TOP PRACTICES AND TRENDS

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 March 2022).

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 March 2022 only five financial institutions assessed by the Tracker are restricting support (partially or totally) to new oil and gas projects and the companies developing them. 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 March 2022, more than half 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 or in the case of asset owners and asset managers, company dialogue and engagement strategies. 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 March 2022, 20 of the 74 GFANZ members assessed in the Tracker don’t even have an oil and gas policy to begin with. Among those that do, only five have started restricting support for oil and gas expansion.

6. The conventional oil and gas loophole

66 financial institutions have policies restricting support for one or more unconventional activities, but only 13 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

54 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 more than 200 000 km of pipeline planned could take us halfway to the moon! The Global Oil and Gas Exit List identifies 273 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

16 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.