able to fund litigation,” said Sir Christopher.
Standard Chartered said it had already disclosed its coal exposure that stood at $302m.
“We will transition our clients away from thermal coal by 2030,” said Standard Chartered.
Barclays said it would “continue to discuss our efforts to help tackle climate change with stakeholders”.
HSBC did not respond to a request for comment.
The Bank of England, European Central Bank and Network for Greening the Financial System (NGFS), an association of regulators that includes China’s central bank, have also received letters from Sir Christopher asking them to instruct commercial banks to increase the risk weighting of coal loans. This would require commercial banks to set aside significantly more capital to offset potential defaults and would make all coal loans uneconomic.
“Regulators cannot allow banks to hide coal loans and the totally unrealistic risk weightings being used. Using a 250 per cent risk weighting would make new and existing coal loans uneconomic,” said Sir Christopher.
Mark Carney and Christine Lagarde have urged companies and central banks to speed up climate risk assessment and disclosure.
Mr Carney, governor of the Bank of England, said at an event in London last week that the voluntary reporting standards agreed by the Task Force on Climate-Related Financial Disclosures should become a mandatory requirement for companies.
Ms Lagarde president of the European Central Bank, noted that only five of 26 biggest eurozone banks provided even partial information about the climate change risks arising from their financial activities.
“None of them provide full disclosure,” said Ms Lagarde.
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