Banks have long funneled billions into coal, sustaining the world’s biggest source of energy-related emissions well past the point when investors were aware of the impacts.
While some banks are scaling back to manage risks and tap into clean energy opportunities, progress is slow. In 2023, for every $1 of financing for wind, solar and grids, banks facilitated $1.12 into coal and other fossil fuels. In 2022, that figure stood at $1.35. The direction is right, but the pace is deficient.
Despite pledges to stop funding new coal projects, many banks, especially in Asia, where coal dependence runs deep, remain entrenched. And the challenge extends beyond power plants; banks are deeply embedded in the entire coal value chain, from mining and manufacturing to transport and auxiliary services. Cutting these ties demands faster, more decisive action — but their integration across business lines, financial products, and operations adds complexity.
To assist banks in navigating these challenges, a recent working paper from WRI assesses where banks are now and what they need to do to comprehensively unwind their coal investment.
Where Do Banks Stand on Coal Now?
The coal sector is global and complex. Mined from the ground, coal is not just burned for power (“thermal coal”) but is also used to create steel (“metallurgical coal”). And the sector is massive: Today more than a third of electricity supply originates with coal.
Banks can be involved in coal in three different ways:
- Sometimes a financier has a very clear-cut connection to expanding or sustaining coal, as in project finance to build new coal plants or equity in a coal company. They may directly invest in coal, holding debt or equity in projects or companies.
- They can invest in companies which are reliant on coal but do not produce or burn it directly, such as companies that indirectly use coal in their energy mix.
- Financial institutions may provide banking, capital markets underwriting, dealmaking or other services to clients involved in coal. These activities support the coal sector, too.
In addition to choosing whether they invest in or provide these services, banks may choose to ask those they work with to progressively transition away from coal. Investors have an interest in reducing the risk and enhancing the competitiveness of their investments, and they may engage with companies in ways they believe will enhance their performance — for example, by offering incentives to encourage them to avoid risks associated with coal. Increasingly, investors use the lens of “transition finance” to talk about finance or guidance dedicated to encouraging clients, with words or cash, to transition their business away from coal. This, too, is a form of coal exposure — but one with more nuanced implications.
Though some banks still need to catch up, the new standard is for banks to have robust policies to stop investing in new coal power on a definite timeline. Now leading banks are pushing beyond this, thinking more comprehensively about how to fully extricate their support for the coal economy and how to finance its transition.
Quitting new coal power is now standard
Around 70% of the world’s top 100 commercial banks have made the commitment to exit coal. In practice, most banks begin quitting coal by stopping loans for new coal mines and power plants.
WRI research found that most of the world’s top banks by size have committed to a coal power phaseout timeline in line with or more aggressive than the International Energy Agency’s (IEA) 2040 target date for achieving net zero by 2050. Multilateral development banks (MDBs) are also setting principles to exclude coal activities from new operations.
Despite some differences, the trend is clear: Direct financing for new coal projects is drying up in most parts of the world. In 2023, most countries saw no new coal power plants. Outside of China, construction began on 3.7 GW of coal capacity, significantly lower than the 16 GW annual average from 2015 to 2022. The next step will be to move from excluding coal to divesting and transitioning existing investments.
Some banks are picking up momentum
Many banks are moving into a more complex realm now, by steering clear of coal processing, heating, and industrial projects reliant on coal. About 10% of top commercial banks include financing for coal-related infrastructure in their coal exclusion and/or divestment policies. Strengthening oversight of coal-linked clients is also growing, with around 20% of major banks setting phaseout deadlines and tracking financed emissions to reduce coal exposure.
Few are moving toward the frontline
Few banks are proactively financing the low-carbon transition of existing coal power projects, leaving MDBs to lead efforts to retire coal plants early. private finance needs to play a more active role in financing coal retirement and transition. Despite new retirement plans and phaseout commitments, last year saw the lowest coal capacity retirement in over a decade. A key challenge is developing financial structures that cover transition costs while ensuring reasonable returns for private investors. But banks have the expertise and leverage to help.
Some banks are supporting the broader transition through the management of their coal and coal-related clients. With the rise of guidance on credible transition plans, banks now have more tools to assess their clients’ pathways. Some banks, such as HSBC and Mizuho, have committed to helping their coal clients transition — but much more is needed to embed this support into standard practices and to ensure the credibility of these plans.
