Pressure grows on banks to end business with Indonesian coal giant Adaro

JAKARTA — Calls are mounting for global financiers to cut ties with Adaro, one of Indonesia’s biggest coal companies, as the miner shows no sign of moving away from the fossil fuel despite its net-zero pledge.

More than 33,000 people have signed an online petition calling on JPMorgan, Citi and Deutsche Bank to drop Adaro as a client. Citi has loaned $400 million to Adaro, while JPMorgan and Deutsche Bank’s environmental, social and governance (ESG) policies don’t rule out financing the company.

Adaro is a major emitter, responsible for 0.28% of global CO2 output since the signing of the Paris Agreement in 2015, according to research by the Carbon Major Database. But the company lacks credible plans to reduce its emissions, according to the petition, organized by global consumer watchdog Ekō.

Apekshita Varshney, campaigner at Ekō, called Adaro’s business model “toxic,” with 70% of its total revenue still coming from sales of thermal coal, the type used to generate electricity.

“Banks considering it as a client while at the same time trying to present a green face to the world risk serious harm to their reputation,” she said.

Amid environmental concerns, major banks like BNP Paribas and DBS have refused to underwrite any future bonds for Adaro, while South Korean automaker Hyundai scrapped a deal to source aluminum from an Adaro-built smelter, Varshney pointed out.

“It’s a clear signal that coal miners cannot get away with greenwash and fake transition plans,” she said.

In April 2022, Adaro Energy’s CEO, Garibaldi Thohir, announced the company’s intention of “ceasing dependence on coal” and moving to renewable energy. In October 2023, Adaro issued a statement saying it fully supported the Indonesian government’s commitment to reduce greenhouse gas emissions by transforming its coal business to green energy.

But an analysis by Ekō and BankTrack, a network of NGOs that monitors the financing of environmentally harmful activities, found Adaro’s claims of transitioning its business to be false.

For one, Adaro continues to grow its coal business, both thermal coal and metallurgical coal, which is used in steelmaking.

Metallurgical coal: The hot new commodity

Adaro has stated that metallurgical coal remains a core part of its energy transition agenda, given its importance in steel production. Across the coal-mining industry in Indonesia, metallurgical coal is seen as the future because of growing demand for the steel that undergirds clean-energy technologies ranging from electric vehicles to renewable energy infrastructure.

According to the U.S. National Renewable Energy Laboratory, steel accounts for 66-79% of a wind turbine. ArcelorMittal, the world’s No. 2 steelmaker, says it takes 120-180 tons of steel to produce each new megawatt of wind power, and 35-45 tons for solar.

For Adaro, therefore, actually increasing its mining of metallurgical coal is part of the company’s push toward decarbonization.

“[O]ur high-quality metallurgical coal is forecast to remain critical to make steel necessary to support the green economy, decarbonization and infrastructure growth over coming decades,” Thohir said in a statement.

As such, Adaro has been increasing its output. In 2023, it reported sales of metallurgical coal increased by 39% to 4.46 million metric tons. This year, it targets an increase of 21% to 5.4 million metric tons, and eventually 6 million metric tons in 2025.

While much of the scrutiny of the coal industry has focused on phasing out the burning of thermal coal, metallurgical coal is still largely exempt from mining companies’ and financial institutions’ coal phaseout plans. This despite the fact that metallurgical coal remains a significant contributor to global GHG emissions, particularly through the release of methane, a powerful greenhouse gas that is 80 times more potent than carbon dioxide during its first 20 years in the atmosphere, causing climate warming at a faster rate.

Mines producing metallurgical coal emitted nearly 12 million metric tons of methane in 2021, equivalent to nearly 990 million metric tons of CO2 and warming the planet more than the CO2 emissions of Germany or Canada, according to the International Energy Association (IEA).

Overall, the steel industry is responsible for 11% of global CO2 emissions, and 7% of global GHG emissions, due to its dependency on coal. Mining, transporting and burning metallurgical coal also have widespread and well-documented negative impacts on communities and ecosystems across the world.

