UK banks are taking the lead in Europe over bankrolling new oil and gas projects, despite their wave of commitments to reach net-zero emissions by 2050.
In 2021, HSBC, Barclays, Standard Chartered, Lloyds Banking Group and Natwest lent a combined $17.6bn (£13bn) to companies with large upstream oil and gas expansion plans, including ExxonMobil, Saudi Aramco and Shell, according to research by the non-profit organisation ShareAction.
Financing these companies is “lose-lose” for banks, and ultimately for consumers, says ShareAction. As either the demand for oil and gas plummets and the bank’s assets lose value, or the bank’s suffer from the economic fall-out that experts forecast will eventually result from fossil fuel consumption and accelerated climate change. The Swiss Re Institute estimates that failing to reduce greenhouse gas emissions could lead to 18 per cent of global GDP being wiped off the worldwide economy by 2050, as increasing numbers of people are forced to migrate and supply shortages grow.
If global heating is to be kept below 1.5°C above pre-industrial levels, as set out in the 2015 Paris Climate Agreement, then new investments in oil and gas should have ended by the close of 2021, says the International Energy Agency.
In addition to UK banks, ShareAction analysed 20 other European banks and their financing of the biggest 50 upstream oil and gas companies. Overall lending in 2021 was 48 per cent lower than it was in the previous year, but this decline should not be read as progress, says Xavier Lerin, ShareAction’s senior research manager. Lerin described 2020 as an “outlier” because of Covid-19.
The average annual funding across all of the banks between 2016-2019 was around $61bn compared with a total of $55bn in 2021, meaning financing of oil and gas "remains consistent with pre-pandemic levels", says ShareAction. Three out of the five UK banks, HSBC, Standard Chartered and Natwest, have increased their funding of fossil fuels compared to their pre-pandemic average — HSBC by 7 per cent, and Standard Chartered and Natwest by a significant 24 per cent and 63 per cent respectively.
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The appetite for banks to invest in fossil fuels is no secret. In March 2021, the Rainforest Action Network found that the world’s 60 largest banks had provided $3.8trn in financing to fossil fuel companies since the 2015 Paris Agreement. Recent net-zero pledges do not seem to be having an huge impact on investment decisions. All of the banks in the study became signatories to the UN’s Net Zero Banking Alliance (NZBA) last year, which commits members to net zero by 2050 and to set 2030 targets within 18 months of joining.
The study shows “how far banks have to go despite committing to lofty net zero goals”, says Beau O'Sullivan, from the campaign group Bank on our Future. “We need to start scrutinising them on the basics: the expansion of oil and gas is absolutely not compatible with a net zero future.”
The two biggest funders of oil and gas expansion were British banks. HSBC, which was last month linked to a deal with Saudi Aramco, leads the way. Since 2016 it has provided almost $60bn to oil and gas companies, despite being a founding signatory of the NZBA. Barclays came second with $48bn worth of investment.
“We are committed to working with our customers to achieve a transition towards a thriving low carbon economy,” insists HSBC, highlighting the bank's policy on thermal coal phase-out. The policy, announced in December, includes plans to stop financing thermal coal in European and OECD countries by 2030, and worldwide by 2040. Later this month, the bank plans to publish targets to winding down fossil fuel financing in line with the goal to keep global heating below 1.5°C.
The UK’s banking sector is passing up the opportunity to show leadership, says O'Sullivan, when institutions in other countries are making progressive steps much faster. The French bank, La Banque Postale, has announced a 2040 net-zero emissions target and firm commitment to completely exit the oil and gas market by 2030, supersedes its government’s climate ambitions.
Natwest is one of the few European banks to have started restricting financing for oil and gas projects. Loans to fossil fuel projects now makes up less than 0.8 per cent of the Natwest's total lending, says a spokesperson, adding that it aims to finance £100bn in climate and sustainability funding by 2025.
As Lerin makes clear, however, while green financing is important, it has to replace not add to fossil fuel financing: “Green assets are not going to offset the emissions from the brown ones… we need consistency. You can’t keep [financing] both”.