Banks that are financing fossil fuel expansion need to take “some individual responsibility” even if that means taking a hit to bottom lines, Anders Schelde, CIO at Akademiker Pension, has told Responsible Investor.
The €22 billion Danish pension fund has joined forces with UK campaign group ShareAction as part of a $1.5 trillion investor coalition urging European financial heavyweights to cease financing new oil and gas fields by the end of this year.
Among the 30 investors backing at least one of the letters, which have been sent to Barclays, Crédit Agricole, Deutsche Bank, BNP Paribas and Société Générale this week, are Brunel Pension Partnership, Aegon Asset Management, Candriam, Cardano Actiam and La Française Asset Management.
Akademiker was one of 20 investors that signed all five letters.
Schelde told RI that the banking sector is a natural target, given the fund’s fossil fuel divestment: “We divested upstream bonds and equities, but we remain in fossil fuels – in an indirect way – through the banks that we invest in. So for us it was only natural to shift attention to them now that we can’t do active ownership of the oil companies anymore.”
Like the energy firms themselves, those financing fossil fuels have a responsibility, he said, even if that means they might have to say no to some business and let competitors pick it up. “You may have a little less on your bottom line.”
Schelde added, however, that he was sceptical of arguments that not financing fossil fuels would harm banks financially in the long run. “For that to happen it would also mean that you’re not able to deploy your capital to other sectors,” he said. “And if you can’t deploy that capital elsewhere, well, you just can you can send it back to your shareholders.”
The ShareAction letters estimate that asset financing for new oil and gas represents 8 percent of total financing of leading oil and gas expanders, and therefore also ask the banks to “swiftly turn their attention to the companies behind new oil and gas fields”.
According to the nonprofit, Barclays is the second-largest European provider of finance to the 50 top oil and gas expanders, with more than $48 billion between 2016 and 2021. BNP Paribas was ranked third, followed by Crédit Agricole, Société Générale and then Deutsche Bank in sixth place.
HSBC, which was ranked number one, has not been sent a letter. In December, the banking giant announced that it will no longer directly finance new oil and gas fields. The decision followed increasing shareholder pressure, including the filing of a climate proposal in 2021 by ShareAction with the support of investment heavyweights Amundi and Man Group.
Pressure on banks rises
Scrutiny of banks’ fossil fuel financing by investors has been ramping up in recent years. Akademiker’s Schelde believes the trend will continue, including through more Say on Climate proposals.
Last month, three of New York City’s five public pension funds, led by the City’s comptroller Brad Lander, filed shareholder proposals calling on Goldman Sachs, JPMorgan Chase and Royal Bank of Canada to set absolute 2030 emissions reduction targets.
The announcement of the proposals came just one day after it was reported that Europe’s largest pension fund, ABP, had warned that banks which continue to finance new fossil-fuel projects face divestment.
But investor support was thin on the ground with regards to proposals calling on North American banking giants to align their fossil fuel financing with the IEA’s net-zero scenario last year.
None of the resolutions at Morgan Stanley, JPMorgan Chase, Citigroup, Wells Fargo, Goldman Sachs and Bank of America achieved more than 12 percent support. This was despite the fact that, according to the most recent Banking on Climate Chaos report, the cohort included the top three fossil fuel financiers.
The ShareAction letters ask the recipient banks to respond before the announcement of their annual general meetings.
As to what investors should do with banks involved in new fossil fuel financing and without a credible strategy, Schelde told RI: “At this stage, I think the appropriate step would be to vote against the chair or board director responsible.”
A spokesperson for Aegon Asset Management also put director votes on the table, describing it as the “next logical step” if progress is not seen. Until now, the manager has voted against transition plans.
In a similar vein, Greta Fearman, senior responsible investment officer at Cardano Actiam, told RI that it will “escalate with votes against board members on a case-by-case basis” where sufficient progress is not seen.
Marie Lassegnore, head of sustainable investments at La Française said banks are aware of the risks of not acting.
She told RI that engagement is a “patience game”, but added that there has been “an acceleration in the way institutional investors are positioning themselves in terms of what they can invest in or not”. “It’s a risk that I am sure banks are foreseeing today,” she said.
Sophie Deleuze, lead ESG analyst engagement and voting at Candriam, also stressed that engagement is a process that takes time. At the same time, she said: “The outcome of the coming year’s engagement with these five European banks in relation to the financing of new oil and gas fields will be decisive in deciding whether we wish to take escalation measures.”
She added that the manager is not at the stage of voting against directors but it is an option that could be considered.
A spokesperson for BNP Paribas told RI that that the group’s trajectory “is fully in line with the IEA’s scenario, including its most recent expansions”. They added that the French group is also in line with its Net-Zero Banking Alliance commitment.
Crédit Agricole pointed to a confirmation issued in December that the bank does not finance any new oil extraction projects. A spokesperson added that the IEA’s net zero emissions scenario “states that gas will still be an energy source in the world’s energy mix in the medium term and that it will only start to decline from 2025”.
Deutsche Bank’s spokesperson said the group has “strict guidelines for business activities in carbon-intensive sectors and has significantly reduced our engagement in these sectors since 2016”. He added that the bank has established business restrictions for coal and oil and gas sectors and that it is a “committed as a member of the Net Zero Banking Alliance to reducing our financed emissions in the oil and gas sector”.
Société Générale provided a link to its latest commitments on supporting the energy transition, in which it strengthened its ambitions to reduce finance for the most carbon-emissive sectors by setting new targets for upstream oil and gas.
Finally, Barclay’s spokesperson highlighted that it was one of the first banks to set a 2050 net zero ambition.
“Where carbon-intensive companies are unable or unwilling to reduce or eliminate their emissions, we will reduce our support over time,” the spokesperson said. They also pointed out that last year more than 80 percent of shareholders backed the UK bank’s Say on Climate vote.