European banks are continuing to finance oil and gas production despite guidance to limit expansion in these areas in favour of greener options, according to the responsible investment charity ShareAction which says that this financing is also detrimental to the banks’ investors.

Research conducted by the NGO on 25 of Europe’s largest banks found that since 2016 they have provided a total of US$406 billion to companies with oil and gas expansion plans, including Exxon Mobil, Saudi Aramco, Shell and BP. The biggest provider is HSBC with U$59 billion, with US $8.6bn in 2021 alone, followed by Barclays (US$48bn) and BNP Paribas (US$46bn).

Investments to drill new oil wells and tap fresh gas reserves, backed by funds from major banks, appear to contradict commitments to international agreements and undermine efforts to accelerate the switch to renewable energy sources, the report said.

Last April, many banks were signatories of the United Nations-backed Net-Zero Banking Alliance (NBZA), which requires them to set targets for reducing carbon emissions. However, over the subsequent 10 months according to ShareAction, the biggest 25 European banks that agreed to the NBZA’s aims have provided a further £24 billion (US$33bn) in loans and other financing to 50 companies with large oil and gas expansion plans, such as ExxonMobil, state-owned oil company Saudi Aramco, Shell and BP.

A spokesperson for the NZBA secretariat, based in the United Nations, said that members who joined the alliance last April that are due to set their first 2030 targets this autumn, focusing on the biggest polluters including oil and gas companies. Targets must “align with no/low-overshoot 1.5°C transition pathways as specified by credible science-based climate scenarios”, the spokesperson added.

ShareAction said financing oil and gas expansion is also detrimental to banks’ investors. Referring to the International Energy Agency’s (IEA) stipulation that there should be no investment in new oil and gas production in order to limit global warming to 1.5C, Xavier Lerin, ShareAction’s senior research manager said: “If oil and gas demand decreases in line with 1.5C scenarios, prices will fall and assets will become stranded.

“On the other hand, if demand does not fall enough to limit global warming to 1.5C, the economy will suffer from severe physical climate impacts. Either way, value will be destroyed for energy companies, banks and their investors.”

The research does not state whether the US$406 billion provided by the banks directly finances expansion plans. Many have policies to support a transition away from fossil fuels but not to stop financing these companies altogether.

ShareAction said banks should require that clients publish their transition plans. It found Danske Bank and NatWest are publicly requesting some of their oil and gas clients publish transition plans by a set date and France’s La Banque Postale is the only bank requiring clients to rule out oil and gas expansion. Last September, the NGO reported that seven European banks require clients to publish a credible transition plan in line with their phase-out strategy by a specific date.

The following month La Banque Postale announced that it will exit the oil and gas sector entirely by 2030. Over the interim period the bank will not finance oil and gas projects and companies unless they have not committed to phase-out their oil and gas activities by 2040 and do not develop new oil and gas projects, in line with the IEA’s guidance. However, the bank has a much lower exposure to the fossil fuel sector than many of its European peers.

Commerzbank and Crédit Mutuel have also begun restricting finance to companies expanding oil and gas production, although this only applies to new clients in the case of Commerzbank. Crédit Mutuel was also praised by ShareAction back in September last year when it named it alongside Crédit Agricole for being one of the best performers in phasing out coal.

Leading questions

The ShareAction report includes a checklist of questions that investors can submit to check their bank’s performance:

• Has the bank implemented financing restrictions in relation to oil and gas expansion?
• Are these restrictions based on the findings of the IEA net-zero emissions by 2050 roadmap (‘no room for new oil and gas fields’) at a minimum?
• Are these restrictions implemented at both asset and corporate level?
• Do these restrictions apply across lending and capital markets activities?
• Does the bank consider the climate and financial impact of existing fields under development or expansion of already producing fields?
• Has the bank requested its oil and gas clients to publish transition plans?
• Does the bank require clients to publish these plans by a specific date, failing what they would be excluded from their client universe?
• Do these plans include a commitment not to invest in further expansion of oil and gas capacity in line with credible 1.5C pathways?
• Has the bank implemented financing restrictions in relation to unconventional oil and gas?
• Do these restrictions apply at both asset and corporate level?
• Is the bank planning to reduce corporate thresholds overtime and ultimately phase out financing to these activities?
• Has the bank adopted a definition of the Arctic region aligned with the area considered by the Arctic Monitoring and Assessment Programme (AMAP)?