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"Not All Banks Are Jumping On The Net-Zero Bandwagon" by Irina Slav

Tom Nolan in Oil (General)

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  • The banking industry, unlike many others, has not been subjected to a lot of shareholder pressure with regard to funding oil and gas industry activities.
  • Wells Fargo, JPMorgan Chase and RBC Capital markets were some of the biggest funders to the oil industry last year.
  • A growing thirst for oil and an even faster-growing appetite for affordable energy make energy funding an even more important topic.

https://oilprice.com/Energy/Energy-General/Not-All-Banks-Are-Jumping-On-The-Net-Zero-Bandwagon.html

Not All Banks Are Jumping On The Net-Zero Bandwagon

By Irina Slav - Mar 23, 2022, 3:00 PM CDT
  • The banking industry, unlike many others, has not been subjected to a lot of shareholder pressure with regard to funding oil and gas industry activities.
  • Wells Fargo, JPMorgan Chase and RBC Capital markets were some of the biggest funders to the oil industry last year.
  • A growing thirst for oil and an even faster-growing appetite for affordable energy make energy funding an even more important topic.

Banks have gone from oil industry backers to some of the loudest critics of the industry and the most ambitious target-setters in a few short years. Some of the biggest lenders in the world have joined the Net Zero Banking Alliance and have made pledges to limit their business with oil and gas. Some, however, are fine doing business with the "dirty" pariah industry.

Bloomberg reported this week that Wells Fargo provided $28 billion in funding to oil and gas companies last year. This made the Wall Street major the biggest oil lender for the year, followed by JP Morgan Chase with $27.9 billion in financing for oil and gas projects, and RBC Capital Markets, which provided $20.3 billion to the industry.

All three banks—along with all other lenders to oil and gas—have made net-zero commitments and outlined some specific steps they will be taking to get there. But Wells Fargo was late to the net-zero party. In fact, it took its time before it joined it.

This is quite uncharacteristic in today's reputation-ruled, social media-vulnerable corporate world. Yet Wells Fargo's energy team appears quite unconcerned about targets and pledges for one simple reason: the transition that everyone seems to be so enthusiastic about in the banking world is not happening overnight.

"There's this idea or dynamic that it's a light switch," Scott Warrender, head of the energy and power team at Wells Fargo told Bloomberg. The green revolution? "Our view — and in reality — it will play out over a much longer time frame.”

Wells Fargo is by no means alone in this view, judging by the latest data from nonprofit organization Reclaim Finance. The organization says on its website that its purpose for existence is to "publicly expose financial institutions who hinder climate-related regulations, and whose practices violate human rights and destroy the environment." It also has an oil and gas policy tracker "to detect greenwashing by the finance sector."

Using this tool and with the help of other transition-focused organizations, Reclaim Finance found that less than half of the 150 banks and other financial institutions that dominate the global financial industry have actually implemented policies that exclude funding for oil and gas projects.

The revelation echoes an earlier one made by ShareAction, another nonprofit organization, which promotes "responsible investment". According to ShareAction's data, European banks led by HSBC, Barclays, and BNP Paribas continue to provide financing for oil and gas exploration despite government efforts to reduce economies' reliance on fossil fuels.

The nonprofit slammed lenders for this behavior, saying that either way, it will end badly for them: "If oil and gas demand decreases in line with 1.5C scenarios, prices will fall and assets will become stranded," ShareAction senior research manager Xavier Lerin said in February as quoted by the BBC. "On the other hand, if demand does not fall enough to limit global warming to 1.5C, the economy will suffer from severe physical climate impacts."

Judging by banks' continued business with oil and gas, the threats listed by Lerin are not exactly top of the agenda. And there is a good reason for this. Despite a much-publicized scientific consensus on climate change and a sense of urgency continuously fed by various organizations and their officials, bankers like Wells Fargo's energy team seem to be aware of the more immediate realities.

