STOP THE EXPANSION OF FOSSIL FUELS

Financial institutions: tone-deaf… or hypocrites?
Fracking and the dangers of shale oil and gas
No longer giving giants a pass

We are facing an emergency. A chorus of scientific studies affirms that our window of opportunity to limit global warming to 1.5ºC above pre-industrial levels is rapidly closing, leaving us with just a few years. Betting on the development of hypothetical carbon-removal technologies is too risky: we must exit coal by 2040 and all fossil fuels by 2050. The EU and OECD countries, historically responsible for most greenhouse gas emissions, must leave these sectors ten years earlier, exiting coal by 2030 and other fossil fuels by 2040.

Yet, according to a UNEP report, countries’ planned fossil fuel production is 120% above the level that would limit warming to 1.5°C. If financial institutions do not act, fossil fuel companies will continue to easily access the financial services needed to not only operate existing facilities but also to develop new projects.

Indeed, an analysis of the policies adopted by banks, insurers, and investors shows how empty the measures financial institutions are taking are in the face of the gravity of the climate emergency. According to the Report Card published by Reclaim Finance and its partners, banks have provided $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.

Read our demands on oil and gas

Financial institutions: tone-deaf…

Not one financial institutions has adopted the policies needed to curb the development of fossil fuels. Coal exclusion policies are sub-par. Meanwhile gas and oil sub-sector policies, centred tar sands and Arctic prospection, are shamefully insufficient.

The good news is that many financial, economic, and political institutions have since committed themselves to achieve carbon neutrality by 2050 and to align their activities with 1.5ºC. One such initiative is the Net Zero Asset Owner Alliance. Launched in 2019, the alliance gathers 28 investors including Allianz, AXA, Caisse des Dépôts et Consignations, SCOR, and Zurich, collectively managing $5 trillion. However, the task is no small feat: not only do we not have a roadmap for carbon neutrality, but the International Energy Agency (IEA) also does not even publish a 1.5ºC scenario.

Learn more about rhe IEA

…or hypocrites?

Exepectations

There are serious doubts as to the sincerity of the members of these initiatives when it comes to taking action. In the absence of tools to precisely tailor each financial product to follow a 1.5ºC trajectory, financial institutions can rely on science and knowledge readily available and immediately reduce greenhouse gas emissions.

For instance, we know that the existing fossil fuel reserves in use and infrastructure in operation are enough to exceed our carbon budget. Financial institutions must follow the principles for alignment with the Paris Agreement, as outlined in a statement published by multiple NGOs, including Reclaim Finance. This entails in particular ceasing the financing of all fossil fuel projects and adopting a plan to eliminate all financed emissions by 2050. Another key element would be for financial institutions to commit to the end of all financial services to the coal sector by 2030 in EU/OCDE countries and by 2040 globally.

Principles for Paris-aligned Financial Institutions

Vs. Reality

It is also clear that financial institutions will not be able to align themselves with a 1.5ºC trajectory if their holdings do not do the same.

Thus, we should expect members of the Net Zero Asset Owner Alliance, as well as all those pledging to align themselves with a 1.5ºC trajectory, to divest companies that are growing their hydrocarbon production, or at least to push them to abandon their plans.

However, we find myriad examples of incoherent and contradictory promises and actions.

For example, AXA voted against the climate resolution put to Total SA’s shareholders on May 29, 2020, asking the French oil group to set 1.5ºC alignment goals. Before the Covid-10 crisis, France’s biggest polluter planned to open no less than 25 wells by 2025. AXA does not seem so see this as an obstacle to limiting global warming to 1.5ºC.

More about Total’s climate resolution

Fracking and the dangers of shale oil and gas

0
new hydrocarbon project to remain below the +1.5°C threshold
0 %
the expansion of hydrocarbon production in North America
0 %
of the global carbon budget would be consumed by this development

The gas and oil industry plans to increase production by 7% until 2040 despite the imperative to decrease oil and gas production by 4.6% per year between 2020 and 2040. New projects are planned and in development across all gas and oil sub-sectors. If these projects come to completion, they will defeat our chances of limiting global heating to 1.5ºC.

Financial institutions must immediately stop supporting projects and companies active in the capital- and carbon-intensive sub-sectors that constitute the most substantial risks for populations, the environment, the climate, and in turn, financial institutions themselves; these include tar sands, all types of drilling in the Arctic, deep offshore drilling, and the entirety of the liquified natural gas sub-sector.

The most concerning development is shale gas, and to a lesser extent, tar sands in the US and Canada. This is an emergency: 85% of hydraulic fracturing and horizontal drilling between 2020 and 2025 will take place in North America, using up 26% of the global carbon allowance aimed at limiting global warming to 1.5ºC above pre-industrial levels. Preventing this climate bomb from exploding means adopting sector- and value chain-wide exclusion policies, from extraction wells to LNG (Liquefied Natural Gas) export terminals.

Though some exclusion policies have recently surfaced, with announcements from Crédit Agricole and Natixis in May, these policies risk to replicate BNP Paribas’ pitfalls and overlook gas and oil behemoths, such as Total SA, Shell, Chevron, Exxon Mobil, and BP—50% of these giants’ development plans from 2020 to 2024 are in shale oil and gas.

No longer giving giants a pass

Financial institutions adopted partial exclusion policies for some fossil energies. However, when exclusion thresholds are relative to total production or income, large corporations with highly diverse energy mixes, including oil and gas giants, fall through the cracks. This is a huge issue: stopping fossil fuel expansion is impossible if we ignore these leviathans.

Twenty-five companies handle 50% of supplemental hydrocarbon production between 2020 and 2024—these include industry titans. According to the Carbon Tracker Initiative, all oil giants are engaged in new projects which are incompatible with the Paris Accord goals. Total SA’s investments in hydrocarbon Exploration and exploitation are 18 times higher than there “low carbon” investments—a misleading category in which gas overshadows renewables.

Gas and oil giants are capable of single-handedly turning the Paris Agreement into a pipe dream. Financial actors have no other choice but to:

  • Suspend all financial services to oil and gas giants if they do not stop expanding and developing new fossil fuel projects; and
  • Use shareholder engagement and their power as a financial stakeholder to force oil and gas giants to adopt absolute greenhouse gas emission reduction goals across their activities, from scope 1 to scope 3, to limit global warming to 1.5ºC above pre-industrial levels.
Read our demands on companies’ engagement