Oil and gas remains a significant barrier to achieving the international goal of limiting global warming to 1.5°C above pre-industrial levels. According to the 1.5 °C roadmap issued by the International Energy Agency (IEA) in 2021, exploration for new oil and gas reserves is no longer required and delays the energy transition. Moreover, the production and use of hydrocarbons must rapidly decrease and be compensated by sustainable energy sources. According to the IEA also, in a 1.5°C aligned world, oil and gas production should already fall respectively by 22% and 23% by 2030 compared to current levels. Meeting this challenge requires banks, insurers and investors to also adopt robust oil and gas policies that immediately tackle oil and gas expansion while progressively drying up financial services to the whole industry. The Oil & Gas Policy Tracker analyses and assesses global financial institutions’ commitments to restrict oil and gas financing.
What is included under the terms “oil and gas” in the Oil & Gas Policy Tracker?Léo Martin2023-11-24T15:06:42+01:00
The Oil & Gas Policy Tracker assesses commitments that restrict financing to a large part of the oil and gas industry.
First, it covers both conventional and unconventional oil and gas, notably covering the following four unconventional sectors: Arctic oil and gas, fracking/shale oil and gas, tar sands, and ultra-deep water activities.
A large part of the oil and gas value chain is considered, from upstream activities (exploration, development and production) to midstream activities (pipelines, LNG terminals, and storage infrastructure). Downstream activities (refining infrastructure, oil and gas-fired power plants) are not directly considered, but a bonus can be granted if some are covered by the oil and gas policies.
Exploration & production companies, national owned companies, diversified companies such as majors, and other industrial players that are involved in oil and gas activities are considered. The Global Oil & Gas Exit List provides data to identify, engage and exclude these oil and gas companies.
Conventional VS Unconventional: what oil and gas do we consider in the Oil & Gas Policy Tracker?Léo Martin2023-11-24T15:07:43+01:00
In its 2021 Net Zero Emissions (NZE) scenario for achieving carbon neutrality by 2050, the International Energy Agency (IEA) forecasts from 2022 an end to the development of new oil and gas projects, whether conventional or unconventional.
If the Oil & Gas Policy Tracker assesses both conventional and unconventional oil and gas in its three main criteria, it also offers a zoom on unconventional oil and gas. Unconventional hydrocarbons such as shale oil and gas, tar sands oil, ultra-deep water and Arctic drilling are particularly harmful for the environment and often more carbon and methane intensive than conventional oil and gas.
Arctic oil and gas
The Arctic region is home to very fragile and interdependent ecosystems. The more oil and gas industry projects in the Arctic, the greater the pollution of the white ice sheets, undermining the vital role they play in cooling down the planet. In turn, that means accelerating global warming in the Arctic, thawing permafrost and releasing methane. It’s a vicious climate circle.
There are multiple definitions of the Arctic region. Reclaim Finance recommends financial institutions to define the Arctic region with the boundaries established by the Arctic Monitoring & Assessment Programme (AMAP). The AMAP is the Arctic Council’s working group focused on monitoring pollution and climate change in the Arctic region.
Tar sands are a mix of tar, clay, sand and bitumen. Bitumen is a very dense and viscous form of petroleum that cannot be pumped like conventional oil. This makes oil from tar sands hard to extract and difficult to process. Producing oil from tar sands is very carbon intensive and has immense impacts on local communities and the environment.
Fracking/Shale oil and gas
Fracking is an extraction method used to access gas and oil trapped in deep rock formations. Oil & gas producers drill wells and pump so-called fracking fluid into the ground to crack open the rock and release the trapped oil and gas resources.
Ultra-deep water oil and gas
Ultra deepwater wells are located at least 1,500 meters (5,000 feet) below sea level. The risk of accidents is the biggest threat related to ultra deepwater production, but even routine drilling activities can have severe impacts on fragile ecosystems at the bottom of the sea.
The Global Oil and Gas Exit List also identifies coalbed methane and extra heavy oil as unconventional hydrocarbons which pose grave risks to the environment, climate, and human health. Reclaim Finance recommends financial institutions to cover all 6 unconventional sectors when adopting restrictions on unconventional activities.
Oil & Gas: gas is not a transition fuelLéo Martin2023-11-24T14:34:59+01:00
Several financial institutions claim that gas is a transition energy (compared to coal) on the grounds that the European taxonomy would classify it as such. However, this only applies to gas-fired power plants, under certain conditions, and against the opinion of the European Commission’s sustainable finance experts, scientists, and many sustainable finance institutions. Gas is a fossil fuel that emits high levels of GHG throughout its life cycle. Although the final combustion of gas is less emissive than that of coal or oil, its extraction and transportation cause significant methane leaks, which over 20 years has a warming potential 86 times greater than that of CO2. So, in some cases, gas is even more GHG-emitting than coal.