These realities include a growing thirst for oil and an even faster-growing appetite for affordable energy. These are things that need to be responded to right now, and even the International Energy Agency recognized this when it called on OPEC to increase investment in new oil and gas production just months after saying new investment in oil and gas would not be needed because of the net-zero transition.

Noting that global spare oil production capacity was dwindling, the IEA said in its October 2021 Oil Market Report that "Shrinking global spare capacity underscores the need for increased investments to meet demand further down the road."

Such a statement considerably undermines arguments about stranded assets that the environmentalist lobby is putting forward as a means of spurring shareholders into action to green-up the companies they participate in.

Even with threats about catastrophic climate change effects, it has proven impossible to reduce the world's need for energy. Since the most readily—and continuously—available energy continues to be that derived from fossil fuels, it is only natural for banks to continue financing its production.

According to the Bloomberg report, the banking industry, unlike many others, has not been subjected to a lot of shareholder pressure with regard to funding oil and gas industry activities. Yet this could change: environmentalists are pushing increasingly harder against banks' continued business with the oil and gas industry.

Many U.S. oil and gas independents are already struggling with finding the money they need to keep drilling because of some banks' newfangled aversion to the industry. Large lenders are making pledges that include shrinking their exposure to oil and gas. Just how well this will end remains to be seen.

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:

Latest articles from Irina Slav

 

 

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(edited)

Infrastructure and tech are not where they need to be to even think about net zero carbon. In fact for the last 4 years global renewables have grown at a 1% clip to around 13%. Everybody and their dog has plenty of opinions but few can spout the numbers that define reality. Imagine that. With all the hoopla about green, oil, AI, and the impressive capabilities that are here and on the way are not in any way what your neighbor thinks. It would be interesting if any group of humans would want to bridge that gap. What’s best is far removed from what’s discussed let alone from whats funded. 

Edited by Boat

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https://oilprice.com/Energy/Crude-Oil/Big-Oil-Is-No-Longer-Unbankable.html

Big Oil Is No Longer “Unbankable”

By Alex Kimani - Mar 22, 2022, 6:00 PM CDT

  • Big banks arguably have more power to undermine the oil and gas industry than any other actor, and in recent years they have done their best to halt new exploration.
  • In 2019, Goldman Sachs became the first big U.S. bank to rule out financing new oil exploration, 14 international banks have since ended direct financing of new coal plants.
  • With oil prices soaring once again, it seems certain banks such as Wells Fargo can no longer resist the call to work with oil and gas companies.

It’s an open secret within energy circles that the eventual death of oil and thermal coal won’t come from environmentalists or even directly from renewable energy, but rather when big banks decide to stop financing it, rendering it ‘unbankable’. And the U.S. oil and gas sector came dangerously close to meeting that fate after Wall Street banks started disavowing oil and gas lending at the height of the ESG (environmental, social, and governance) craze.

In 2019, Goldman Sachs became the first big U.S. bank to rule out financing new oil exploration, drilling in the Arctic, as well as new thermal coal mines anywhere in the world. The bank’s environmental policy declared climate change as one of the “most significant environmental challenges of the 21st century” and pledged to help its clients manage climate impacts more effectively, including through the sale of weather-related catastrophe bonds. The giant bank also committed to investing $750 billion over the next decade into areas that focus on climate transition.

Wall Street banks tend to move in lockstep, and Wells Fargo, JPMorgan Chase, Bank of America, Citigroup, and Morgan Stanley quickly followed suit by marking their enormous oil and gas loan businesses for extinction. According to  BankTrack, 14 international banks have now ended the direct financing of new coal plants worldwide.

But the lure of those juicy oil and gas dollars amid an energy boom has been proving hard for Wall Street banks to resist, leading to many throwing their ESG pledges out of the window.

One year after Wells Fargo & Co. became one of the last big U.S. banks to make a net-zero promise, the bank has become the biggest fossil fuel lender: Wells Fargo’s 2021 tally in the sector topped $28 billion, racking up $188 billion in oil and gas loans since late 2015. Last year alone, banks organized ~$555 billion of bonds and loans for the oil, gas, and coal sectors.

