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How will Bank of America's new policy affect coal mining?

Bank of Americas announcement on Wednesday -- a new policy that will significantly reduce its lending to coal extraction companies and coal divisions of...

|May 9|magazine9 min read

Bank of America’s announcement on Wednesday -- a new policy that will significantly reduce its lending to coal extraction companies and coal divisions of broader mining companies – is expected to have major implications on the coal industry.

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"With regard to coal, over the past several years, we have been gradually and consistently reducing our credit exposure to companies focused on coal mining," said Andrew Plepler, Bank of America's Corporate Social Responsibility executive.

“Our new policy reflects our decision to continue to reduce our credit exposure, over time, to the coal mining sector globally.”

The new policy supports the growing fossil fuel divestment movement, which looks to abandon or curb investments in high-carbon energy, including mountaintop removal.

"Today, our renewable energy portfolio is more than three times as large as our coal extraction portfolio," said Plepler. "The transition from high-carbon energy to low-carbon energy will continue. At Bank of America, we will continue to do our part to accelerate this transition for our customers, clients and communities."

Bank of America’s new policy cites pollution regulations, changes in economic conditions, increased competition from shale gas and renewable power as the main drivers of such change.

A Bank of America spokeswoman told the Guardian, “over the last several years, the coal mining sector has experienced a challenging environment in which increasing risks and shifting dynamics have reshaped its landscape,” 

Global bank HSBC said the recent drop in energy prices has put a spotlight on "stranded" fossil fuel assets, making them a risk to investors.

"As rigs are dismantled, capex (capital expenditures) is cut and operating assets quickly become unprofitable, stranding risks have become much more urgent for investors to address, including shorter term investors," the bank said.

One of the groups that pressured Bank of America on this policy said the announcement represented a 'sea change' as the bank was turning its back on the coal mining industry.

"Today’s announcement from Bank of America truly represents a sea change: it acknowledges the responsibility that the financial sector bears for supporting and profiting from the fossil fuel industry and the climate chaos it has caused,” Amanda Starbuck, director of the climate and energy program at the Rainforest Action Network, said in a statement. “In real terms, this means the bank is turning its back on the coal mining industry and committing to energy efficiency and renewable energy.”

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Bank of America’s departure from coal signifies the second banking firm to distance themselves from coal, as Goldmach Sachs recently announced it is in talks to sell off some of its mining operations.

As coal mining companies pose an increasingly risky investment, and environmental concerns become ever more pressing, the coal industry in the United States could be in a structural decline