Policies tend to focus on restricting direct support to projects but don’t restrict support for the companies behind these projects. This is a major problem: according to the IEA, 90% of energy investments are financed on a primary basis from the balance sheets of companies, with a smaller role for project finance (mostly loans from banks). By supporting a company at corporate level, financial institutions are indirectly supporting its oil and gas projects and plans.

Despite the IEA clearly stating that there is no room for investments in new oil and gas fields in a 1.5°C scenario, as of June 2023 only 38 financial institutions assessed by the Tracker are restricting support (partially or totally) to new oil and gas projects and the companies developing them, or engaging these companies for. The vast majority of financial institutions are failing to take into account corporate plans for the future. This is a major gap given that the Global Oil and Gas Exit List reveals that more than 500 companies have new oil and gas projects, at the field evaluation or development stage.

An increasing number of policies are making exceptions for companies with “credible transition plans” or “aligned with 1.5°C by 2050”. However, depending on the indicators and the methodologies, such metrics don’t necessarily mean the oil and gas companies are not overshooting their 1.5°C carbon budget and fuelling the climate crisis.

As of June 2023, almost two thirds of the financial institutions assessed in the Tracker don’t have an exclusion policy for oil and gas. Their current policies are limited to enhanced due diligence processes in or in the case of investors, company dialogue and engagement strategies without clear redlines for oil and gas companies. Exclusion policies and engagement strategies should go hand in hand: investors should have robust, time-bound demands and include sanctions and exclusions when their demands are not met.

More and more financial institutions across the world have joined the Glasgow Financial Alliance for Net Zero (GFANZ) and hence, committed to align their portfolios with 1.5°C, with a 50% decrease in GHG emissions by 2030. Yet, as of July 2022, 67 of the 158 GFANZ members assessed in the Tracker don’t even have an oil and gas policy to begin with.

160 financial institutions have policies restricting support for one or more unconventional activities, but only 45 financial institutions are restricting support for conventional oil and gas. This raises major concerns given that approximately half the oil and gas under development or field evaluation is from conventional sources according to the Global Oil and Gas Exit List.

Some policies apply less restrictions for gas than they do for oil. This is not in line with climate science: the IPCC has warned of the potent methane emissions released by gas production with a global warming potential 84 times higher than CO2 emissions in the short term. The IEA net zero scenario clearly outlines that there are no new oil and no new gas fields in a 1.5°C pathway.

More than 150 financial institutions have pledged to stop supporting oil and gas in the Arctic. However, nearly all of them can still indirectly or directly support the industry’s big oil and gas plans for the Arctic. Directly when their policies use a restrictive geographical scope for the Arctic region. Indirectly when their policies fail to exclude support for companies developing new fossil fuel projects in the Arctic region.

Policies focus on extraction and do not address a growing concern: midstream infrastructure for oil and gas. According to the Global Oil and Gas Exit List, the pipeline lengths of the top 6 midstream developers alone would be long enough to circle the Earth’s equator. The Global Oil and Gas Exit List identifies 289 midstream companies that are building new oil and gas pipelines and liquefied natural gas (LNG) terminals. Yet, the IEA’s net zero scenario clearly states that there is no room in the 1.5°C pathway for many of the gas infrastructure (LNG terminals) currently under development.

18 out of the 30 biggest insurers have oil and gas exclusion policies in place. However, most of the policies rule out insurance coverage for some new oil and gas projects in unconventional oil and gas activities. The most advanced insurance policies are committed to no longer insure new conventional fossil fuel projects, but with exceptions.

Some financial institutions are rising to the climate challenge and tackling oil and gas expansion. See below the best practices that banks, insurers and investors should build on to design their policies.