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Researchers have claimed that some of the world’s largest banks are failing to cut their exposure to suspect oil and gas activities in the Amazon, despite making sustainability commitments and putting in place risk management assessment processes.

According to analysis from environmental advocacy groups Stand.earth and Amazon Watch, several global lenders remain vulnerable to corruption risks, human rights violations and environmental harm, as a result of their ongoing relationships with companies and traders operating in the Amazon.

The report includes a scorecard of 14 major banks, which details how a handful of them are at a “very high” risk of seeing their investments or financing playing a role in Amazon destruction.

The most exposed financial institutions include Citigroup, Deutsche Bank, Goldman Sachs, HSBC, and JP Morgan Chase.

BNP Paribas, Crédit Agricole, Credit Suisse, Natixis, Société Générale, and UBS are all deemed as being high risk, while the trio of ABN Amro, ING, Rabobank, are categorised as being of moderate risk.

The “Banking on Amazon Destruction” scorecard assesses the strength of each bank’s environmental and social risk (ESR) policy framework, against their current risk exposure to 90 of the top oil and gas companies active in the Amazon.

By giving scores to each lender based on their risk management policies, as well as their current levels of financing and investment to the region’s oil and gas industry, the researchers calculated an overall risk rating.

The report identifies a few banks as being “leaders”, with Rabobank earning a rating of 70% and a ‘B’ grade based on the fact that it has “above average policies” and low exposure to Amazon-based oil and gas companies.

But broadly, the report flagged concerns that many banks have ESR policies that fail to cover their levels of exposure to such activity.

Bond issuances are identified as a potential weak point for banks, with the researchers noting that BNP Paribas, Crédit Agricole, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan Chase, and UBS all hold hundreds of millions of dollars in bonds issued to PetroAmazonas, the oil exploration unit of Ecuador’s national oil company.

According to the report, PetroAmazonas is leading oil expansion in Yasuní National Park, a UNESCO Biosphere Reserve, where the process of building roads to access new oil drilling sites often involves deforestation, and brings drilling to the doorstep of indigenous people living in voluntary isolation.

The research also flags revolving credit facilities (RCFs) as a blind spot in banks’ lending policies, if oil trading clients are not asked how the money will be spent. That risks a scenario where they “may fund projects, transactions, and companies that wouldn’t otherwise pass banks’ ESR screening processes”, it says.

Of particular concern is the financing provided to allegedly “problematic” oil traders such as Vitol and Gunvor through RCFs, with Amazon Watch and Stand.earth pointing to their implication in recent bribery scandals.

JP Morgan Chase is singled out as the lowest scoring bank in the paper, with exposure to high-risk activities including roughly US$1bn in equity and debt holdings in the Amazon as of March 31 this year.

Researchers also point to the bank’s role as agent and lender on US$9.7bn in RCFs for Vitol, as well as its participation in RCFs for Trafigura and block operators such as CEPSA and Tecpetrol.

The campaign groups note that several banks, including ABN Amro, Citi, Crédit Agricole, Credit Suisse, Deutsche Bank, Goldman Sachs, ING, Rabobank, Société Generale, and UBS all provide RCF funding to oil traders.

In terms of risk management, scores are partially based on banks’ sustainability commitments that come with reporting requirements, such as through the UN Principles for Responsible Investment, or the Taskforce on Climate-Related Disclosures.

But researchers also take into account other risk management aspects, such as bank policy exclusions.

Exclusions are situations where a bank will refuse to provide financing or investment under any circumstances, with several European and international banks putting Arctic oil drilling exclusions in their ESR frameworks.

The report claims that many lenders currently lack deforestation exclusions for the Amazon oil and gas sector, while biodiversity exclusions “focus on traditionally protected areas such as UNESCO World Heritage Sites” and ignore the “vital role that indigenous territories play in protecting biodiversity”.

“Despite a long legacy of pollution from the oil and gas industry in the Amazon, the report uncovered only three banks with pollution exclusions,” it says.

 

Steps for banks?

Global financial institutions have been taking steps in the past year to reduce their exposure to deforestation and other risks in the Amazon, with several European lenders vowing in January to cut financing immediately for crude oil trade transactions in Ecuadorian parts of the Amazon rainforest.

Stand.earth and Amazon Watch said in the early 2021 report that BNP Paribas, Credit Suisse and ING all confirmed in writing that no new transactions would be accepted that involve the sale of such oil.

The trio were previously responsible for financing sales of Amazon oil to buyers in the US worth a total of US$5.5bn since 2009, equivalent to more than 50% of all financing provided for such trade, the report says.

But in their latest research, Amazon Watch and Stand.earth say that the wider banking sector should be doing more and outline a string of recommendations.

They call for an immediate commitment to halt new oil and gas financing and investment in the Amazon biome by the end of 2021, as well as all existing oil and gas support in the area by the end of 2025.

They also urge banks to exit all loans, letters of credit and revolving credit facilities for all oil traders – especially those implicated in corruption controversies – active in the Amazon biome as soon as possible, or at the latest by the end of 2024.

To bolster risk management policies, researchers say that banks should extend existing Amazon oil trade finance exclusions to the entire Amazon biome by the end of 2021.

 

Banks respond

Many of the banks weren’t immediately available for comment on the findings of the report, although a few provided responses when contacted by GTR.

A Deutsche Bank spokesperson declined to address the Amazon Watch and Stand.earth analysis directly, but notes that the bank “will not finance activities where there is clear and known evidence on clearing of primary forests, areas of high conservation value or peat lands, illegal logging or uncontrolled and/or illegal use of fire”.

“We observe the developments regarding the fires in the Amazonas region with great concern. Together with other German companies in Brazil… we continuously talk with representatives of the Brazilian government about sustainability and environment protection,” they add.

A UBS spokesperson tells GTR that the bank is committed to maintaining the “highest environmental and social standards”.

“We apply an in-depth environmental and social risk policy framework to our transactions, products, services and activities – including commodity trade finance – in order to identify and assess environmental and social risks. As such we have declined transactions where the origin of oil is verifiably associated with breaches of our standards, such as indigenous people land rights or UNESCO World Heritage Sites,” they add.

A spokesperson for ING says that the bank has been examining the concerns of local indigenous communities and the impact of oil and gas exploration on the Ecuadorian Amazon.

“When it comes to protecting the Amazon, we share many concerns of civil society stakeholders. That’s why we have undertaken research on our financial exposure to oil and gas trade flows from the region. Our research and resulting engagements are ongoing. In the meantime, we have decided not to engage in any new contracts for the financing of oil and gas trade flows from the Ecuadorian Amazon,” they add.