To stay below 1.5°C, the IPCC scenarios, like the IEA’s NZE scenario, calls for a rapid drop in fossil gas production and consumption (-22% by 2030 for the NZE). Gas is not a transition energy in any geographical area of the world.
To be robust, a financial institution’s policy must necessarily address both oil and gas, and its evaluation in the Oil and Gas Policy Tracker will be severely penalized otherwise.
Dive into the tracker’s methodology
Which financial institutions are featured in the Oil & Gas Policy Tracker?Léo Martin2023-11-24T14:44:08+01:00
The Oil & Gas Policy Tracker covers all the biggest banks, (re)insurers, asset owners and asset managers from 34 countries, from Australia to the United States. Some financial institutions are also added at the request of Reclaim Finance’s partners. See the methodology page for more details.
How are financial institutions assessed?Léo Martin2023-11-24T14:44:47+01:00
The Tracker uses the most recent policies and statements officially released by financial institutions. We do not rely on non-public sources of information. The sources used are listed under each policy assessment. See the methodology page for more details.
The Oil & Gas Policy Tracker is updated on a continuous basis, through monitoring and engagement with financial institutions. If you come across any errors or omissions, please don’t hesitate to contact us: email@example.com.
How does the Tracker score shareholder engagement policies?Léo Martin2023-11-24T14:45:17+01:00
For financial institutions, keeping investments in carbon-intensive sectors is a way to influence companies directly responsible for climate change. Through voting and shareholder dialogue especially, investors can push companies to adopt climate strategies aligned with a science-based 1.5°C trajectory.
This is why, in addition to exclusion policies, investors shall adopt engagement and voting policies specifically toward oil & gas companies. The credibility of the engagement policy relies on formulating public, precise and impactful demands and on the robustness of its implementation strategy. The more precise, phased and diversified the strategy, the more likely the initial dialogue will be successful. Engagement must include two main demands towards oil and gas companies:
End of new upstream and midstream oil and gas projects.
Adoption of oil and gas production reduction targets by 2030.
Engagement is assessed within the ‘expansion’ and ‘phase-out’ criteria for oil and gas companies that are not excluded immediately.
How does the tracker assess carbon intensity and mitigation targets?Léo Martin2023-11-24T14:45:36+01:00
Setting sectoral decarbonization targets has been a growing preoccupation for financial institutions, under the influence of financial alliances such as the Net-Zero Banking Alliance (NZBA), the Net-Zero Asset Owner Alliance (NZAOA), the Net-Zero Insurance Alliance (NZIA), and the Net-Zero Asset Managers initiative (NZAM).
The members of the NZBA announced, in 2022, interim 2030 targets aiming at “net-zero” exposure to carbon-intensive sectors (such as oil and gas) in 2050. Most of the time, these targets will not replace a sectoral exclusion and/or engagement policy. Banks are either using a flawed metric (relative emissions or portfolio exposure) that cannot ensure an effective drop in absolute financed emissions, not covering all banking activities (lending only in most cases) or not fully aligning with a 1.5°C scenario (percentage of reduction too low, especially for gas, for example).
Decarbonization targets, as they illustrate how a bank will reduce its exposure to oil and gas over time, with a deadline in 2050, are assessed in the Phase-Out criterion. However, we consider that these targets have a more limited value than exclusion policies, and whether or not banks will meet them is very hard to monitor as they rely on internal calculations; these commitments also have little to no binding value. That is why the amount of points granted for these targets does not exceed 2 out of 10, our main demand for this criterion being that banks condition their financial support to a commitment from companies to decrease their production consistently with a 1.5°C pathway.
Insurers are also assessed on their oil and gas sector targets, but these are yet to be published as the methodology for insurance-associated emissions is in the process of being developed.
Investors, on the contrary, have portfolio-wide decarbonization targets that are not specific to a sector; they are, therefore, not granted points for this.
Adopt robust oil and gas commitments
To which financial services should an oil and gas policy apply?Léo Martin2023-11-24T14:52:08+01:00
An oil and gas policy shall apply to all lending activities (notably including term loans, project finance, revolving credit facilities, bridge-loans, etc.) and to underwriting and structuring activities (notably including bond and share issuances). Advisory services for bond issues or syndicated loans, M&A advise or index funds management must also be covered. A broader set of recommendations is available here.
An oil and gas policy should apply to Property Lines (notably including but not limited to Construction and Erection All Risks), casualty lines (including but not limited to liability insurance) and surety bonds. For insurers, it shall apply to single-site, standalone and package insurance. For reinsurers, it shall also apply to facultative and treaty reinsurance. A broader set of recommendations is available here.
An oil and gas policy should apply to all assets under management, including passive funds, dedicated funds and third-party mandates. For mandates, the policy shall apply by default, with an opt-out option for clients (clients who do not want the policy to apply to their investments must indicate this to the asset manager), preferable to an opt-in option. For passive funds, investors shall not launch any new index funds that would not be able to meet the criteria of the climate policy. A broader set of recommendations for asset managers is available here.
