End of fossil fuel financing: are banks really playing the game?

Crédit Mutuel Arkéa has just published its hydrocarbon sector policy: oil and gas. It thus announces that it will drastically restrict its investments in companies and projects in the sector from January 2022. For good reason, it displays its goal of phasing out unconventional fossil fuels by 2030. These commitments are in addition to the group’s 2020/2024 climate strategy, as well as the coal sector policy for 2027. At the same time, the banking group says it is stepping up its investments in renewable energy. Crédit Mutuel is not the only bank to take such measures, particularly following COP26. It remains to study these announcements more closely to understand their real impact…

Crédit Mutuel Arkéa for the energy transition, encouraging announcements

As early as 2020, Crédit Mutuel made a commitment to phase out coal by 2030. The bank then made the decision to cut its relations with more than 700 companies; or nearly 90% of the coal industry.

At the end of 2021, following COP26, Crédit Mutuel made new CSR and sustainable finance commitments. Thus, in its Hydrocarbons Policy : Oil and Gas… The Crédit Mutuel Arkéa group uses a very broad definition of unconventional fossil fuels. It thus seeks to take into account as many aspects of the subject as possible and extends its commitments to the entire scope of the group. This therefore involves banking, asset management, life insurance and private equity activities. Moreover, the bank announces that it wants to review its commitments every year “in order to continuously adapt to the climatic, economic and place context”.

The commitments that Crédit Mutuel Arkéa is making today are part of a long-term strategy, in line with the positioning of our institution since always. We support the territories and their actors on a daily basis in their development and, for this, we must all together address the environmental and societal issues.

Hélène Bernicot, Chief Executive Officer of Crédit Mutuel Arkéa

Climate-virtuous banks, a fundamental trend?

Crédit Mutuel Arkéa is not the only bank to have taken steps to phase out hydrocarbons. As a reminder, at the end of October 2021, still following COP26, six French banks declared that they would stop financing, from 2022, certain unconventional hydrocarbon projects. Some did not fully wait for this event to take part in the movement (2).

Thus, Societe Generale has been setting short-term objectives since 2020. For example, it has already announced that it wants to reduce its financing in oil and gas extraction by 10% by 2025. For Société Générale, oil and gas accounted for €20 billion in financing, or 6.1% of the bank’s exposures.

The same goes for BNP Paribas, which has similar objectives. On the other hand, in 2020, its investments in the sector amounted to €35.1 billion, or 2% of the bank’s total outstandings.

Or rather a lure of dilution?

Despite announcements that go in the right direction… Lucie Pinson of Reclaim Finance, describes these policies as “warmed up wrapped in a greater blur”. She explains that in many ways banks are finding ways to continue financing fossil fuels. Moreover, the amounts invested continue to grow (3).

In particular, she explains that banks rely on their carbon intensity to demonstrate their good faith. However, reducing its carbon intensity does not necessarily mean reducing its investments in polluting energies, but also financing renewable energies.

To translate this reality into figures, French banks invested $295 billion in fossil fuel financing between 2016 and 2020. Specifically, the amounts invested have increased by an average of 19% per year. In addition, this funding is dedicated to new projects, i.e. infrastructure intended to run for 30 to 50 years.

Lucie Pinson also completes her reasoning by dissecting the policies of exclusion of financeable projects. In particular, it reveals that the thresholds generally spare the oil and gas majors who benefit from their diversification. Thus, despite these provisions, large companies such as TotalEnergies continue to take advantage of funds to exploit fossil fuels in the Arctic, for example.

Sources

1. Crédit Mutuel Arkéa publishes its oil and gas sector policy, press release of 30 November 2021
2. COP 26: where are the banks of the exit from fossil fuels, Carenews, 9 November 2021
3. Fossil fuels: Commitments of “insignificant” French banks, Nature Sciences, 22 October 2021