Fifty globally significant financial institutions have set a trend for global capital exiting fossil fuel projects with their decisions taken since 2017 to introduce policies restricting oil sands or oil and gas drilling in the Arctic out of which 23 announced their decisions in the first half of this year, according to a new tracker developed by the Institute for Energy Economics and Financial Analysis (IEEFA) on Tuesday.
The IEEFA's, From Zero to Fifty, Global Financial Corporations Get Cracking on Major Oil and Gas Lending Exits analysis showed that accelerating divestment from oil and gas echoes similar early trends of global financial institution’s exit from coal.
Over the last few years, several financial institutions also announced decisions to divert capital from coal to combat climate change.
"Momentum is building against financing oil and gas projects," the IEEFA’s Tim Buckley, director of energy finance studies and co-author of the study said.
"Over 140 global financial institutions have already restricted thermal coal financing, insurance or investment and we are now seeing a similar accelerating shift of capital away from oil and gas exploration, starting with high-risk oil sands development and drilling in the Arctic," Buckley noted.
This momentum in fossil fuel divestment globally is encouraging other financial institutions, which are seeking better management against increase climate change, to follow suit.
The analysis identified 50 significant global financial institutions including HSBC, Banco Santander, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Citigroup, Wells Fargo and Morgan Stanley that restricted financing on oil and gas drilling projects in the Arctic.
- European institutions take the lead
European institutions lead the trend out of which 36, including HSBC, Banco Santander, BNP Paribas and Deutsche Bank, have announced a formal divestment policy.
The World Bank, BNP Paribas, Credit Agricole Group and AXA became the first four major financial institutions to introduce exclusion policies in 2017, five more announced exits in 2018 and then the amount accelerated to 18 in 2019.
Subsequently, in the first half of 2020, a further 23 announced restrictions, doubling the total from the previous three years.
The analysis perceived one of the world’s largest multilateral lender, the European Investment Bank (EIB), as having the best and strictest policy, with its announcement in 2019 that it would be out of all oil and gas by the end of next year.
Buckley noted that many financial institutions began divesting from coal and then encompassed Arctic and oil sands exclusions. He expects in the near future that financial restrictions will also expand to ethane crackers and new gas investments.
"Tighter regulations on carbon-intensive projects are narrowing margins which means that risks are going up while the promised returns are looking increasingly elusive. There is no financial rationale for the world’s financial institutions to remain invested in fossil fuel companies developing yet more reserves," he said.
According to the study, six US financial institutions including Goldman Sachs, JP Morgan Chase, Citigroup, Wells Fargo and Morgan Stanley have also followed the trend by releasing formal exclusion policies against drilling.
The study regarded Norway's $1.1 trillion Government Pension Fund Global's (GPFG) decision to divest from all oil and gas exploration companies as noteworthy but criticized it for its decision to continue to invest in refineries and vertically integrated oil-firms such as Royal Dutch Shell and ExxonMobil.
Oil and gas majors, which have found themselves under a harsh spotlight as concern over climate change increases across the world, responded to the scrutiny with pledges and plans to reduce their emissions with varying degrees of ambition. These companies decided to increase their renewable energy investments as risks are continuously increasing in the oil and gas sectors due to the falling demand and climate change.
"BP, Shell, Total, ENI and Equinor should not ‘rest easy’. Their recent strong rhetoric needs to be followed up by continued, accelerated action. We expect global financial institutions exiting oil and gas to continue to tighten loopholes in subsequent policy measures to show a greater commitment towards the global Paris accord," Buckley noted.
By Firdevs Yuksel and Nuran Erkul Kaya