Signature Sponsor
Harvard Study: Divesting From Coal Is More Beneficial Than Previously Thought



By Haley Zaremba

May 2, 2023 - Harvard professors have researched the positive effects on emissions from divesting from coal.


The study found that if an existing source of funding is cut off for a coal enterprise, it will have an extremely difficult time securing a new line of funding.

Over the last decade, banks have had a very hot and cold relationship with divesting from coal. As calls to defund the world’s dirtiest fossil fuel have ramped up, big banks have increasingly agreed to sever ties with coal enterprises – but they haven’t always kept those promises. Part of the reason that divesting from coal has been such a wishy-washy component of the global road to decarbonization is that there has been a lack of empirical studies proving the efficacy of this approach. But now, thanks to a new study by the Harvard Business School, there is. A recently released report by Harvard Business School professors Boris Vallée and Daniel Green measures the effects of banks’ coal divestment policies to answer the rather hyperbolic but no less important question: “Can Finance Save the World?” And the answer seems to be, to an impressive degree, yes. Yes, it can. In fact, financial firms divesting from coal as a climate strategy works even better than previously thought.

“What we found in this case is that banks divesting from coal directly leads to real impact—more than anyone thought,” Vallée was recently quoted in an article from Harvard Business School. “This means that the financial effects translate into environmental effects. By reducing capital expenditures, facilities are decommissioned, and CO2 emissions ultimately fall, as any alternative source of energy is less carbon-intensive.” 

The study found that if an existing source of funding is cut off for a coal enterprise, it will have an extremely difficult time securing a new line of funding. In fact, there are relatively few banks supporting the vast majority of coal exploration and production, which means that while these banks have a greater degree of sway in the sector, taking just one bank out of the picture can have a large and direct impact on keeping it in the ground. 

This finding is based on more than a decade’s worth of data, collected by the nonprofit group Reclaim Finance between 2009 and 2021, paired with analysis of “coal company financing transactions and financial statements, and the operating status of coal mines and coal-fired power plants.” 

The hope is that the gravity of this strong finding, and its basis in sound empirical evidence from an institution as highly regarded as the Harvard Business School, will not only help further the cause of divestment, but also serve as a basis for strong policy and accountability mechanisms to hold banks responsible for making good on their pledges. This will be a crucial development for the global decarbonization movement, because up until now big banks’ track records with defunding coal has been spotty, to say the least.

Last year, CNN reported that the industry was characterized by a general culture of greenwashing, as shown by “a ‘massive disconnect’ between the green rhetoric of the largest financial institutions, their climate commitments and net zero pledges, and their actual financing practices when it comes to new fossil fuel development.” At the time of that report, in April of 2022, coal power generation was at an all time high worldwide. And since then, consumption has only grown. Just this week, China approved a surge in coal production despite its own ambitious climate targets.

Seeing the relative value of getting serious about financial limits on coal as compared to the economic trade-offs of strong-arming coal companies into downsizing, closing, or pivoting, could be essential for creating more meaningful banking policy. So far, as CNN reports, ‘squishy policy’ has been one of the biggest hurdles to meaningfully phasing down and phasing out coal. “Bank policies around coal funding typically have loopholes that allow financing to continue through multiple channels,” the report stated. “Banks can restrict financing for specific projects involving coal but won’t rule out general purpose loans or deals for a whole company.” 

As the world continues to get more serious about the green energy transition and the evidence piles up in favor of phasing out coal completely, the hope is that coal bans, too, will become more serious. As we’ve seen from recent COP squabbles over language concerning the future of coal, the minutiae of policy matters. It’s time to graduate from toothless campaigns filled with finance loopholes to creating strong mechanisms which are serious about ending coal funding. As the new Harvard study shows, it’s not just a pipe dream. It can – and will – work.