BNP Paribas: Conscientious objector

The growing band of fossil fuel-averse investors gained a new recruit in October -- this time a bank. BNP Paribas Group announced that it would no longer do business with companies whose principal business activity is the exploration, production, distribution, marketing or trading of oil and gas from shale and/or oil from tar sands.

The bank also said it would cease the financing of projects primarily involved in the transportation or export of oil and gas from shale or oil from tar sands. In addition, the group will not finance any oil or gas exploration or production projects in the Arctic region.

This announcement builds on BNP Paribas's previous measures to reduce its support for coal mines and coal-fired power generation. Instead, it will increase its total financing for renewable energy to Eur15 billion ($17.7 billion) by 2020, and set aside Eur100 million for investment in start-ups working on innovative solutions for the transition to low carbon energy systems.

The bank's broader goal is to bring its financing and investment activities in line with the International Energy Agency scenario which aims to keep global warming below 2 C by the end of the century.

The bank's move is similar to Norway's Sovereign Wealth Fund, the world's largest -- and one built on oil and gas revenues -- which has gradually been tightening its investment principles based on environmental criteria, excluding companies involved in the coal industry or depending on coal as a source of power.

Other funds, generally smaller pension funds, for example attached to some London boroughs and high-profile universities such as Oxford and Harvard, have also tightened the environmental principles on which they are willing to invest, some eschewing fossil fuel investments altogether.

According to the Global Fossil Fuel Divestment and Clean Energy Investment Movement, by the end of 2016, the value of assets represented by institutions and individuals committed to some sort of divestment from fossil fuel companies had reached $5 trillion. Although this is a somewhat imprecise statistic, the divestment trend is growing and BNP Paribas is a major recruit.

Moral dilemma

The energy transition presents a dilemma for investment funds, not just on environmental grounds, but on financial ones; rejecting fossil fuels too soon or entirely could potentially leave billions of dollars on the table for less scrupulous investors. Equally, failing to get in at the base with new technologies could see below par returns for their investments.

It is a balancing act between environmental principle and fiduciary duty, but all these decisions feed into changing perceptions about what is and what isn't a sunset industry.

Coal appears the first to have entered the gloaming, but, at the same time, US coal exports are again surging on the back of supply tightness in Asian markets.

Oil sands, because of its high emissions and relatively high costs, is another easy target, but shale, and shale gas in particular, is not so obvious.

BNP Paribas seems to be excluding itself not just from the US shale industry, but from the emergent Argentinean one, and with its ban on Arctic projects, potentially the emergence of LNG trade across the Arctic, in which French oil major Total is invested through its participation in the soon to come on-stream Russian Yamal LNG project.

BNP Paribas's decision on shale gas may reflect French government's antipathy towards the industry, and the role of natural gas more broadly may occupy an ambiguous role in the energy transition, but it is early days yet to say shale gas has no long-term future.