Last May, some big news from Paris unexpectedly resonated on the other side of the Atlantic – specifically, in Louisiana, which happened to be in the throes of a hefty tornado season. Two French banks told their shareholders that they will no longer underwrite bond issues to finance the fossil fuel industry (“Pair of major European banks backs away from oil and gas bond deals,” Financial Times, May 29th).
In a reader’s letter, climate activist Roishetta Ozane reacted to the news with “a much-needed glimmer of hope.” A month ago, a tornado destroyed the offices of the grassroot organization she founded in south-west Louisiana, the Vessel Project. “Ironically the people we help are often dealing with the after-effects of extreme weather, while they are surrounded by the very industries creating the problem, which are the ones polluting the air and water,” she stated. She urged US banks to make similar policy changes, which would address the risk involved in fossil fuels and the harm they cause.
The commitment of BNP Paribas and Crédit Agricole might sound like a drop in the ocean, but actually, it isn’t. French banks are the fourth biggest banking sector internationally, and BNP Paribas and Crédit Agricole are among the top 10 biggest banks worldwide. They are massive supporters of the oil and gas majors worldwide. “In the last three years, French banks ranked fifth in terms of financing to the oil and gas industry. But if you focus on the 12 biggest fossil fuel companies, such as ExxonMobil, Chevron, Total Energies, Shell, BP and the like, French banks came second to finance these companies,” says Lucie Pinson founder of the nonprofit Reclaim Finance in Paris, over Zoom.
Pinson, a graduate from Université Paris-Soborne, founded Reclaim Finance in 2020 after almost ten years campaigning to expose the economic and political mechanisms behind climate change. “I thought it would not be possible to shift the trillions, as we say, without tackling the whole industry, the whole financial ecosystem,” says Pinson.
Reclaim Finance follows and analyzes the activities of all financial actors, including private financial institutions, banks, insurers, and investors. It also investigates the regulation that influences the way the system operates, including supervisory authorities, national governments, central banks, and also what she calls “the hidden players of the industry,” that is, index providers, rating agencies, voting agencies, and other multi-stakeholder coalitions. Since its inception, the organization has set an ambitious mission that goes beyond the French borders, thus the name in English Reclaim Finance, Pinson explains.
From Paris, her organization has painstakingly persuaded banks not to be complicit in the activities of the oil and gas industry, particularly in the development of new oil and gas fields, because they are strictly incompatible with the target of 1.5 degree climate warming maximum that they committed to three years ago when they joined the Net-Zero Banking Alliance. “The decision taken by BNP Paribas and Crédit Agricole is a breakthrough in the development of strong policies against oil and gas expansion,” says Pinson, who then adds, “although their waiver for bond deals does not cover LNG (Liquified Natural Gas) projects worldwide. While BNP Paribas has not financed gas projects in North America since 2017, this bank can still finance them in other countries, despite the risks that they represent for the climate and public health.”
Seven years ago BNP Paribas introduced a policy that bans projects and companies that are overly exposed to shale gas or non-conventional gas (also known as hydrofracking or fracking), like the ones that Ozane might be familiar with in Louisiana or in Texas. The policy uses several thresholds and a proxy per country. For example, if shale gas production in the country is above 50%, then the bank assumes that every pipeline and energy terminal is likely to use more than 50% of shale gas (in the US, more than 60% of the production is shale gas).
Moreover, Pinson explains that BNP Paribas and Crédit Agricole also did not include loans in the waiver, but she thinks it is very unlikely that banks keep granting loans to companies for which they do not want to underwrite bonds. But we can’t count the chickens before they hatch. All the aforementioned internal policies only rely on the goodwill of banks to act. “What we are talking about here, it’s the result of the mobilization of civil society players and the pressure that has been put on banks to clean up their portfolio,” says Pinson. “Unfortunately, right now, there is no hard law requiring banks to stop financing a specific project. It does not exist in France. It does not exist in any other countries.”
In fact, these bank policies have actually brought to light the failure of the regulators to adopt a law that not only requires banks to be more transparent about their activities and report on the integration of climate-related financial risk, but also obliges them to adopt a 1.5 degree transition plan which is credible,” says Pinson. Many banks abide by plans that look good on paper but do not require changes in the way fossil fuel companies do business. The corporate sector is currently aggressively promoting the use of carbon offsets to reduce carbon emissions instead of through the transformation of their business models. But banks have in their hands the power to suspend all financial services to oil and gas giants if the fossil fuel companies do not stop expanding and developing new projects.
