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A New Tack in the War on Mining Mountains

Last week, with little fanfare, PNC Financial, the nation’s seventh-largest bank, disclosed a significant strategic shift. The bank said it would no longer finance coal-mining companies that pursue mountaintop removal of coal in Appalachia, an environmentally devastating practice that has long drawn opposition.

It was a big decision for PNC, which has been one of the largest financiers of companies that engage in the mountaintop mining of coal, which involves blasting off the summits of mountains to expose the coal beneath them and dumping the debris into valleys and rivers, which the environmental law organization Earthjustice described as “strip mining on steroids.”

PNC’s decision comes after environmental advocacy groups put intense pressure on Wall Street banks to stop financing such practices. PNC had been a holdout; Bank of America, Citigroup, Morgan Stanley, JPMorgan Chase, Wells Fargo, Credit Suisse and others had already distanced themselves from coal companies involved in mountaintop removal. GE Capital and UBS appear to be the only large financial institutions in the country still willing to lend money to companies involved in this mountaintop mining.

Environmental advocates have struggled in recent years persuading large investors to divest themselves of stakes in fossil fuel companies, but they may have just hit on a more effective approach: Cut off the companies’ financing.

It’s one thing for large investors like the Rockefeller family or Stanford University’s endowment to pull out of fossil fuel companies. The result, maybe, is a marginally lower stock price for the big oil players.

But it’s quite another when the nation’s banks decide, independently or collectively, to effectively shut off the financing for projects that require considerable capital. It has the effect of killing the business.

It’s surprising that social activists haven’t tried to mount more campaigns against funding sources before.

In seeking to persuade big investors to sell their ownership stakes in fossil fuel companies, activists have adopted an oft-copied strategy used in the campaign against apartheid in South Africa. At Harvard, for example, a rally is planned next month, and famous alumni like the actress Natalie Portman and the director Darren Aronofsky recently signed a letter urging the university’s endowment to divest its stakes in fossil fuel companies. “While we can’t bankrupt the oil companies, we can start to politically bankrupt them, complicating their ability to dominate our political life,” the letter said. “Divestment is effective.”

In truth, however, divestment isn’t actually that effective.

“This is like saying to tobacco companies, ‘Unless you burn down all of the tobacco currently grown for your company and shut all of your factories, we will divest our shares,’ ” wrote Scott Wisor, a lecturer and deputy director of the Center for the Study of Global Ethics at the University of Birmingham in Britain. “Of course, it would be good if tobacco companies had to close their doors because people stopped smoking (supported by effective public policy). But no executive at a tobacco company is going to close down shop simply because do-gooder investors won’t buy his company.”
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On the other hand, if financing for capital-intensive projects like extraction is curtailed, the effect can be meaningful.

“The threat to share price from announcing that 80 percent of reserves will not be extracted is exponentially greater than the minor threat posed by a few universities and churches selling their shares in these companies,” Mr. Wisor wrote.

Even in the highly publicized anti-apartheid efforts of the late 1980s, a seminal academic study by professors from the University of Michigan and University of California, Los Angeles, found the results lacking.

“We find no support for the common perception — and often vehement rhetoric in the financial media — that the anti-apartheid shareholder and legislative boycotts affected the financial sector adversely: The announcement of legislative or shareholder pressure had no discernible effect on the valuation of banks and corporations with South African operations or on the South African financial markets,” the study said. “One explanation may be that the boycott primarily reallocated shares and operations from ‘socially responsible’ to more indifferent investors and countries.”

Fast-forward to the present: Rather than focus solely on divestment of fossil fuels, the Earth Quaker Action Team and Rainforest Action Network, two environmental groups, decided to set their sights on banks like PNC after having spent years successfully waging battles against firms like JPMorgan.

“In our early encounters with PNC, they didn’t take us or this issue seriously,” George Lakey, a retired teacher who was arrested twice during the campaign. “We showed them evidence, delivered them Appalachian water poisoned by mountaintop removal, and brought them face to face with residents hurt by this practice. We had to take direct action for them to see the light.”

Because banks like PNC have more at stake than one specific industry and a much wider variety of constituents than a coal company, the activists were able to cajole the firm’s executives.

“Banks no longer want to be associated with a dangerous, abhorrent practice like mountaintop removal; there is an emerging financial industry consensus that these practices are unacceptable,” the Rainforest Action Network said. “Concretely, this means mountaintop removal companies will have a harder time securing financing to operate and expand in the future.”

For its part, PNC said that because of “environmental and health concerns, as well as our risk appetite,” its mountaintop removal financing exposure had declined significantly over time. According to its latest corporate responsibility report, that exposure represented less than one-quarter of 1 percent of its total financing commitments. (That probably made the decision easier for the bank.)

Under its new policy, PNC will not extend credit to individual mountaintop removal projects or to coal producers with 25 percent or more of their production coming from such mining.

Other financing sources are likely to emerge. But the process of finding those sources will add costs, and the price of financing will rise, making mountaintop removal less and less tenable.

The real question is whether other social activists are watching, and what their next target may be.

source: http://www.nytimes.com