Unlike Bruno Le Maire, that did not mention his request for a withdrawal from unconventional hydrocarbons which was made only a year ago during the Climate Finance Day 2021, the French financial regulators – ACPR and AMF – published their annual pre-report setting out strong demands for the French financial sector. The regulators underline the role of fossil fuels in the climate crisis and – taking into account the recent conclusions of the International Energy Agency (IEA) – call on the Paris financial center to “clarify and strengthen” its commitments in this area. Our overview.

Shared observations

In 2020, French financial regulators had already analyzed the coal policies adopted by French financial players, and issued a battery of relevant recommendations.

One year later, the new analysis of the ACPR and the AMF on coal policies and on the first policies adopted regarding the oil and gas sector is in line with that of Reclaim Finance.

Thus, while the regulators note a “slow tightening” of coal policies, policies still lack transparency, particularly with regard to the scope of activities covered, which hinders any comparability. The same problem concerns the calculation of exposures to the sector, which remains very heterogeneous. Or the treatment of companies that have adopted a “credible” transition strategy and the different steps – notably in terms of reinforcing exclusions or opposing the sale of coal infrastructures – to achieve the exit targets now set.

The notion of “developers” is now widely used by financial institutions restricting their support to the coal sector, even if significant differences in definition persist. The use of thresholds formulated in absolute terms – coal production or coal power production – has also become widely used.

Heterogeneity and imprecision is also a characteristic of the approaches and levels of ambition displayed by financial actors in the adoption of oil and gas policies, which focus primarily on non-conventional fossil fuels. The AMF and ACPR clearly identify the scarcity of policies on conventional hydrocarbons, while emphasizing that unconventional hydrocarbons are only very partially covered. Oil sands and shale oil and gas are the two most frequently targeted categories of unconventional hydrocarbons, albeit in a very limited way and often without preventing new projects.

In addition, financial players are often unable to accurately track their financial services to oil and gas companies. In some cases, these difficulties make the application of fossil fuel policies uncertain: the AMF and ACPR point out that, as investors, insurers have policies that focus on a very limited share of unconventional hydrocarbons, while they are unable to provide data on hydrocarbon divestment, do not distinguish between conventional and unconventional hydrocarbons, and rarely know how to identify investments linked to new projects.

Overall, once long-term goals have been adopted and criteria and thresholds have been set, it is the ability of financial actors to implement their policies and meet their commitments that remains “difficult to assess in the absence of milestones or details of the steps” planned.

These observations lead the AMF to make this cry from the heart: “Concerning policies on other fossil fuels, it is imperative that asset management companies (AMCs) get involved”. More broadly, the regulators encourage Paris financial market participants to quickly implement “robust, transparent and comparable policies on all fossil fuels” and to acquire the tools to monitor and apply them.

Clear recommendations

In their recommendations, the ACPR and the AMF highlight a number of essential elements that must be included in a good oil and gas sector policy:

  • They underline the imperative need to reduce greenhouse gas emissions and thus fossil fuels, referring to the latest IPCC and IEA analyses, “particularly with regard to investments involving new coal, gas and oil supply development projects, as well as those contemplating the opening of new coal-fired power plants” ;
  • At the heart of the means of implementing these policies are the lists of companies developed by our German partners in Urgewald. The Global Coal Exit List, the latest version of which was updated earlier this month, and the Global Oil & Gas Exit List, to be published on November 4, will cover the entire fossil fuel value chain.
  • They insist on the need to adopt a common definition of unconventional hydrocarbons, referring to the one recently issued by the Scientific Committee of the Sustainable Finance Observatory.
  • Last but not least, they call on financial actors to “adopt a ‘clear policy’ on so-called ‘unconventional’ fossils and indicate on this occasion the measures “put in place for a gradual exit (…) from unconventional hydrocarbons, specifying the timetable for the exit chosen as well as the share of total assets managed or held by the entity covered by these policies.”

For the AMF and ACPR, the need to quickly adopt robust oil and gas policies is worth “both for their contribution to global warming, and to address the increased financial risks to the sector.” The regulators stress that “these policies should draw on the lessons and work done for coal, and take into account available projections and expected developments in terms of the level and nature of investment in the sectors concerned in order to be able to meet the objectives of the Paris Agreement“. This means – as has largely been done for coal and consistent with the work of the IEA or the United Nations – ending financial services to new fossil fuel projects and the companies that develop them as a priority.

It will therefore take much more than the few announcements made in recent days to meet these main recommendations. The COP26 must be a major moment for French financial actors to respond to these demands and to the climate emergency.

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