Risks of Financing Coal Fired Power Plants
2010 – J.P. Morgan Chase & Co.
WHEREAS: JPMorgan Chase (“JPM”), as a signatory of the Carbon Principles, has recognized that it is “prudent to take concrete actions today that help developers, investors and financiers to identify, analyze, reduce and mitigate climate risks.”
According to the Pew Center on Global Climate Change, coal fired power plants generate approximately 27% of total U.S. GHG emissions. In June 2009, the House of Representatives passed a bill to reduce GHG emissions to 17% below 2005 levels by 2020 and 83% by 2050. In September 2009, a similar proposal was introduced in the Senate. Twenty-four states have already entered into regional initiatives to reduce emissions in advance of the federal mandate.
Acknowledging the increasing materiality of risks related to climate change, JPM signed the Carbon Principles, showing leadership on a critical environmental issue, as it did earlier in signing the Equator Principles on social and environmental risk in international project finance.
The Carbon Principles commit JPM to conducting an enhanced due diligence process when extending loans to utilities that have fossil fuel generating power plants under construction or that are about to be constructed or for project financing of such plants. The Principles identify emerging best practice benchmarks “against which the degree of risk will be measured.” These benchmarks include: meeting power needs via efficiency and renewables, incorporating carbon costs, offsetting the emission; and making a commitment “to reduce net greenhouse gas emissions within specific timetables or for new capacity, making a commitment not to increase net emissions.”
Since signing the Carbon Principles, however, JPM has been lead lender for utilities developing new coal-fired power plants in the U.S., even where the availability of efficiency and other alternatives to meet energy needs has been established. The current implementation of the Carbon Principles by JPM therefore does not appear to be sufficient to achieve the intended effect of reducing carbon risks in the financing of electric power projects.
RESOLVED: Shareholders request that the Board review JPMorgan’s implementation of the Carbon Principles and, where necessary, amend JPMorgan’s policies and practices to ensure alignment with the Carbon Principles’ benchmarks for risk measurement, and report to shareholders, at reasonable cost and omitting proprietary information, on the bank’s implementation and any policy changes adopted within 6 months of the 2010 annual meeting.
Supporting Statement: A key goal of the Carbon Principles is to reduce climate change-related business risk including regulatory, reputational and physical risks associated with financing energy projects. We recommend that JPMorgan adhere to the risk measurement benchmarks in the Principles by making a commitment to reduce net greenhouse gas emissions within specific timetables or, for new capacity, making a commitment not to increase net emissions, and to limit financing that qualifies for the enhanced due diligence process under the Carbon Principles to those projects that, in the words of the Principles, are based on pursuit: “of cost-effective energy efficiency, renewable energy and other low carbon alternatives to conventional generation, taking into consideration the potential value of avoided CO2 emissions.”