In December 2021, the AMF and the ACPR published their second joint report monitoring climate pledges of French financial institutions. Their findings show that confusion reigns over the criteria and follow-up of the policies set out by the actors. They also reveal that the claims to accompany the transition that they loudly put forward do not cover any tangible reality. It is high time for the regulators to draw the consequences from this situation and fully assume their supervisory mission. Otherwise, the so-called “climate” pledges of the financial sector are to be nothing but a massive greenwashing exercise.

As we highlighted following the publication of the October 2021 regulators’ pre-report – focused on financial institutions’ exclusion policies and exposure to fossil assets – the regulators’ findings reveal the extreme confusion that surrounds the climate ambitions of financial institutions.

They note a profusion of announced objectives, covered perimeters, exclusion criteria and methodologies, which contradicts the simplicity of the latest scientific findings (also noted, p. 28): given the state of science, the gradual end of financial support for the fossil fuel sector and, as of now, for its expansion is necessary to preserve the climate.

In this context, the mere assessment of financial institutions’ exposure to fossil fuel-related assets forces regulators to take important precautions, as they point to “a major methodological deficit” and the impossibility for them to present anything but orders of magnitude.

And even on coal, which has been scrutinized in France for years, regulators note shortcomings relating to the scope (with passive management generally escaping exclusion measures), the lack of definition of the concept of “developer” or the fact that “the setting of a definitive phase-out date is rarely accompanied by a description of the intermediate steps to prepare it“.

With this level of confusion, it is no surprise that institutions violate their own policies, as we recently showed with regard to Crédit Agricole.

With regard to oil and gas, regulators point to the weakness of policies, often limited to the unconventional hydrocarbon sector, from which financial institutions have been called upon to turn away by the authorities¹.

The definition of these hydrocarbons raises difficulties in itself. Arbitrarily chosen approaches by actors are multiplying. Regulators are therefore calling for greater consideration of the recent position paper of the Scientific Committee of the French Sustainable Finance Observatory, which has a high level of ambition.

Above all, they note that, with very few exceptions, conventional hydrocarbons are still not systematically treated in the sectoral policies of financial institutions.

In particular, the exclusion of entities developing new oil and gas production projects is generally not addressed, although it stems from the findings of the IEA as quoted by the regulators (p.28).

Therefore, while they insist that “ it now seems essential that banks and insurance companies better integrate [the IEA’s] recommendations into their oil and gas strategy and policies” – which goes beyond stopping expansion – they recommend to financial institutions, “ to clarify the approach adopted with regard to investments or credits granted in new projects to develop the supply of coal, gas and oil, as it is being done in some institutions and in connection with the recent conclusions of the International Energy Agency“.

This call to financial institutions must sound like a warning: associating a climate ambition with sectoral policies requires them to be aligned with the latest state of science, or else being possibly accused of inaccuracy or even deceit.

To this end, the tools provided by Urgewald’s GCEL or GOGEL are an essential reference, largely integrated by regulators in their analysis.

As dialogue and/or engagement is often put forward by financial institutions, in particular as a substitute for the cessation of their support to climate-harmful actors, they are the subject of a specific study by the regulators.

They note that “so that these accompanying policies do not become a simple statement to maintain carbon-intensive assets in the balance sheets of financial institutions, it is necessary to attest to the effectiveness and impact of the measures put in place by banks and insurance companies to encourage their counterparties to truly engage in these announced strategies“.

And the conclusions of their analysis are clear: weakness of the actions concretely carried out, limits of resources allocated internally, scarcity of escalation strategies in the absence of results, lack of precise and systematized follow-up.

With regard to banks and insurance, “for most organizations, the modalities of action of the accompanying policies are also for the moment more a matter of communication than of a previously established escalation policy, which would describe the different steps and corresponding actions in the dialogue with the counterparties“.

And regarding asset managers, “in view of the first analyses carried out and the information collected, it appears that climate issues are emerging in practices, but this theme does not appear to be a major topic of engagement and voting actions“.

Thus, like our own observations, this analysis confirms that the so-called transition support strategies do not currently correspond to any tangible reality. They cannot therefore be reasonably opposed by financial institutions as a substitute for the cessation of support to the activities most responsible for the climate crisis.

The regulators specify that the analytical framework they develop in the report is only a first inventory of practices to be “eventually complemented by other work to assess their effective impact on the mitigation of global warming“.

However, they also note that the vast majority of the institutions analyzed have now made public pledges on specific climate objectives (carbon neutrality, 1.5° limitation, etc.), the achievement of which requires actions that, at the very least, do not contradict the latest state of science².

Concerning financial actors, it at least requires the cessation of support for fossil “developers” and the conduct of effective coal phase-out policies, focused on closing the assets and not merely selling them.

As the report shows, it would be naïve to expect the sector to take these measures within the required time frame, including through its professional bodies.

One can remember how, on the difficult issue of unconventional hydrocarbons, the French Banking Federation recently welcomed a joint declaration by major financial institutions, which was based on the lowest possible level of ambition.

Notes :

1. See Bruno Le Maire’s speech at Climate Finance Day 2020; Concerning investors, cf. art. 29 LEC and its implementing decree
2. See, for example, for initial framing elements on the meaning of these commitments: ADEME (2021), Opinion on Carbon neutrality