- Sustainable Fitch finds 80% of banks report on Scope 3 emissions.
- Pressure from investors and advocacy groups is prompting banks like BNP Paribas to improve their oil and gas policies and restrict financing for new oil and gas field development.
- Asian banks are lagging in decarbonisation efforts and Scope 3 emissions reporting due to the lack of regulatory pressure.
In a report last week, Sustainable Fitch looked at the environmental disclosures of the entities that it rates.
The sustainable ratings agency evaluated how comprehensive an entity’s environmental disclosures, including greenhouse gas emissions and natural resource use, are in relation to its core business activities and strategy.
It found energy and utilities sectors have the strongest performance in environmental disclosures, largely driven by climate-related risk regulatory requirements.
Marina Petroleka, Sustainable Fitch’s global head of ESG research, confirms that “standardisation and regulatory steering are the strongest determinants of the availability of emissions disclosures”.
It is no surprise that Scope 1 and Scope 2 emissions reporting are the most common, with Sustainable Fitch finding nearly 70% of entities report this data. But the picture becomes cloudier for Scope 3 emissions – those connected with a company but outside its direct control.
Entities with the largest footprints, such as fossil fuel producers, are less consistent in providing these disclosures. But a bright spot is finance; the report finds the majority of rated banks report on Scope 3 emissions.
“Banks are strong performers in this area, with nearly 80% of those in our dataset reporting on Scope 3 emissions,” the report says.
Aware of the consequences
Banks have become increasingly aware of the need to engage more fully with the consequences of their funding.
As Capital Monitor reported in March, we are now at what Sylvain Vanston, executive director of climate investment research at MSCI, calls “a turning point”. Not necessarily because the banks have realised the danger posed by climate change, but rather that they have noticed that it could hit them in their pockets.
In December last year, HSBC – Europe’s largest financer of new oil and gas projects between 2016–21 – became the largest global bank to announce it would no longer provide “new lending or capital markets finance for the specific purpose of projects pertaining to new oil and gas fields and related infrastructure when the primary use is in conjunction with new fields”.
At the beginning of February, London-based lobbyist ShareAction wrote to Barclays, BNP Paribas, Crédit Agricole, Société Générale and Deutsche Bank asking them to stop directly financing oil and gas expansion projects by the end of this year.
Later that month, Barclays committed to new restrictions on funding oil from oil sands. Also known as tar sands, they are a mixture of sand, water, clay and bitumen.
That pressure is having an effect. On 11 May, BNP Paribas said that it would no longer provide any financing dedicated to the development of new oil and gas fields regardless of the financing methods.
The announcement was cautiously welcomed. “Following months of engagement with investors and ShareAction, BNP Paribas has improved its oil and gas policy at least in part,” says Kelly Shields, project and campaign manager at ShareAction.
Since 2016, the bank has provided more than $45bn to the top nine European and US oil and gas companies, and the monitoring of outstanding financing until 2030 means the bank is free to continue to lead bonds for BP, ENI, Shell and TotalEnergies for some more years.
Scope 3: Playing catch up
Banks in Singapore have taken significant steps in reporting Scope 3 emissions, with major institutions tightening their financing for oil and gas projects. However, overall, Asia still has ground to cover in terms of decarbonisation efforts.
“Rated APAC entities are concentrated in higher-emitting sectors, such as chemicals or home building, and the absence of regulatory pressure means companies in this region have fewer incentives to rapidly decarbonise,” the report explains.
On 16 May, Singapore’s OCBC Bank unveiled science-based decarbonisation targets for six sectors: power, oil and gas, real estate, steel, aviation and shipping. The bank said that 42% of OCBC’s corporate and commercial banking loan portfolio falls within the scope of the targets and that it was targeting them as they were responsible for the majority of the emissions.
Significantly, OCBC said it would not extend project financing to upstream oil and gas projects that had obtained approval for development after 2021. This is on top of the target of a 35% reduction in absolute emissions by 2030 for the sector that the bank has set.
It follows DBS Bank, Southeast Asia’s largest bank, that set decarbonisation targets for its exposure to high-emitting industries like power, oil and gas, and aviation in September last year. In addition to rival UOB Bank which the following month said would provide no new project financing for upstream oil and gas projects approved for development after 2022.
Like the commitments of the other banks, it is not perfect. UOB Bank for example, notably excluded funding for existing oil projects and OCBC said that it would continue to develop sustainable financing solutions for its corporate clients to finance their green and transition business activities.
None of this is perfect, but it is a start.
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