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Pinson has already campaigned for more than four years in the oil and gas industry. She compares this period with the seven years she spent exposing the health and environmental damages of the coal industry until the French financial institutions came up with robust policies that reduce their exposure to coal. And here we are now, at the beginning of the adoption by some financial institutions of meaningful criteria, which only address one of the pieces of the oil and gas industry, the extraction. But it does not cover the entire value chain, such as the LNG. Reforms are just too slow. “That’s why we definitely need the involvement of public authorities to issue strong policies at national level, maybe European level, before having the capacity to adopt things at the international level, for example, through the G20,” claims Pinson.
Back in February, climate activist Roishetta Ozane visited the White House and met with the Department of Energy to campaign against new LNG terminals in Louisiana, in a region nicknamed “Cancer Alley.” The Biden administration reacted by pausing all permits for new LNG terminals. With new elections coming, the pause hangs in the balance.
Pinson believes change is real when you have the capacity “to not only expose what is going wrong, but to also bring about the solutions and to promote these solutions.” For example, BNP Paribas Asset Management, one of the biggest asset management institutions in Europe, can still buy into the primary market new bonds being issued by the oil and gas industry, which its parent company refuses to support. The argument of these subsidiaries, as asset managers, is that they invest on behalf of their customers and they don’t have the final word on the direction of the investment. Therefore they cannot adopt such restrictions. “But this double standard does not hold,” says Pinson. Firstly, because these subsidiaries have coal restrictions in place for several years. Secondly, because asset managers could reject the opening of new investment mandates related to oil and gas expansion for clients.
And as far as the ongoing mandates are concerned, Pinson explains, it’s possible to review the contract with the clients. There are two ways to do it. “The best way, I would recommend, is that your bank proudly announce to its clients that it is changing the way it manages their money because of all the financial-related risks connected to oil and gas, but the bank is offering them a way out of the policy. And it’s up to them to get back to the bank.”
“Another way is an opt-in, basically asking clients if they agree with the change in policy, and whether they do want to follow it.. But this is less effective because many clients just do not care enough about the issue to reply to this question, even if they do not necessarily oppose the policy.”
Given the recent demonstrations by climate activists in front of banks in New York and elsewhere, I am curious enough to ask Pinson whether she and her team have regular contact with the financial industry. The answer is yes. “Banks do acknowledge the value of what we do and how useful it can be for them. They respect our position. Even if we disagree on many things, they do understand that we do value the confidentiality of our exchanges, even if we will maintain external pressure on them,” she says.
I wonder, if banks acknowledge that humanity has to limit global warming to 1.5º degrees above pre-industrial levels, what else could you ever disagree with? “Banks have been putting on the table the argument that they need to keep providing finance for fossil fuel companies because they are in transition to developing green energy,” explains Pinson. But when Reclaim Finance shows them that these companies are actually responsible for only 3% of the overall capital expenditure into renewable energies and low-carbon activities, the discussion shifts, she reckons, “and we have come to a consensus with a limited but growing number of banks that they cannot finance the expansion of the polluting activities of the fossil fuel industry anymore.”
This is very good news. But regardless of the goodwill of some of the people working within the financial industry and within public authorities, Pinson knows that they need to exercise external pressure to make sure that “a policy is finally adopted, and it is as ambitious as possible, and it is adopted as quickly as possible, which is obviously very important in the context of a climate emergency.”
“My community in Louisiana can see the urgent need to address climate change and it is at our cost if many of the world’s major banks do not,” urges climate activist Ozane. But the adoption of internal policies by big financial institutions to reduce its exposure to the fossil fuel industry shows that there might not be much opposition to a strong law about financing that the regulator could pass, hopefully sooner rather than later.
In the meantime, I am glad that Ozane in Louisiana has come across Pinson’s work. Only by connecting all the dots can we decipher the many pieces of the puzzle of why the transition from fossil fuels is taking so long, and then unite forces to effectively fight those opposed to the reality of climate change.
