Opinion: BNP Paribas’ is taking a different oil and gas approach than HSBC and ING, and it is wrong

OPINION

French banking giant BNP Paribas has announced new measures intended to increase its support for “low-carbon” energy sources and to reduce its support for fossil fuels.

As part of the new approach, BNP Paribas has announced measures aimed at developing low-carbon solutions and committed to reducing its outstanding oil production financing by 80% as well as gas production financing by 30% by 2030.

Unlike its peers ING and HSBC, BNP Paribas has not committed to ending all direct support for new oil and gas projects.

Despite relatively ambitious targets for 2030, BNP Paribas is not taking any steps to ensure that it does not support oil and gas expansion or any measure to convince its clients to stop oil and gas expansion as soon as possible in order to limit global warming to 1.5°C, argues Lucie Pinson, Director of Reclaim Finance.

The bank said it has not financed any oil projects since 2016 and indicated that it wants to “reserve its financing in the gas sector primarily for new generation low-emission thermal power plants as well as for security of supply, gas terminals and the gas transport fleet,” Pinson told ESG Insight this morning.

“What are presented as restrictions for the gas sector in fact reflect the bank’s willingness to support its clients in developing new climate bombs, which are not needed for energy security but which are fatal for our climate goals,” she said.

“Gas is not a transitional energy and its real impact on the climate needs to be urgently recognised.”

Lucie Pinson

According to the International Energy Agency’s (IEA) Net Zero Scenario (NZE) to limit warming to 1.5°C, no new oil and gas production projects should be approved after 1 January 2022, and no new liquefied natural gas (LNG) projects should be approved after 1 January 2023.

The scenario also indicates that the capacity of existing and under construction infrastructure is well above the volumes of LNG expected to be consumed in future decades..

As regards corporate (not project) finance, which accounts for the vast majority of support to the energy sector, BNP Paribas has not announced measures to put pressure on clients to stop developing new oil and gas projects but has indicated that it intends to plan the cessation of “financing activities specialising in or associated with this sector”.

Net-Zero Banking Alliance

To illustrate BNP Paribas’ commitments: between April 2021 when it joined the Net-Zero Banking Alliance (NZBA) and August 2022, the bank provided a total amount of $1,5 billion to TotalEnergies through two transactions.

The French major is the world’s 7th largest developer in oil and gas production.

TotalEnergies plans to allocate 45% of its capital expenditure to the oil sector, of which approximately 20% will be spent on exploration and development of new projects, in addition to the EACOP pipeline project.

BNP Paribas has indicated that it will not directly finance the EACOP pipeline project and its latest announcements indicate that it will ask TotalEnergies not to use the capital it allocates for oil activities.

“The inclusion of clauses restricting the use of funds in financing contracts is a good way for the bank to signal to its clients its desire to see them withdraw from certain activities,” Pinson said.

“However, as the money is fungible, BNP Paribas cannot guarantee that it will not support its clients’ oil activities,” she continued.

Scrutiny

Pinson calls on BNP Paribas to review its approach and learn from best practice to halt the development of new oil and gas production and transportation projects, because “what happens between now and 2030 matters as much as where we end up.

She acknowledged that “BNP Paribas recognises the need to reduce our dependence on oil and gas, which is a source of risk, and to increase support for solutions.”

However, she said “this is not the right way to do this, and all the signs suggest that the French bank will continue to finance a few large clients, such as TotalEnergies, despite their strategy to expand fossil fuel production.”

Financial services

Pinson said that adopting decarbonisation targets does not guarantee an immediate halt to financial services for oil and gas expansion for several reasons, including the fact that these targets only cover part of the financial services such as loans, not equity and bond issues.

Also, she stressed they allow short maturity loans that would be repaid before 2030.

While meeting these targets will inevitably require the exclusion of many of the bank’s clients over time, BNP Paribas will be able to keep others in its portfolio, regardless of the size of their business or their plans for fossil fuel expansion.

This could include the European oil and gas majors, such as TotalEnergies, BP and Shell, for whom BNP Paribas has been the leading banker between 2016 and 2021.

“While BNP Paribas has announced measures to clarify its approach to meeting these targets, it has failed to take a firm stance against oil and gas expansion and will continue to add fuel to the fire by directly and indirectly financing new projects in the sector,” Pinson continued.

Pinson said firmly believes “BNP Paribas is using the wrong method, especially since, while there is an urgent need to push companies to stop developing new projects, no 1.5°C scenario calls for an end to all support for oil by 2030,” Pinson added.