New tool identifies greenwashing, finds GFANZ exclusion policies lagging net zero pledges.
Fewer than half of the 150 largest financial institutions worldwide have implemented oil and gas exclusion policies, according to a new tool designed to track the fossil fuel exposures of banks, insurers and investors.
Moreover, a “significant number” of the “heavyweights” in the Glasgow Financial Alliance for Net Zero (GFANZ) haven’t yet implemented such policies, despite pledging to align their portfolios with 1.5°C.
Reclaim Finance and more than 15 other environmentally-focused NGOs, including Insure Our Future, ActionAid Denmark and Sierra Club, have launched the Oil and Gas Policy Tracker (OGPT), a tool designed to track “good practices” of large financial institutions. Many of the current policies of banks, insurers and investors are “too flawed” to align their businesses with their net zero 1.5°C targets, said Reclaim Finance.
The tracker detects greenwashing practices in the finance sector, said Director Lucie Pinson. “It confirms that despite their net zero pledges, many GFANZ members don’t even have an oil and gas policy. And with one glowing exception, French la Banque Postale, those that do have a policy can still support the development of new oil and gas plans,” she added.
As a result, many leading firms are “failing the most basic test for any institution aiming to align their portfolio with 1.5°C.”
Exclusion of new oil and gas projects
The OGPT scores the oil and gas exclusion policies of 60 banks, 30 insurers and 60 investors – including both asset owners and managers – covering restrictions on new oil and gas projects, restrictions on companies developing new oil and gas projects, and strategies to phase out oil and gas.
Only nine financial institutions totally exclude support for all new upstream oil and gas projects – an approach considered essential to the International Energy Agency’s (IEA) net zero 2050 pathway – with most policies focused on excluding support only for some unconventional oil and gas, such as tar sands, Arctic exploration, fracking and/or ultra-deep waters.
“It is alarming to see that almost a year after the IEA warned that no new oil and gas fields should be developed, the industry remains on its ruthless expansion course,” said Nils Bartsch, Head of Global Oil and Gas Exit List Research at NGO Urgewald, which compiles the Global Oil and Gas Exit List. The OGTP “constitutes a key component in the toolbox for driving change in the industry”, he added.
Only five financial institutions (partially or totally) restrict support for companies developing new oil and gas projects, despite the critical role played by corporate financing in new oil and gas projects. Most policies focus on restricting direct project support but enable support at the company level.
Exceptions rather than red lines
The tracker also revealed that an increasing number of financial institutions were “making room for major exceptions in the fine print of their policies”. This includes financial institutions creating exceptions for companies with “credible transition plans” or “aligned with 1.5°C by 2050”. These policies rarely include “clear red lines” against oil and gas expansion.
“The loopholes in banks’ policies are too big to stop billions from flowing to the oil and gas industry’s expansion plans,” said Alison Kirsch of Rainforest Action Network. “…banks must address those loopholes and cut off the taps for companies that are still developing new oil and gas projects.”
The OGTP found that only six of the 30 largest fossil fuel insurers had adopted any restrictions on conventional oil and gas and only three had ruled out any support for new oil and gas expansion projects. “Insurance companies have warned about climate risks for almost 30 years and would like to see themselves as climate leaders. Such claims have little credibility,” said Peter Bosshard, Global Coordinator of Insure Our Future.
Separately, research by advisory company DWF reported that 55% of senior executives in the insurance industry have experienced increased pressure on ESG matters from stakeholders such as regulators, customers and employees, in comparison to 46% across all sectors.
The survey of 480 senior executives in 13 countries, found 28% of insurance executives felt that the ESG performance of their own company was ‘weak’ and 65% said poor ESG performance was affecting their company “a great deal”.
Recent oil and gas commitments
The NGOs supporting the OGPT acknowledged that recent policy shifts from a number of large institutions needed to be factored into the new tool. Reclaim Finance said recent oil and gas policy announcements by ABP, Aviva and Swiss Re are under evaluation. Last week, HSBC made some new commitments on climate change, agreeing to phase down financing of fossil fuels in line with 1.5C, and updating the scope of its oil, gas, and thermal coal policies by the end of 2022.
At the upcoming Barclays AGM in May, shareholders will be given a vote on its new climate commitments, published today. Lydia Marsden, a Senior Research Officer at responsible investing NGO ShareAction welcomed elements of Barclays’ new plan, including 2030 emissions reduction targets for energy, power, cement and steel sectors covering both lending and capital markets activities, as well as its commitment to phase out coal finance from 2030, but also said there were “troubling loopholes”.
“Their 2030 phase out for thermal coal power isn’t inclusive of the US, a coal generation powerhouse. The 2023 start-point of restrictions to coal expansionists also arrives two years behind IEA guidance,” said Marsden. “By failing to update its oil and gas policy, Barclays can continue to finance activities inconsistent with the goals of the Paris Agreement such fracking, oil sands and new oil and gas extraction.”
Reclaim Finance research found that Barclays had provided more than US$27 billion between October 2018 and October 2020 to companies in the Global Coal Exit List (in both loans and underwriting), ranking eighth globally in terms of overall financing, and fifth in terms of coal lending.
Reclaim Finance plans to gradually expand the scope of the tracker to include 200 more international financial institutions. By the time the United Nations General Assembly convenes in September, the OGTP is intended to score the oil and gas policies of all significant members of the GFANZ.