Financial players must put an end to their support for oil and gas expansion in order to align with the obligations of climate science, and must immediately stop support for new non-convention oil and gas projects, as well as to companies not rapidly ruling out their development.
- This injunction, similar to that made by scientists and the International Energy Agency, is invoked today by the Scientific Expert Committee and the Paris Financial Centre’s Sustainable Finance Observatory set up a year ago to guide and evaluate financial players’ decarbonization efforts
- While no French financial actor has responsed to them and most financing tends in the opposite direction, the noose is nonetheless tightening. The recommendations were endorsed by representatives of the DG Treasury and the MTE, due to their direct participation in the work of the Scientific Committee.
- Banks, insurers and investors in the Paris financial center have one month to respond before a first assessment at Climate Finance Day. This deadline is all the more important as the French Minister of the Economy and Finance had asked the Paris financial center, in October 2020, to replicate their commitment on coal for non-conventional oil and gas.
These recommendations on unconventional oil and gas come a few months after the first set of recommendations published in February 2021, which notably covered the end of financing for the coal sector. The Committee, which recognizes in its introductory remarks “the scientific imperative to halt all new fossil fuel projects and to reduce oil and gas production”, has already indicated that it will subsequently issue recommendations on the entire oil and gas sector. The implementation of this second set of recommendations is therefore a prerequisite, even if it will not be enough to bring finance in line with the objective of carbon neutrality.
The Committee’s choice to “zoom in” on unconventional oil and gas can be explained by its desire to respond to the French political context. Last year, the French Minister of the Economy and Finance, Bruno Le Maire, called on financial players to adopt exit strategies from these sectors. We can expect a first assessment at the next Climate Finance Day, slated for the 26th October.
The Committee first takes the time to clarify the terms of the proposal by returning to the types of oil and gas that it considers to be “unconventional”. According to the Committee, and on the basis of the available scientific literature, these are coal-bed methane ; tight oil and gas; oil shale and shale oil; shale gas; tar sands; extra-heavy oil; gas hydrates; ultra-deep offshore and Arctic oil and gas, according to the AMAP definition.
The Committee takes care to address engagement measures before exclusion measures, echoing its introductory remarks in which it notes the need to ensure “effective support for the fossil fuel industry in its decarbonization, by integrating the issues related into a just transition”. It specifies the points and measures on which to engage companies in the sector in order to push them to adopt annual emissions reduction targets for scope 1, 2 and 3. It describes the vital transformations that companies must implement in order to reduce greenhouse gas emissions from fields already in production. This is particularly true of methane, which the IPCC has also identified as a priority for action, and on which the Committee makes specific and necessary recommendations.
But assisting the transition does not mean denying the scientific imperatives and turning a blind eye to the reality of corporate development strategies, which offer the only way to identify companies that are genuinely interested in aligning themselves with climate objectives. Thus, the Committee places dialogue at the top of the list of engagement measures, to be conducted in order to push all companies to rapidly renounce the development of new oil and gas fields in the relevant sectors. This recommendation is fully in line with the national legislative context, with the decree implementing Article 29 of the Energy-Climate Law, which places great value on reporting on engagement strategies and voting policies, as well as their outcome and consequences on sectoral disengagement strategies (section 4° of Article 1.3).
By also including this measure in the exclusionary measures section – stating that companies that do not respond positively to this request within a short period of time should be excluded from all financial services – the Committee is attempting to align itself with the latest recommendations of the International Energy Agency, which stipulate that no new oil and gas fields should be developed in order to achieve carbon neutrality.
The Committee also states that the future Global Oil and Gas Exit List will facilitate the identification of additional exclusion measures based on the level of exposure of companies to unconventional oil and gas. Finally, it unsurprisingly recommends an end to all direct financial support for new oil and gas production fields in the relevant sectors, as well as for transportation and processing infrastructure such as liquefied natural gas terminals powered largely by unconventional fossil fuels.
To put it another way, Parisian financial players are today a long way from meeting these recommendations. It is even more urgent that they get their act together as their financial services are far from showing downward trends. Let us hope that these recommendations, endorsed by the DG Treasury and eagerly awaited by professional federations such as the French Banking Federation, the French Insurance Federation and the French Asset Management Association, will be met with the publication of new commitments by financial players before the Climate Finance Day on October 26. These commitments must necessarily translate into a review of the sectoral policies of Paris financial players: this is a question of the scientific credibility of its green transition, going beyond commitments, labels and voluntary initiatives alone.