Moving towards carbon neutrality?
No financial actor has taken the urgency into account
Prevent expansion, initiate the exit

Avoiding climate change’s worst impacts requires us to organise the gradual phase-out of fossil fuels and aim for virtually zero consumption of coal by 2040, and by 2050 for oil and gas. Because of their historical responsibility for greenhouse gas emissions, EU and OECD countries must exit from these sectors 10 years earlier, i.e. by 2030 and 2040.

Yet, according to a UNEP report, countries’ planned fossil fuel production is 120% above the level that would contain warming to 1.5°C. And if financial institutions don’t wake up to reality, fossil fuel companies will continue to easily find the financial services they need to operate existing infrastructure and will also be able to develop new fossil fuel projects.

Indeed, analysing the policies adopted by banks, insurers and investors demonstrates the emptiness of the measures taken by the financial institutions in face of the challenge we are confronted with. According to the Report Card published by Reclaim Finance and its partners, banks have provided USD $2.7 trillion in financing to fossil fuel companies since the adoption of the Paris Agreement, with increasing annual financing since 2016.

Reclaim Finance urges financial institutions to adopt robust engagement and exclusion policies that prevent the expansion of oil and gas and set companies on a path to decarbonise their activities.

Moving towards carbon neutrality?

In October 2018, the United Nations Intergovernmental Panel on Climate Change (IPCC) pointed out the necessity of limiting warming to 1,5°C and not well below 2°C as stated in Paris in 2015. This requires cutting carbon emissions by almost half over the next decade and achieving zero emissions by 2050.

The good news is that many financial, economic and political institutions have since committed themselves to achieving carbon neutrality by 2050. Since September 2019, Allianz, AXA, Caisse des Dépôts et Consignations, Zurich and 18 other investors came together in the Net Zero Asset Owner Alliance to work on deploying the measures necessary to achieve this goal.

The bad news is that achieving carbon neutrality by 2050 would only give us a 50% probability of remaining below 1.5°C. The other bad news is that these commitments send a positive political signal but, in order to be met, must be coupled with immediate greenhouse gas reduction measures.

No financial actor has taken the urgency into account

This is a red alert: All scientific studies agree that the window of opportunity to prevent irreversible climate change and limit global warming below 1.5°C is only a few years away. Since betting on the development of negative emissions technologies is too risky a gamble, we must exit fossil fuels by 2050. Meeting this target requires decreasing oil and gas production by about 4.6% per year between 2020 and nous faut viser une sortie des énergies fossiles d’ici 2050. Tenir cet objectif implique de diminuer la production de pétrole et de gaz d’environ 4,6 % par an entre 2020 et 2040.

While we would have to initiate the immediate decrease of fossil fuels, the oil and gas industry has planned to increase its production by at least 7% by 2024.

Today, no major financial institution has adopted appropriate actions to stem the development of new fossil fuel projects and support the timely exit of these sectors. The main exclusionary measures apply to oil sands and oil and gas development in the Arctic. Both the quality and quantity of commitments are lacking.

Prevent expansion, initiate the exit

Political decision makers may end up reacting to save what can still be saved. This “Inevitable Policy Response” will be abrupt, disorderly and therefore costly for financial institutions who have not decarbonised their portfolios. But it will also be late, for some after 2025. This leaves too many years for the oil and gas industry to develop new projects.

This time lag is particularly worrying when we look at the nature of the new fossil projects planned for the 2020-2024 period: More than three-quarters of the planned production by 2024 will be North American shale oil or gas. This sector carries very high climate and ESG risks, particularly because of its impacts on water, and as a result is one of the riskiest for financial institutions.

Similar risks exist for other sectors that are both capital- and carbon-intensive: oil sands and heavy oils, liquefied natural gas, all types of drilling in the Arctic, and deep offshore drilling. These sectors are sometimes also associated with strong social and environmental risks.

Financial institutions must immediately stop supporting projects and companies active in these sectors in order to prevent social and environmental destruction and avoid transition shocks. Beyond these subsectors, the whole oil and gas industry is not without risk and must also be put on an exit trajectory. Therefore, financial institutions need to also adopt a robust commitment policy towards oil and gas companies.

Read our demands on oil and gas
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