New research from responsible investment campaign group, ShareAction, says many European banks retain significant investment in highly polluting, carbon intensive oil sands and have “weak and ineffective policies” for phasing out related finance, despite putting out net-zero CO2 environmental plans.
Barclays, HSBC and Credit Suisse, were highlighted in the report, titled: High Risk, Low Reward as among the worst offenders. They are accused of being the only European banks to have continued participating in debt financing deals with Canadian oil sands ‘upstream’ exploration/extraction companies since the signing of the Paris Agreement.
ShareAction says all three banks also fund TC Energy and Enbridge, the two companies building the controversial Keystone XL and Line 3 Replacement pipelines.
In terms of climate-related strategies, the report says Barclays and Credit Suisse have two of the weakest, with no corporate or asset-level exclusions to oil sands finance.
It says HSBC and Deutsche Bank only apply restrictions to new projects, allowing the banks to continue funding existing sites.
Barclays has described its exposure to oil sands as a “very small business” with £20m of revenue generated in 2019, representing approximately 0.1% of its total revenue.
But ShareAction says this does not give an idea of the underlying credit risk, nor the magnitude of its historical support to the oil sands sector. It says: “Barclays has provided $3.2bn of oil sands financing since the signing of the Paris Agreement, a significant source of support for an otherwise failing sector. The rationale to maintain an exposure to a sector that represents a marginal part of its revenues is unclear considering the potential downside in terms of reputational risk, giving the impression the bank is picking up pennies in front of a steamroller.”
ShareAction says its findings reinforce concerns that there is a gap between institutions’ net zero promises and their actual strategies.
Xavier Lerin, senior banking analyst at ShareAction, notes: “Since its net zero announcement in March, Barclays has participated in 11 loan and bond deals to major tar sands companies, including infrastructure companies building out extra pipeline capacity.”
Earlier this year, a group of NGOs, led by environmental campaign group 350.org, labelled Barclays and HSBC as the biggest financiers of ‘brown’ assets in Europe. Between the end of 2015 and 2019, the report said the former lent almost £91bn to fossil fuel companies, while the latter provided £67bn of support for the industry over the same period.
Another report from the same time by environmental finance watchdog, Market Forces, said HSBC was financially backing 18 of 33 of the world’s largest publicly-listed coal plant developers.
ShareAction’s analysis of Europe's 24 largest banks showed no banks had defined specific steps to fully phase out oil sands, and that even the most robust policies allow them to retain investments indefinitely and potentially increase exposure.
French bank, BNP Paribas, was highlighted as having the most robust policy to limit oil sands investment; it has implemented corporate restrictions using thresholds relative to companies’ exposure to oil sands, and its policy covers all the bank’s products and services (funding, advisory, ancillary) as well as asset management. But, ShareAction says, the bank’s strategy only applies to companies with a substantial share of oil sands.
ShareAction said banks’ oil sands policies should include:
Immediate prohibition of project finance related to new oil sands, including related infrastructure such as pipelines, and of project finance related to the material expansion of existing projects;
A time-bound, measurable plan to phase out exposure to companies that are highly dependent on oil sands, including related infrastructure such as pipelines, and companies working to expand the oil sands infrastructure, including pipelines, in line with the objectives of the Paris Agreement;
- Exclusions for both expansions and new developments;
- Restrictions at both asset and corporate level, with restrictions on use of proceeds;
- Restrictions throughout the value chain (including upstream and infrastructure/transportation activities);
- Restrictions applying to all financial services including advisory and asset management
- It also recommends that investors disclose their exposure to oil sands, including the average maturity of their portfolio.
HSBC and Barclays declined to comment on the findings of ShareAction’s report.