Key insights on oil and gas policies

Financial institutions are currently being very selective on what their policies should cover or not: some unconventional activities, project-level support but not corporate-level support, upstream operations but not midstream ones, bits and pieces of the Arctic. See below concrete examples of the loopholes commonly detected by the Oil and Gas Policy Tracker (statistics updated in June 2023).

1. The corporate finance loophole

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.

2. The expansion loophole

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.

3. The “credible transition plan” loophole

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.

4. The exclusion loophole

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.

5. The GFANZ loophole

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.

6. The conventional oil and gas loophole

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.

7. The fossil gas loophole

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.

8. The Arctic loophole

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.

9. The midstream loophole

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.

10. The insurance loophole

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.

Best practices on oil and gas

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.

French bank La Banque Postale has set an international precedent by committing to both ruling out all oil and gas companies listed in the Global Oil and Gas Exit List, as well as a total phase out by 2030.
Swiss Re, one of the world’s ultimate risk managers for the oil and gas industry, becomes one of the first insurers to explicitly rule out support for new oil and gas fields. However, the policy makes room for exceptions and is dependent on the upcoming SBTi framework.
The Dutch pension ABP will divest from all companies that derive more than 1% of their revenues from oil or gas extraction by the first quarter of 2023.
Crédit Mutuel has committed to stop financing new oil and gas exploration, production and infrastructure projects from 2022. This is a strong initial commitment, but it must be combined with an exclusion of companies that are expanding in the oil and gas industry.
The Italian insurer Generali has committed to no longer insure upstream oil and gas activities. In addition to project-level exclusions, the insurer must now exclude companies with expansion plans.
The Caisse de dépôt et placement du Québec (CDPQ) has committed to completing its exit from oil production by the end of 2022. The next step is to exclude gas as well, and extend this commitment to the entire value chain.
Beyond existing exclusions on upstream oil and gas projects, Danske Bank excludes companies engaging in oil and gas upstream expansion, in an effort to align with the International Energy Agency’s Net Zero by 2050 scenario. The Danish bank is only the second bank to seriously address the oil and gas expansion issue.
By stopping any new investment in companies developing new oil & gas upstream projects, CNP Assurances is sending a strong signal to the oil & gas industry. Furthermore, the French asset owner has committed to strengthen its dialogue with oil and gas developers still in CNP’s portfolio, demanding that they immediately stop any new exploration or production project (both conventional or unconventional).