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Environmental groups warn banks over 'extreme' fossil fuel exposure


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Six trends shaping the industries and sectors we cover in 2021

Six trends shaping the industries and sectors we cover in 2021


Essential Energy Insights - January 2021

Environmental groups warn banks over 'extreme' fossil fuel exposure

A sharp rise in financing for oil extraction projects from Canadian tar sands meant that bank financing of "extreme fossil fuels" rose in 2017, a group of environmental advocacy organizations has said in a new report.

Three dozen banks provided $115 billion in total funding to tar sands, Arctic and ultra-deepwater oil, liquefied natural gas export, coal mining and coal power in 2017, compared to $104 billion in 2016 and $126 billion in 2015, according to the report. The sponsors of the report — BankTrack, Honor the Earth, the Indigenous Environmental Network, Oil Change International, the Rainforest Action Network and the Sierra Club — advocate the complete elimination of funding for such projects.

Tar sands funding more than doubled in 2017 to $46.7 billion, as companies including Royal Dutch Shell PLC, ConocoPhillips and Statoil ASA off-loaded more than $23 billion of Canadian assets to pure-play Canadian tar sands companies. The financing of Kinder Morgan Inc.'s Trans Mountain pipeline expansion in Canada also contributed to the rise in tar sands financing, the report said. First Nations, environmental groups and British Columbia governments have sought to stop the pipeline's construction.

China Construction Bank Corp. topped the report's "league table" of extreme fossil fuel financing, which is based on a three-year total. The Chinese lender provided $26.62 billion of financing over the three-year period, just ahead of Royal Bank of Canada's $26.49 billion and JPMorgan Chase & Co.'s $26.12 billion.

In 2017 alone, however, RBC and JPMorgan ranked first and second, providing funding of $13.01 billion and $11.65 billion, respectively. Toronto-Dominion Bank, another Canadian lender, was third in 2017, at $9.10 billion, and ranked sixth over the three-year horizon.

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Industrial & Commercial Bank of China Ltd. and Bank of China Ltd. were fourth and fifth in the three-year table.

The group noted that French lender BNP Paribas SA had in October 2017 "made an even more ambitious commitment to move away from extreme oil and gas financing," including prohibiting tar sands project financing, explicitly stating it would not fund the Trans Mountain or Keystone XL pipelines, and barring project financing for Arctic oil.

BNP Paribas had the report's highest overall "grade," at C+, including B grades for tar sands and coal mining.

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The report noted that the 2015 Paris Climate Agreement, designed to limit global warming to 2 degrees Celsius, includes as one of its three objectives "making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development." But it said the lack of comprehensive policies from all banks on extreme fossil fuels means that last year’s increase in financing could continue and even accelerate in the years to come."

It warned banks of not only the environmental but also the reputational and financial risks of continued fossil fuel financing, and it cited "an emerging consensus that all fossil fuel investment and financing risks both climate security and economic value."

Barring carbon-heavy tar sands, bank financing for extreme fossil fuels dropped 17% to $68 billion in 2017, the report said. RBC, TD Bank and JPMorgan Chase ranked first through third in tar sands financing for 2017 alone and from 2015 to 2017, with the trio providing roughly 59% of 2017 funding and just over half of 2015-17 funding.

Coal power financing has stagnated over the past three years on a global level, despite remaining one of the most highly-financed sectors at $94 billion between 2015 to 2017. China's largest banks were the top four backers of both coal power and coal mining, the latter of which saw financing tick up slightly in 2017, to $14.93 billion from $14.19 billion in 2016.