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Financing fossil fuel majors in line with net-zero strategy, say Nordic banks


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Financing fossil fuel majors in line with net-zero strategy, say Nordic banks

Nordic banks defended their net-zero strategies after new data showed that fossil fuel financing rose in the first half of the year.

Ten of the region's largest banks provided $5.4 billion in syndicated loans and issuance underwriting services to oil, gas and coal companies in the first half of 2022, up from $3.8 billion in the previous six-month period, according to research conducted by BankTrack and other environmental organizations.

The researchers are concerned that banks are giving companies too much time to devise transition plans that are not in keeping with the Paris Agreement on climate change goal of limiting global warming to 1.5 degrees C by 2050, said Maaike Beenes, campaign lead at BankTrack.

Nordic banks argue that supporting their fossil fuel clients is not in conflict with their climate ambitions and is necessary to drive the shift to net-zero.

"If we are to meet the goals of the Paris Agreement, the companies that have the greatest carbon footprints must transition," a spokesperson for Skandinaviska Enskilda Banken AB (publ) said.

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Companies in transition

The research found that 10 large banks in Sweden, Denmark, Norway and Finland provided $21.2 billion in fossil fuel financing in the past two years, with most of it concentrated among five lenders: DNB Bank ASA, SEB, Nordea Bank Abp, Danske Bank A/S and Swedbank AB (publ). All five banks have committed to reaching net-zero emissions by 2050, consistent with the Paris Agreement.

While Nordic banks' oil and gas financing has declined on average since the Paris Agreement was signed in late 2015, driven mostly by Nordea and SEB, financing for coal companies and companies expanding fossil fuel production remained stable, which is inconsistent with Paris Agreement goals, according to the researchers. Norway's DNB and Sweden's SEB were the largest fossil fuel creditors in the past two years, providing $9.5 billion and $4.4 billion, respectively, in loans and underwriting to companies in the sector.

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Due to its Norwegian base, DNB has historically had a larger oil and gas portfolio than its Nordic peers. The bank prioritizes customers that "work strategically and proactively with energy transition and position their business in line with the Paris Agreement, and who are willing to set emission targets for their own business," said Gine Wang-Reese, executive vice president of public affairs and sustainability at DNB. This includes oil and gas companies that reduce emissions from their production and operations, Wang-Reese said.

"The [BankTrack] report does not capture nuances between companies, nor companies that are in transition to a more sustainable profile," Wang-Reese said.

SEB is a major corporate bank in Norway, which is reflected in its financing levels to the country's energy companies, according to a spokesperson. The bank engages with customers to support their transition where possible and may only end client relationships that do not share the same goals, the spokesperson said.

The 10 lenders also held a total of $9.0 billion in bonds and shares of coal, oil, and gas companies as of June 2022, with Nordea accounting for almost a third of those, the research found.

Financing and investing in fossil fuel companies is part of Nordea's strategy to be an "active bank" that sets demands for customers and companies it invests in, said Eric Pedersen, head of responsible investments at Nordea Asset Management, in a statement. This is to be "a driving force in the transition."

The BankTrack research "doesn't assess what plans and targets the companies have for transitioning in line with the Paris Agreement," Pedersen said.

The bank's largest investments covered by the research, including Fortis Inc, NextEra, Xcel and Enel, all have ambitious decarbonization plans and/or are expanding in renewable energy, the bank said.

Exposure in decline

Nordic banks' lending exposures to oil-related sectors as a percentage of their total portfolio have generally fallen in recent years, according to the banks' own disclosures.

Several have also set 2030 emissions reduction targets for their oil and gas lending, which focus on lowering the carbon footprint of the portfolios, not the financing exposure.

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"We are in the process of reducing exposure," said a Danske Bank spokesperson. "Having said that, we believe it is important to be present in the sector in order to support the transition from fossil to renewables."

The bank decreased its exposure to oil majors from 9 billion Danish kroner in 2018 to a current 3 billion kroner, and from 2023 it will not refinance loans to oil companies that do not have a credible transition plan in place, the spokesperson said.

A Swedbank spokesperson said the bank will "continuously work with our customers to steer towards the 1.5 degrees C scenario," but that it is also dependent on an underlying change in society.

The environmental organizations behind the research worry that banks are not giving companies clear deadlines for transition plans and are not ending client relationships with companies whose plans are not aligned with the Paris Agreement, said Beenes of BankTrack.

"This concern is also fed by the lack of transparency by banks on what exactly they require their clients to do," Beenes said.

The banks contacted for the story did not comment on individual customers, with some referencing bank confidentiality.

Energy security

The European energy crisis has spurred uncertainty around the transition as governments have focused on fossil fuels amid energy security concerns. This, in turn, has increased the sector's need for working capital and fresh investment.

Norwegian oil and gas exports have become increasingly important for European energy security, said DNB's Wang-Reese. While the Norwegian bank seeks to balance energy transition and decarbonization with future energy security, its net-zero strategy and interim goals are unchanged, she said.

More than half of the 27 large European banks recently surveyed said they expect the energy crisis to disrupt their short-term ability to stay on track with their climate transition agenda.

"There is no doubt that the energy crisis and the increased need for oil and gas in Europe are affecting developments at the moment," said Danske Bank's spokesperson. "This also applies to the companies we provide financing to," the spokesperson said, but added that this does not change the Danish bank's net-zero commitment or goals.

As of Dec. 9, US$1 was equivalent to 7.04 Danish kroner.