{"id":33527,"date":"2024-05-31T11:57:54","date_gmt":"2024-05-31T09:57:54","guid":{"rendered":"https:\/\/reclaimfinance.org\/site\/?p=33527"},"modified":"2024-05-31T12:01:18","modified_gmt":"2024-05-31T10:01:18","slug":"bnp-paribas-and-credit-agricole-say-no-to-bonds-for-the-oil-and-gas-sector","status":"publish","type":"post","link":"https:\/\/reclaimfinance.org\/site\/en\/2024\/05\/31\/bnp-paribas-and-credit-agricole-say-no-to-bonds-for-the-oil-and-gas-sector\/","title":{"rendered":"BNP Paribas and Cr\u00e9dit Agricole say no to bonds for the oil and gas sector"},"content":{"rendered":"

Three years after the publication of the International Energy Agency\u2019s (IEA) first Net Zero Emissions (NZE) scenario, projecting a halt to the development of new oil and gas fields, BNP Paribas and Cr\u00e9dit Agricole have announced that they will no longer participate in conventional bond issues by companies in the sector. In so doing, two of the world’s 10 biggest banks are finally taking note of the scientific imperative to halt the expansion of oil and gas production. They are also converting this acknowledgement into action by ending one of the most important forms of non-earmarked financing for the energy sector. This action must now be extended to loans and companies developing new oil and gas transport infrastructure, and should be emulated by other international banks.<\/p>\n<\/div>

Within a few days of each other, BNP Paribas and then Cr\u00e9dit Agricole announced that they would no longer participate in issuing conventional bonds for companies involved in oil and gas extraction and production (1).<\/p>\n<\/div>

A ground-breaking measure to be applauded and emulated<\/h2><\/span>
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The measures cover both specialized and integrated companies, including the oil and gas majors. It is a major move for both banks given their previous high levels of financing for the sector. BNP Paribas was the leading bank behind BP, Shell and TotalEnergies between 2019 and 2023, while Cr\u00e9dit Agricole was the second-largest financial backer of TotalEnergies and one of the main backers of Eni over the same period (2).<\/p>\n

Non-targeted bonds also accounted for 45% of all financing to the six major European oil & gas companies over the last 3 years by BNP Paribas (52%) and Cr\u00e9dit Agricole (38%) (3) – a significant percentage that is comparable to the financing for the sector as a whole by the two French banks (41%) (4). If generalized to the 60 largest international banks, this would cover 51% of financing granted to the sector.<\/p>\n

While the manner of this announcement is to be deplored, and in particular the fact that the banks have not yet written this measure into their sectoral policies, a silent revolution is taking place in the practices of the two giants of the French banking sector. While other global banks are backtracking on their climate commitments or showing no sign of weakening their support for the biggest polluters, BNP Paribas and Cr\u00e9dit Agricole are taking a further step towards respecting the scientific consensus on the imperative of halting oil and gas expansion.<\/p>\n<\/div>

Compromising loopholes<\/h2><\/span>
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Two shortcomings, however, call into question the banks’ willingness to fully align themselves with a 1.5\u00b0C trajectory. The first is the fact that the announcement concerns only conventional bonds, leaving out corporate loans, even though the two share identical financing objectives.<\/p>\n

It should be noted, however, that both banks do have targets for reducing their exposure to the oil and gas sector, which, in the case of BNP Paribas at least, should make this kind of transaction exceptional over the coming years (5). Exceptional, but not impossible, as evidenced by BNP Paribas’ participation in a loan to Eni last December (6). The possibility of participating in future loans to oil and gas companies is greater for Cr\u00e9dit Agricole which has an exposure target for 2025, but, unlike BNP Paribas does not have a target for 2030 (7).<\/p>\n

Moreover, there are no measures for companies involved in the development of new oil and gas transport infrastructure, including for liquefied natural gas. Such infrastructure development hinders our chances of limiting global warming to 1.5\u00b0C just as much as the development of new oil and gas fields. The banks cannot meet their own climate commitments without ending their support for the companies building them. This is all the more urgent as BNP Paribas and Cr\u00e9dit Agricole still seem to be providing strong support. For example, we have noted 12 transactions (loans and bond subscriptions) by BNP Paribas and 14 transactions by Cr\u00e9dit Agricole to oil and gas infrastructure companies since January 2024, compared with 0 and 2 transactions respectively to hydrocarbon companies over this period (8).<\/p>\n<\/div>