Meanwhile, those continuing coal financing have largely gone unnoticed, except by leading banks, watchful observers and analysts. Some banks continue to indirectly finance coal through subsidiaries, joint ventures, intermediaries and passive investments.
Facilitation of coal financing can also go off-the-book through bond underwriting and asset management, allowing coal financing to continue without proper oversight. Only a few banks have incorporated coal power underwriting into their coal exit policies and more accountable strategies are needed to address these risks.
Above all, ambition and innovation are needed to close action gaps and advance the frontlines.
Here to Help: Where Banks Should Start and How to Progress
Navigating the race away from coal requires careful planning, strategic execution, and continuous adaptation. Here’s a three-step to guide the process:
1) Know where you are
This includes both understanding the extent of a bank’s business entanglement in the coal value chain and evaluating the foundational elements needed for a successful phase-out — from top-level commitment, building internal capacity for implementation and establishing external channels for support, to communication and international cooperation. Checklists are a handy tool for banks to quickly and comprehensively scan gaps and resources.
2) Devise your priorities
While mapping highlights broad trends of banks’ coal phase-out practice, it is crucial for banks to improve and update their commitment and approach based on specific contexts and realities. A prioritization framework that guides banks in systematically assessing regulatory, market, technological and societal factors is helpful. Asking a series of recommended questions on each factor, such as how coal exit aligns with or contributes to a bank’s overall strategy — whether in climate, sustainability, sectoral or country-specific approaches — can help identify the most urgent, feasible and impactful actions a bank should prioritize.
3) Stay measurable
Setting clear, measurable metrics ensures actions are tangible and that progress can be reviewed effectively. We offer a metric-setting approach with corresponding examples (covering project, company and portfolio levels) to help banks set thresholds for their coal exit strategies. To drive progress in client transition, for example, our approach outlines a company-level method for assessing coal involvement and dependence using both relative and absolute values. These metrics evaluate involvement in new coal projects, economic and fuel reliance on coal, and emissions. They are applicable to coal producers, users and facilitators.
The three-step process — plan/review, decide, implement — is an ongoing, dynamic effort. Priorities should evolve, and metrics should gradually tighten. The tools provided are intended to standardize actions, ensuring they are both comparable and easily understood by a broader audience.
What’s Next for Banks?
Now that the complexities of coal financing are clearer and frameworks for action are in place, it’s time to tackle some challenges beyond individual banks.
Quick wins for Asian banks
Asian banks play a crucial role in driving the transition away from coal, due to their strong presence in global finance and history of funding coal-fired power projects.
While coal-investing nations like China, Japan and South Korea have pledged to halt overseas coal investments, the extent to which banks are translating these commitments into action remains uncertain. For instance, despite managing some of the world’s largest assets, many Chinese banks have yet to publicly articulate clear, coal-specific financing policies compared to their global peers.
WRI’s Net Zero Tracker found that China’s Industrial and Commercial Bank of China, China Construction Bank and Bank of China were among the least ambitious and vocal when it came to phasing out coal power in their portfolios. To bridge this gap, Asian banks can take immediate steps: systematically assessing their coal exposure, updating financing strategies to align with transition goals and clearly communicating their coal exit plans.
The tough reality of existing coal
Tackling existing coal assets requires ambition and innovation, but it also presents opportunities. Banks’ deep ties to coal projects and coal-dependent clients can become a powerful asset in driving the transition. Besides cutting exposure, banks can take an active role in financing the early retirement, replacement or repurposing of coal power plants. This is especially relevant not just for utilities but also for industries like steel and mineral processing that rely on their own captive coal plants.
However, ensuring a credible transition requires more than intent — it demands newly engineered financing strategies, stronger oversight, and standardized transition metrics to track progress. Banks can step up by working closely with clients to understand their transition needs, designing financial products that de-risk transition and clean energy investments, and collaborating with regulators to align phaseout plans with policy shifts.
Scaling change through financial collaboration
Offloading coal assets alone doesn’t guarantee a real-world phaseout. After all, another bank may step in to finance them. Moreover, banks have a clear role to play in ramping up clean energy, without which the energy transition can’t occur. To make coal exit actions truly effective, banks must work together, aligning policies across financial institutions to create a level playing field, setting industry-wide standards that reduce backtracking or greenwashing, and supporting clean energy.
Stronger collaboration within the financial sector can amplify the positive impact of coal phaseout policies. When banks apply stricter coal financing criteria, not only to their own portfolios but also to co-financiers and financial intermediaries, they help prevent loopholes and reinforce broader market shifts.