The IEA has called to halt the development of new metallurgical coal mines, noting that existing mines are sufficient to supply demand until 2030.

However, Adaro plans to open up new metallurgical coal mines in three concessions. Right now it has two active metallurgical coal-mining concessions.

Thohir justified the expansion of metallurgical coal by calling it “an irreplaceable raw material in the steelmaking process,” adding that the future is rosy for metallurgical coal. Adaro also says it’s exploring technologies for emissions reduction, such as carbon capture, utilization and storage (CCUS) technology.

But contrary to what the mining industry claims, metallurgical coal is no longer essential for steel production, according to a recent analysis by the U.S.-based Institute for Energy Economics and Financial Analysis (IEEFA). Simon Nicholas, lead analyst for the global steel industry at the IEEFA, attributed this to advancements in steelmaking technology, and predicted that global demand for metallurgical coal will decline even as demand for steel stays strong.

Nor have any carbon-capture technologies been proven at scale, the IEEFA pointed out, with no steelmaking plant anywhere in the world employing commercial-scale CCUS, and virtually nothing in the pipeline.

This means a move away from metallurgical coal is necessary if the global steel industry is to transition into a low-carbon industry, the IEEFA said.

Thermal coal still going strong

Even as it expands its metallurgical coal production, Adaro isn’t exactly abandoning thermal coal. According to Thohir, Adaro has no plans to open new mines or acquire thermal coal assets, adding that “production is relatively flat” and “will decline.”

Yet in 2023, Adaro’s thermal coal production and sales increased by 5% and 7% respectively from 2022. Asked during a public event in November 2023 whether Adaro would reduce its thermal coal production, Lie Luckman, the company’s chief financial officer, said Adaro would maintain its production level.

During 2022-2023, Adaro invested heavily in the coal supply chain, including barges and heavy equipment. The bulk of its capital investments went into building a massive aluminum smelter in an industrial park in North Kalimantan province. Touted as “green” because it will eventually be powered by hydroelectricity, the smelter clinched a headline deal with Hyundai to supply the aluminum for its EVs. When it later emerged that the smelter will initially be powered by 2.2 gigawatts of new coal-fired power plants also built by Adaro, consumer pressure from around the world forced the South Korean giant to end the deal.

Given its increasing metallurgical coal output and no sign of a decrease in thermal coal production, Adaro offers no credible transition plan and its business policy remains misaligned with internationally agreed climate goals, Ekō said.

Its net zero statement is also noncommittal, with no focus on reducing real emissions, Ekō added.

All these mean Adaro isn’t serious in transitioning away from coal, despite the company’s claims and promises, said Bondan Andriyanu, a climate and energy campaigner at Greenpeace Indonesia.

“[I]f Adaro wants to regain the trust of global companies, both financiers and buyers, then it has to make a real transition away from coal, not just engage in greenwashing,” he said in a press statement.

Failure to do so will further isolate Adaro from the global market, said Nabilla Gunawan, a campaigner at climate finance watchdog group Market Forces.

“Without a credible transition plan that entails the limitation of coal expansion,” she said, “Adaro has to face growing financial risk and the fact that more investors will ditch this dirty company.”

Banner image: Environmental activists wear mask, show placard, banners and balloons labeled with dangerous gases produced from the use of coal as they hold a protest during a general meeting of coal miner Adaro’s shareholders at front of Raffles Hotel building in Jakarta, Indonesia on May 15, 2024. Greenpeace/Mas Agung Wilis Yudha Baskoro.

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Article published by Hayat

Alternative Energy, Carbon Emissions, charcoal, Clean Energy, Climate, Climate Change, Climate Change Policy, Coal, Corporate Environmental Transgressors, Corporate Responsibility, Corporations, Emission Reduction, Energy, Environment, Finance, Fossil Fuels, Fossils, Green, Green Energy, Greenhouse Gas Emissions, Just Transition, Mining, Renewable Energy

Asia, Indonesia, Southeast Asia

Adaro, Hyundai, JPMorgan Chase (JPM)

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