The asset management arm of BNP Paribas has moved to strengthen its policies on high-carbon investments, today announcing tighter exclusions on companies engaged in coal mining and power generation. 

The French banking giant, which manages €399bn of assets, said coal combustion was the single largest source of global warming and must be curbed to keep the Paris Agreement on track.

It also stressed that coal is becoming "increasingly uncompetitive" in the face of less carbon-intensive fuel sources such as renewables. Reducing its role in BNP Paribas' portfolios will therefore "reduce the economic risk", it said.

Under the new policy, which will come into force next year, BNP Paribas AM said it will exclude companies from its investments that derive more than 10 per cent of their revenue from mining thermal coal, and/or account for one per cent or more of total global production.

It will also exclude power generators with a carbon intensity above the 2017 global average of 491 grams CO2 per kWh. Thereafter BNP said it will follow the Paris Agreement-compliant trajectory for the coal sector determined by the International Energy Agency.

Under its Sustainable Development Scenario - an emissions pathways for the energy sector in line with Paris targets - the International Energy Agency says power generators' carbon intensity must fall to 327 grams of CO2/kWh by 2025. 

"BNPP AM will therefore demand that companies reduce their carbon intensity between 2020 and 2025 at a rate consistent with this, excluding those that fail to do so," BNP confirmed. 

However, the French bank said it would still consider exceptions to the policy for miners and power generators that "make credible commitments to reducing their coal-based activities to levels consistent with the Paris Agreement within the required time frame".

Such commitments would be assessed based on criteria covering plans to dump coal assets, invest in low carbon generation, and strategies to shift to a lower carbon business model, BNP said. Companies granted exemptions would then be expected to comply within two years.

The enhanced coal exclusion policy will apply to all of BNP Paribas AM's actively managed open-ended funds from the start of 2020, and will also become the default policy for segregated mandates - funds run exclusively for a single client - it said.

It comes after global mining giant Glencore announced plans last month to limit coal production and develop a "Paris-consistent strategy", amid growing fears investors in high carbon industries could be left with stranded assets as the world shifts towards a low carbon economy.

BNP Paribas said its enhanced coal policy marked a "significant step" towards its 2025 target to align its asset management portfolios with the Paris Agreement's goal of keeping any global temperature rise to within 2C. 

Mark Lewis, global head of sustainability research at BNP Paribas Asset Management, stressed the move also makes financial sense.

"From an investment perspective the outlook for the coal industry looks increasingly uncertain as less carbon-intensive fuel sources, in particular renewables, become ever more competitive," he said. "The main renewable technologies already compete favourably with fossil fuel power generation, and in the best locations for wind and solar globally, new build costs are actually below those of existing fossil-fuel plants. The trend will continue as costs for all renewable technologies continue to fall."