Why is tackling companies with oil and gas expansion plans the key priority?Léo Martin2023-11-24T14:52:46+01:00
Any delay in stopping oil and gas expansion would jeopardize meeting the 1.5°C target while continuing to pose very serious social and environmental risks to the society. In October 2023, the International Energy Agency highlighted once again that no new investments in fossil fuels are needed to reach net zero, following a 1.5°C pathway.
Nevertheless, there continue to be numerous expansion plans within the oil and gas industry:
96% of the 700 upstream companies on 2023 Global Oil & Gas Exit List (GOGEL) are still exploring or developing new oil and gas fields;
Companies are planning to increase global LNG export capacity by 162%, supercharging gas expansion;
GOGEL identifies 651 companies that are planning to develop an additional 567 gigawatt of gas-fired power capacity. A substantial part of the global gas-fired power build-out would rely on imported LNG.
Expansion is at the core of the oil and gas business model. With every decision to drill a new well, companies move a little further away from a just and sustainable transition. Financial institutions must immediately adopt policies that end the financing of fossil fuel expansion.
What demands must financial institutions address to oil and gas companies?Léo Martin2023-11-24T14:53:12+01:00
Financial institutions shall expect oil and gas companies operating in upstream and midstream sectors to commit to cease their expansion plans and to meet, in the short-term, the following minimal criteria:
Immediately commit to a 2050 net-zero objective based on a 1.5°C scenario.
Meet milestones, including:
End of new upstream and midstream oil and gas projects;
Adoption of oil and gas production reduction targets by 2030;
Allocation of most capex to sustainable power.
Adopt a comprehensive climate transition plan that allows investors to assess its alignment with a 1.5°C scenario with low or no overshoot and a limited volume of negative GHG emissions. This plan and an assessment of its ongoing implementation in recent years must be submitted to an annual vote (“Say on Climate”) at the Annual General Meeting.
The financial institutions must make public its expectations from oil and gas companies and associated exclusions. Achieving these measures will require the financial institutions to implement an engagement policy and a progressive escalation strategy that would ultimately lead to stop providing financial services to companies that don’t meet the expectations.
Aren’t project-level exclusions adopted by banks sufficient? What’s the difference between project and corporate financing?Léo Martin2023-11-24T14:53:44+01:00
Most financial institutions are only willing to restrict it by ending direct financial support to new oil and gas projects, which doesn’t aim at the right target. Indeed, in the case of banks, according to the 2023 Banking on Climate Chaos report, even the strongest project-focused policies only applied to about 4% of fossil fuel financing between 2016 and 2022. Because fossil fuel companies tend mostly to raise finance at the corporate level (lending and bonds and shares issuance with no specific use of proceeds), it is an absolute necessity to adopt oil and gas sector commitments targeting both project and corporate finance.
The Oil & Gas Policy Tracker assesses the exclusion of projects in its ‘Project’ criterion and of companies that develop new oil and gas projects in its ‘Expansion’ criterion.
Is the issuance of bonds for oil and gas companies covered by banks and investors’ policies? Is it assessed in the Oil & Gas Policy Tracker?Léo Martin2023-11-30T17:56:44+01:00
By either structuring fossil fuel bonds or investing in them, financial institutions play a substantial role in the financing of new projects and activities within the oil and gas industry. Indeed, bonds are often used by companies for their general corporate needs, providing them with more flexibility than specific project financing to support their overall business strategy. As such and according to their capital allocation choices, the capital raised via these bonds can be used by fossil fuel companies to expand their activities.
Banks and investors must therefore have robust sector policies that restrict their support for fossil fuel companies, especially for bonds issued by fossil fuel developers. In the banking sector, oil and gas bonds are a huge blind spot of climate policies because the vast majority of banks’ policies ignore financial services for general purposes, including the structuring of bonds for general corporate purposes. Investors are also far from restricting their bond investments in companies with oil and gas expansion plans.
The Oil & Gas Policy Tracker penalizes banks whose oil and gas policy does not cover the issuance of shares and bonds. A penalty is also applied for investors which only restrict investments in shares.
On what database should financial institutions rely to identify, engage and eventually exclude oil and gas companies?Léo Martin2023-11-24T14:56:09+01:00
Reclaim Finance recommends the use of the Global Oil & Gas Exit List (GOGEL), which is updated each year, to implement an oil and gas policy. Developed by Urgewald, GOGEL is a public database that provides a detailed breakdown of the activities of oil and gas companies worldwide. It covers 1,623 companies active in the upstream, midstream or gas-fired power sector. It offers a wide range of metrics that allow its users to assess companies’ oil and gas expansion plans in the upstream, midstream (pipelines and LNG terminals) and gas power sector. In addition, GOGEL highlights companies’ involvment in the oil and gas industry based on relative and absolute thresholds. For additional information about this database, please contact:firstname.lastname@example.org.
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