Commercial banks have been urged to close “corporate financing loopholes” amid concerns they’re playing a central role in funding new oil and gas projects in the Arctic.
According to a report from Reclaim Finance, oil and gas production in the Arctic would rise 20% in the next five years if financial institutions, institutional investors and insurers fail to stop support for companies currently considering new projects in the region.
The Arctic is at the epicentre of the global warming crisis, with scientists reporting that rising temperatures in the region are causing sea ice to melt at an alarming rate.
Further Arctic oil and gas projects will only worsen this trend by increasing global greenhouse gas emissions, while also damaging the region’s fragile habitat, Reclaim Finance says.
Commercial banks are singled out as the main source of financing for so-called “Arctic expansionists” – firms either developing projects or carrying out field evaluation – in recent years, according to the Paris-headquartered NGO’s report.
That is despite the fact increasing numbers of banks have Arctic exclusion policies prohibiting them from financing fossil fuel developments in the region.
Pointing to “corporate financing loopholes” in bank sustainability programmes, Reclaim Finance’s researchers say commercial lender policies often only exclude “direct and dedicated” support for Arctic projects.
They estimate that from January 2016 to December 2020, commercial banks supplied over US$314bn to Arctic expansionists.
Approximately 34% was provided through loans and 66% through the issuance of bonds and shares, with only a “small share” of funding made available through direct project financing.
“Shockingly, BNP Paribas… Crédit Agricole, Société Générale, Natixis and HSBC even increased financial services to Arctic developers after adopting an Arctic exclusion policy,” the report says. “For the other banks, it’s still too early to tell as they adopted policies only in 2020 or 2021.”
The levels of support provided by some of Europe’s largest banks, in the form of loans or underwriting services, have risen in recent years, from US$16.6bn in 2016, to US$28.4bn in 2020.
The insurance sector is also exposed, with researchers noting that many of the firms it screened had no policy on oil and gas projects in the region. Reclaim Finance says data on the support provided by insurance and reinsurance firms to Arctic expansionists is currently limited.
The majority of banks mentioned in the report could not be reached for comment.
Crédit Agricole says in a statement that the trajectory of its climate strategy is “consistent with the objectives of the Paris Agreement” and that the bank will not participate in any financing or investment relating directly to the development, construction or expansion of oil and gas installations located in the Arctic.
Crédit Agricole also says that in 2020 its financing for fossil fuels for large corporate customers and SMEs was down 4.9%.
A spokesperson for Société Générale says that as part of the group’s current oil and gas policy, it will not provide products and services to companies “dedicated to the extraction of oil sands and petroleum in the Arctic region, and associated transport and storage infrastructure”.
“This also excludes companies active primarily in this sector or whose reserves are largely made up of oil sands and/or petroleum in the Arctic region,” they say.
In its report, Reclaim Finance singles out the bumper Arctic LNG2 project backed by Russia’s Novatek and France’s Total.
Set to become operational by 2023 and reach full capacity as soon as 2025, the megaproject aims to build three LNG trains and infrastructure to liquefy natural gas extracted in the Arctic and transport it all the way to Europe and Asia.
Total estimates that as much as 7 billion barrels of oil equivalent could be produced from the reserve – enough to help a country such as France meet its gas needs for 27 years.
Politicians in the European Parliament previously flagged concerns that the project’s likely greenhouse gas emissions fail to comply with Paris Climate Agreement goals, while researchers say dredging work being conducted as part of the development could result in several marine species unique to the region becoming extinct.
Reclaim Finance says roughly half the project’s total US$21.3bn funding requirements are set to be met by Russian banks including VEB, Sberbank and Gazprombank, as well as a pool of foreign private and state lenders.
China Development Bank, the Export Import Bank of China, the Japan Bank for International Cooperation, Intesa Sanpaolo and Raiffeisen Bank International are also said to be involved in the project.
Meanwhile, as reported by Reuters in September, a trio of European countries had also been weighing up whether or not to back the project through their state export credit agencies (ECAs), but cooled their interest after mostly Green Party politicians in the European Parliament flagged concerns.
“We urge the French, German and Italian governments to refuse to support this project and set a new standard by ending all export finance support to fossil fuels before COP26,” said a letter from the lawmakers sent in May.
In June, G7 members vowed to “take concrete steps towards an absolute end to new direct government support for unabated international thermal coal power generation by the end of 2021”, which included nixing all trade and export finance support.
But timelines for ECAs to suspend oil and gas support have been less definitive.
European ECA support for the Arctic LNG2 hasn’t been altogether ruled out, with a spokesperson for Germany’s ministry of economic affairs and energy telling GTR in early September its decision was still pending, while the French government did not respond to a request for comment.
A further US$10bn would also have to be raised through the project’s sponsors – Total, Novatek, PetroChina, CNPC, Mitsui and Jogmec – Reclaim Finance says.