December 20, 2006
Rainforest Action Network Seeks to Stem Flow of Financing to TXU Coal Project
by Bill Baue
Part two of this two-part articles addresses how RAN sent a letter to 54 banks urging them to
withhold funding from a TXU plan to build 11 pulverized coal-burning power plants in Texas.
While shareowners represent one set of investors concerned over the environmental impacts of a plan
by TXU (ticker: TXU) to build 11 new pulverized
coal-burning plants in Texas (see part one of this article), banks
that would finance the project represent another key set of investors. Rainforest Action Network
(RAN), an environmental nongovernmental
organization (NGO) that campaigns for sustainable banking, is trying to tie a tourniquet around the
lifeblood of the project by sending a letter to 54 financial institutions
urging them to withhold financing from TXU.
"A recent issue of Business Week
Online quotes three different experts who say, respectively, that 'Nobody in their right minds
should be building a coal power plant;' that 'It is the definition of financial insanity to invest
in a new coal plant;' and that 'Itís very likely that the investment decisions many are making, to
invest in long-lived, high-carbon dioxide-emitting-power plants, are decisions we'll all live to
regret,'" wrote Michael Brune, RAN's executive director. "Our strong preference is to support your
company's decision to get more proactive on climate change and to decline to be associated with
this proposal by TXU, rather than oppose your company's actions with a public campaign."
The Investor Briefing that accompanied the RAN letter notes that TXU named Morgan Stanley (MS) and Citigroup
(C) as financial
advisors to the project, with Merrill Lynch (MER) reportedly set to play a
significant advisory role and many other banks as potential financiers of the project.
"It's ironic that Citigroup is a lead arranger, seeing as they were considered a leader on
sustainable banking when they created their environmental policy back
in 2004," said Dana Clark, a global finance campaigner for RAN. RAN was credited with prompting
Citigroup to create its policy, which set precedent at the time, as well as sign the Equator
Principles (EPs), a set of
voluntary environmental guidelines established in 2003 that cover project finance, or lending to
infrastructure projects such as power plants. "We've been talking with Citigroup about the TXU
project since September, and when we met with them, I was disappointed with their attitude that, if
the project gets its permits and is legal, they don't have a problem with it."
our relationship with TXU, we do not comment on client matters, but of course we only do business
with clients who fully comply with all applicable laws, regulations, and policies, including the
Equator Principles," Citigroup Spokeswoman Danielle Romero-Apsilos told SocialFunds.com.
While the July 2006 revision of the Equator Principles (or EP2) extended them to explicitly
cover advisory roles such as Citigroup is playing in this instance, Citigroup's response
exemplifies why critics of the EPs are frustrated.
"It proves to be next to impossible to
talk with banks about specific EP projects and whether they comply, since they cite client
confidentiality, and we have no way of verifying their claims apart from visiting the sites," BankTrack Coordinator Johan Frijns told
SocialFunds.com. BankTrack, a coalition of NGOs that promote sustainable finance, has added the
TXU project to the list of "dodgy deals" it tracks. "What this says
about the EPs--when its signatories support the TXU project--is that in the real world, they make
so little difference that we get pretty fed up with them."
commentary from potential financiers of the TXU project. None of the EP banks was able to supply
commentary on the TXU deal. Nhan Chiem, manager of corporate communications at EP bank HSBC (HBC) that has
reportedly been approached by TXU, claimed client confidentiality. Amy Davidsen, director of
environmental affairs at JPMorgan Chase (JPM), was unavailable. And Jim
Mahoney, director of public policy at Bank of America (BAC), did not respond. As for
non-EP banks, Christopher Williams, vice president of media relations for Goldman Sachs (GS), confirmed that
the bank is not involved with TXU, and Selena Morris of Merrill Lynch media relations did not
"We don't comment on client relations, however I can tell you we are
in the process of revising our environmental policy statement, we're in conversations with some of
the environmental agencies, and we expect to have a new statement out early next year," Mark Lake
of Morgan Stanley media relations told SocialFunds.com. It therefore remains to be seen whether
the new policy would preclude financing a project such as the TXU's.
"We've spoken with
some of the other banks besides Citigroup, such as Morgan Stanley, and they consider this a
political question," Ms. Clark of RAN told SocialFunds.com. "We say, no, it's an economic
question, it's a reputational risk question, it's an environmental question."
politics play a significant role in the progress of state approval for the project, and may serve
to overshadow the importance of the economic and environmental impacts of the coal plants and their
impact on the reputations of companies associated with the project. In late October Texas Governor
Rick Perry issued an executive order requiring the Texas Commission on Environmental Quality (TCEQ) to prioritize TXU's permit
"It's all quite suspect--TXU and others made over $85,000 in political
contributions to Gov. Perry, and he in turn issued the order fast-tracking the permitting process
and limiting the period of public opposition," Ms. Clark explained.
TXU takes exception
with this explanation.
"TXU did not seek to fast-track, rather the governor of Texas saw
an urgent need for power in this state and he shortened the administrative process for permitting
from somewhere between 12 to 18 months to six months," TXU Spokeswoman Lisa Singleton told
SocialFunds.com. "Nothing else about the permitting process has changed."
the validity of the fast-tracking process, its results carry significant implications.
"One thing that would be a crying shame is if this old-school, Chinese-style pulverized coal
technology with massive greenhouse gas implications gets locked in now, with a lifespan of 50
years, when there's so much interest in wind and solar and demand-side management conservation and
energy efficiency, so the problem with the fast-tracking is that consideration of those
alternatives is getting squelched in the process," Ms. Clark stated.
Part one of this
two-part article examines how shareowners are raising environmental and regulatory concerns over
the TXU coal expansion plan, as well as environmentally preferable alternatives to coal such as