The IEA (International Energy Agency), the world’s most influential energy body, announced last year that there can be no investment in new oil & gas fields if the world is to have a 50% chance of limiting warming to 1.5C. Other widely used 1.5C climate scenarios, such as those produced by the Network for Greening the Financial System, point towards similar conclusions.
Yet new data from ShareAction shows that banks continue to flaunt this guidance. The responsible investment NGO studied the volumes of finance provided by 25 of the largest European banks to 50 companies with large oil & gas expansion plans, including Exxon Mobil, Saudi Aramco, Shell and BP.
It found that the 25 banks have provided over $400 billion in finance to these companies since 2016. HSBC tops the table with $59bn, followed by Barclays ($48bn) and BNP Paribas ($46bn).
Twenty-four of the banks in ShareAction’s study are members of the UN-convened Net Zero Banking Alliance (the exception is DZ Bank, which is a member of the Net Zero Banking Alliance Germany).
These 24 banks provided $33 billion to oil & gas expanders since joining the alliance last year, with over half of that amount ($19bn) coming from four of the founding members – HSBC, Barclays, BNP Paribas and Deutsche Bank. NZBA members have committed to set emission reduction targets for their energy portfolios, but the alliance’s guidelines are silent on fossil fuel expansion.
Mark Campanale, Founder and Executive Chair of Carbon Tracker, said: “ShareAction has produced excellent analysis which reminds banks that there is no pathway to net zero that involves funding an expansion in production of fossil fuels. The IEA’s ‘NetZero2050’ report tells us that for the world to avoid 1.5C of heating, then no investment is needed anywhere in any new coal, oil or gas production. Now is the time for banks to get real with the science, and announce a science-based moratorium on funding new fossil fuel projects.”
Few banks have policies to restrict financing to oil & gas clients, but leading practice is emerging
Commerzbank, Crédit Mutuel, and La Banque Postale are the only banks to have begun restricting finance to companies expanding oil & gas production, although this only applies to new clients in the case of Commerzbank.
La Banque Postale created an important precedent in October last year by announcing it will exit the oil & gas sector entirely by 2030. In the interim, the French bank will no longer finance oil & gas projects and companies if they have not committed to a) phase-out their oil & gas activities by 2040, and b) not develop new oil & gas projects, in line with the IEA’s guidance.
The French lender has traditionally had much lower exposure to the fossil fuel sector than many of its counterparts, meaning it had less to lose by imposing these restrictions. But its counterparts will need to implement similar commitments sooner or later if they are to meet their net-zero ambitions.
Banks say that they want to help their clients to transition away from fossil fuels, but there is little evidence for this claim
Banks often frame their objectives in terms of supporting clients to transition away from fossil fuels, rather than imposing financing restrictions. For example, HSBC’s energy policy says, “Our primary aim is to support our customers in the transition from a high-carbon to a low-carbon economy.”
But most banks – HSBC included – are not demanding transition plans from clients, raising doubts about their commitment to this transition. ShareAction’s research found that Danske Bank and NatWest are the only banks publicly requesting some of their oil and gas clients to publish transition plans by a set date and that La Banque Postale is the only bank requiring clients to rule out oil & gas expansion.
Financing oil & gas expansion is a lose-lose scenario for banks and their investors
ShareAction says that financing oil & gas expansion is a lose-lose bet for banks and their investors. Xavier Lerin, Senior Research Manager, said: “If oil & gas demand decreases in line with 1.5C scenarios, prices will fall and assets will become stranded. On the other hand, if demand does not fall enough to limit global warming to 1.5C, the economy will suffer from severe physical climate impacts. Either way, value will be destroyed for energy companies, banks and their investors.”
As such, the NGO is urging asset managers to make full use of their shareholder rights to demand that banks implement policies to restrict finance for oil and gas expansion. This includes voting for shareholder resolutions filed by ICCR at JP Morgan Chase & Co, Bank of America, Wells Fargo & Co, Citigroup Inc, Morgan Stanley and Goldman Sachs Group Inc, as well as a resolution filed by Market Forces at Standard Chartered.
Kelly Shields, Senior Officer for Banking Standards at ShareAction, said: “Last year shareholders were instrumental in pushing banks to adopt or strengthen restrictions on coal finance. This year they need to replicate that success with oil & gas expansion by voting for robust shareholder resolutions and against inadequate Say on Climate plans.”