Published on 27 October 2020

SUSTAINABLE FINANCE

Exclusions from the most controversial oil and gas projects signal a broader movement

A study published on October 20th by the Australian Institute IEEFA - which specializes in the economic and financial analysis of the energy sector - examined the policies of 50 major investors who exclude oil sands and Arctic gas drilling. Their conclusion: an exodus of financial flows from fossil fuels has begun. 

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Investors are gradually starting to exclude all fossil fuels from their investments.
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It’s a weak signal that is growing in strength: large financial institutions that refuse to invest in coal are beginning to exclude certain oil and gas activities. For IEEFA - an Australian institute specializing in economic and financial analysis of the energy sector - their policies signal broader disengagement from all fossil fuels.

We are now seeing an accelerating shift,” says Tim Buckley, Director of Energy Finance Studies at the institute. He adds, “It began in 2017 with exclusion policies on oil sands development and Arctic gas exploration. The World Bank and French financial actors BNP Paribas, AXA, and Crédit Agricole were the first major financial institutions to introduce these policies. There are now around 50 institutions, with a European majority, and an inevitable trend is emerging“.

Open database

The IEEFA highlights the emblematic case of the European Investment Bank (EIB), which in 2019 committed to phasing out fossil fuel financing by 2022, and they believe that it is leading the way. For this reason, the IEEFA provides an open database that details the commitments made by hundreds of financial institutions and indicates the proportion that this represents in the volume of assets managed by every financial actor category (banks, insurance, asset managers, pension funds).

Will these predictions come to fruition and at what rate? It is worth recalling the case of coal exclusions. The first exclusion announcements - made by AXA at the Climate Finance Day in May 2015 - sounded like a thunderstorm that hit the entire industry in a short period of time, irreparably compromising the projects’ profitability. Even Poland, the European coal state, has begun to surrender. One project symbolizes this shift: the state-of-the-art Ostroleka coal power plant that Poland wanted to build in 2018 has just been abandoned because it is in financial trouble.

While the IEEFA points out that oil sands and Arctic gas exclusions are a good start, it stresses that they are not enough to align with the Paris Agreement objectives. That's why the Institute recommends members of the Net Zero Asset Owner Alliance, which is comprised of investors aiming for carbon neutrality by 2050, to “raise their exclusion level with more stringent policies to actually target the 1.5°C global warming objective”.

Anne-Catherine Husson-Traore, @AC_HT, CEO of Novethic 


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