Some banks have already begun making changes to their fossil fuel financing – but overwhelmingly their action is too little and too slow.

Banks must exclude all fossil fuels from their corporate and project financing quickly and responsibly. Right now, though, positive change to energy policy is incremental, falling short of the systemic shifts necessary to avoid climate breakdown.

Some banks undertake periodic reviews of their policies. HSBC do this yearly. Others are less regular. However, campaigners on both sides of the argument can speed up this process by forcing a policy revision sooner than planned that could either weaken – as in the case of Suncor shunning HSBC over their tar sands exclusion – or strengthen the bank’s position on fossil fuels – as in the case of People and Planet’s intervention at Barclays’ AGM this year, which worried Standard Chartered enough to rush out a policy excluding some project finance for tar sands and the Arctic before their own AGM.

The review process might involve the bank’s Environmental and Social Risk team reaching out to stakeholders, including campaigning NGOs, for input. Sometimes NGOs get advanced warning of policies’ content. Ultimately, though, final decisions lie higher up the bank and they have no formal accountability to campaigners.

Banks’ decision-makers responsible for shaping policy on fossil fuel finance are accountable to the Board of Directors who are in turn usually accountable to shareholders – those investing in the bank. Even this is contingent on the culture of the bank, however.

Piecemeal exclusions

One key obstacle to campaigners asking banks to make ambitious improvements to their energy policies is where banks look to for guidance.

Many base their fossil fuel finance strategies on the scenarios and projections of the International Energy Agency, which consistently falls short of offering a pathway for staying below 1.5oC and projects continued future demand for oil and gas.

Banks also take cues from Governments in their major markets. If Governments want more fossil fuel infrastructure, despite the need to triple efforts to cut emissions even below just 2oC, then banks will often follow suit. Just one example of this is French bank Societe Generale’s continued support as financial advisor for the Trans Adriatic Pipeline across Europe, despite popular opposition.

Under this process, no bank has been bold enough to exclude all financing for a whole sector of the fossil fuel industry, let alone exclude all fossil fuel finance. Instead, we have seen a mishmash of piecemeal policy commitments from various banks.

In this, it is clear that there is no overall strategy for systematically reducing financing to the fossil fuel industry from any specific bank, let alone across the sector.

Offshore oil

They might exclude specific projects with a bad reputation, but continue to finance the companies responsible for them. They might exclude projects based on efficiency standards or geography, or only for extraction projects, but not for transportation infrastructure that makes the extraction worthwhile, such as with tar sands.

Too often, this piecemeal exclusions are used to bolster the bank’s green image while it continues to finance the majority of the rest of the fossil fuel industry.

One example is Barclays’ recent coal policy where they shifted from having ‘no appetite’ for direct finance for new coal power plants in developing countries to including the expansion of existing coal plants in developing countries. Tiny steps, incommensurate with the scale and urgency of the climate crisis.

Similarly ING’s policy excludes finance for Arctic offshore oil exploration but not for extraction and transportation, onshore oil or Arctic gas.

Societe Generale only exclude offshore oil but allow onshore oil and all gas. These nuances are especially important given the strong possibility of oil and gas development beginning soon in the Alaskan Arctic National Wildlife Refuge. Banks must not finance this expansion.

What do they need to do?

Banks must ensure their exclusions of financing different fossil fuels form part of a comprehensive strategy to exit the entire fossil fuel industry.

The industry must be conceived holistically including exploration, extraction and transportation.

The recent IPCC Special Report on 1.5 degrees stated that emissions must be net zero by 2050, which means that the use of fossil fuels must be phased out sooner than 2050. Banks must aim to end their finance to the industry well within the next three decades.

How should they do it?

In practice, excluding the fossil fuel industry cannot mean banks should immediately cut loose every fossil fuel client. A just transition will ensure support for workers and communities dependent on the fossil fuel industry, and this must be planned, not haphazard, with banks playing their role. An exit from fossil fuel finance requires two steps, as demanded by a new global campaign, Fossil Banks, No Thanks!

STEP 1: Given how close we are to triggering climate breakdown, there are no excuses left for financing new fossil fuel projects. A just transition does not require it – in fact, it will undermine this transition by creating new dependencies on fossil fuel infrastructure in places that could otherwise have developed renewable energy capacity.

Nor can the climate cope with any new infrastructure. So banks should immediately end all direct finance for fossil fuel projects as a first step, and refuse to finance clients planning new fossil fuel projects.

STEP 2: Next, banks should publish clear plans to phase out financing for the rest of their fossil fuel clients. This can mean giving those clients deadlines, compatible with holding warming to 1.5 degrees, by which they must have fully withdrawn from operations involving the extraction, burning, or transportation of fossil fuels, or else the financial relationship will end.

For coal, this must happen sooner than for oil and gas, but oil and gas must also be rapidly phased out. It can also mean cutting ties with clients that show no willingness to change their business model to become compliant with the goals of the Paris Agreement.

These authors

Chris Saltmarsh is Co-Director: Climate Change Campaigns for People & Planet. He tweets at @chris_saltmarsh. Claire Hamlett is Climate Campaigner at BankTrack.