Wells Fargo’s fossil fuel lending has stayed at the top of the industry. Wells, America’s fourth-largest bank, earned itself the dubious distinction as one of the most scandalous financial institutions in the land after it emerged that it had systematically opened millions of fake accounts for its clients. 

Playing the Long Game

Few bankers like to be in a line of work practically marked for elimination. But Bloomberg reports that companies like Wells just won’t stop making hydrocarbon loans when the rest of us are consuming so much of it. 

Indeed, Wall Street banks are now playing the long game with oil and gas businesses because their climate milestones are decades away.

“There’s this idea or dynamic that it’s a light switch. Our view--and in reality--it will play out over a much longer time frame,” Scott Warrender, who runs Wells Fargo’s energy and power team, has told Bloomberg.

“We’ve been a leading financial partner to traditional energy companies, such as oil and gas producers and electric utilities, as well as the emerging renewables business, for many years. We will continue to support our clients in this industry as they provide the fuel that powers society today, and as they respond to the evolving market,” says a Wells spokesperson. 

“Now that we’re making money again, will investors stay away? As the long-suffering industry returns to being lucrative, it will be harder for them to leave,” Derek Detring, who had a stint eight years ago as a Wells energy banker, has told Bloomberg.

Historically, bankers haven’t been under much pressure from shareholders to be more proactive on climate. But that is changing. Last year, Wells joined the Glasgow Financial Alliance for Net Zero, a group of banks and fund managers representing $130 trillion in assets. The big banks, in addition to pledging to zero out emissions, have agreed to eventually begin accounting for the carbon in their vast portfolios. In December, the investor group Interfaith Center on Corporate Responsibility asked Wells and other banks to adopt a policy by the end of 2022 to ensure that lending and underwriting don’t contribute to new fossil fuel development.

But that hasn’t scared Wells out of the business. Its most significant syndicated fossil fuel loan last year was a $3 billion deal with Enterprise Products Partners LP (NYSE:EPD). The Houston pipeline owner agreed in January to buy Navitas Midstream Partners and its 1,750 miles of pipeline in the Permian Basin for $3.25 billion in cash.

Wall Street soured on the energy business when they were losing money on loans. But with oil prices soaring amid a global energy crisis as well as the Ukraine crisis, most of these companies are now gushing profits - and Wall Street is ready to pounce, especially now that interest rates are on an upward trajectory.

In other words, just because ESG appears to be “front and center” doesn’t mean it will be forever. 

Nevertheless, Wells Fargo has pledged to commit $500 billion in sustainable finance this decade, while JPMorgan’s green target is $1 trillion.

By Alex Kimani for Oilprice.com

More Top Reads From Oilprice.com:

 

https://www.zerohedge.com/markets/big-oil-no-longer-unbankable

Big Oil Is No Longer "Unbankable"

Tyler Durden's Photo
by Tyler Durden
Friday, Mar 25, 2022 - 01:07 PM

By Alex Kimani of OilPrice.com

It’s an open secret within energy circles that the eventual death of oil and thermal coal won’t come from environmentalists or even directly from renewable energy, but rather when big banks decide to stop financing it, rendering it ‘unbankable’. And the U.S. oil and gas sector came dangerously close to meeting that fate after Wall Street banks started disavowing oil and gas lending at the height of the ESG (environmental, social, and governance) craze.

In 2019, Goldman Sachs became the first big U.S. bank to rule out financing new oil exploration, drilling in the Arctic, as well as new thermal coal mines anywhere in the world. The bank’s environmental policy declared climate change as one of the “most significant environmental challenges of the 21st century” and pledged to help its clients manage climate impacts more effectively, including through the sale of weather-related catastrophe bonds. The giant bank also committed to investing $750 billion over the next decade into areas that focus on climate transition....

 

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