Sustainability-Linked Bonds: an open door to greenwashing<\/h2><\/span>
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Unconventional bonds are not covered, starting with green bonds, which are financing mechanisms earmarked for specific projects. While it is important to ensure that the activities financed are sustainable, continuing to facilitate these bonds could help meet the massive need for investment in sustainable energy.<\/p>\n

But the banks are also leaving the door open to Sustainability-Linked Bonds (SLBs), another type of unconventional bond which, unlike green bonds, are not earmarked for specific activities, but finance all the activities carried out by the companies benefiting from them. These bonds are problematic in more ways than one. In particular, they are criticized as greenwashing when issued by a company which, far from having a robust transition plan, continues to develop new fossil fuel projects that are strictly incompatible with a 1.5\u00b0C trajectory (9).<\/p>\n

However, this type of untargeted bond remains rare. Over the past three years, companies active in oil and gas exploration and production have issued 778 bonds, including just 7 SLBs (10). BNP Paribas and Cr\u00e9dit Agricole participated in only two of these transactions, both for Eni (11).<\/p>\n

Although imperfect, the announcements by BNP Paribas and Cr\u00e9dit Agricole undeniably represent a major step forward in the fight against climate change. It is urgent that the other major international banks follow suit. As for the two French banks, consistency would dictate that they refrain from participating in other non-earmarked financing – loans and Sustainability-Linked Bonds – for companies developing new fossil fuel projects. We will not fail to denounce such transactions should they arise, and we call on the two banks to extend their approach to companies involved in hydrocarbon transport, and in particular the development of new LNG terminals.<\/strong><\/p>\n<\/div>

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Notes:<\/h3><\/span>
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  1. BNP Paribas response to a question put by Friends of the Earth France at the Annual General Meeting on May 14; and Cr\u00e9dit Agricole response to a written question put by a shareholder at the Annual General Meeting on May 22.<\/li>\n
  2. Financial data from Banking on Climate Chaos, 2024<\/a><\/span>.<\/li>\n
  3. BP, Eni, Shell, TotalEnergies, as well as Equinor and Repsol.<\/li>\n
  4. Over the period 2021-2023, bonds accounted for 45% and 35% respectively of the financing granted by BNP Paribas and Cr\u00e9dit Agricole to companies in the oil and gas production sector. These calculations include all non-earmarked bonds, including Sustainability-Linked Bonds, but do not take into account other financing (not for fossil fuels) granted over this period.<\/li>\n
  5. BNP Paribas has a target to reduce its oil exposure by 80% by 2030 and its gas exposure by 30%, with 2022 as the baseline.<\/li>\n
  6. In December 2023, BNP Paribas contributed to a US$3 billion Sustainability-Linked Loan to Italy’s Eni. At a hearing before the French Senate on TotalEnergies<\/a><\/span>, Jean-Laurent Bonnaf\u00e9 also mentioned the possibility of granting revolving credit facilities to diversified companies.<\/li>\n
  7. Cr\u00e9dit Agricole said it had achieved a 17% drop in exposure to oil exploration and production ($6.1 billion at the end of 2022 versus $7.3 billion in 2020), compared with its target of a -25% drop by 2025, and a 20% drop in exposure to oil, gas and coal extraction between 2020 and 2023. The bank does not have a gas exposure reduction target. As for BNP Paribas, the bank says it has achieved a 37% drop in its oil and gas exposure over 2020-2023.<\/li>\n
  8. Data taken from Bloomberg terminal.<\/li>\n
  9. Under the SLL model, companies are supposed to be punished with higher interest rates if they miss their decarbonization targets. But both the targets and the increment in the interest rate tend to be inadequate to drive any significant change in corporate behavior or climate impact. For example, last December, Eni issued an SLL whose associated targets covered scope 1 and 2 emissions reductions, but ignored scope 3 targets. Consistency would dictate that BNP Paribas and Cr\u00e9dit Agricole refrain from participating in this type of bond when it is issued by a company developing new oil and gas fields, which the banks have clearly indicated they no longer wish to support. It would also be necessary to ensure that the KPIs attached to this type of financial product include all emission scopes, as well as a target for reducing hydrocarbon production.<\/li>\n
  10. The same applies to loans, with 294 general loans including only 7 SLLs referenced on the Bloomberg terminal since 2021.<\/li>\n
  11. The 6 majors and major European oil & gas companies have issued 10 bonds, including 4 SLBs, issued solely by Eni, over the period 2021-2023.<\/li>\n<\/ol>\n<\/div>
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