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Banking on the transition: Two jokers and one leading light

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By Christopher Caldwell

· 6 min read

Last week, I examined the slew of pledges from big banks to stop funding new oil and gas exploration and the one simple trick they use to get around them:

‘Many banks have no longer pledged to finance new oil and gas projects. But that only restricts direct funding. Banks are still free, under these commitments, to extend other forms of credit to oil and gas firms, from re-financing to equity arrangement to “general-purpose corporate loans.”’ 

Two of the biggest culprits in this deceptive game are HSBC and Barclays. Before we applaud a competitor for getting it right, let's take a closer look at their history and the discrepancies in their recent commitments. 

The case of HSBC

HSBC, a founding member of NZBA, has been a major player in fossil financing. In December 2022, they made a promise to “no longer provide upstream finance for the specific purposes of new oil and gas fields” due to the belief that the world’s net-zero energy needs would be “more than met by existing known fields.” However, a Bureau of Investigative Journalism analysis revealed a different story. In the year following that announcement, the bank was involved in raising another $47 billion for companies expanding oil and gas production. Let’s delve into this a bit more.

Banks do more than directly lend credit. They also arrange equity sales and broker third-party arrangements. For example, Adnoc is the UAE state oil firm with the fifth-greatest expansion plans of any major – a 25% production increase by 2027. You might recognise their CEO, Sultan Al-Jaber, as the President of COP 28. In early 2023, HSBC helped Adnoc raise $3.2 by selling shares. It also helped arrange a $3.2bn loan for Borouge 4, a gas plant that describes itself as “a key enabler of Adnoc’s growth strategy.” 

It is true that neither of these deals (or the rest of its $47bn in fossil funding) strictly breached HSBC’s ‘no new fields’ commitment because they all worked at the company level rather than the project level. But in reality, they are funneling billions to the world’s most aggressive fossil explorers. This begs the question: What is the point of their new policy?

In the words of one major institutional investor: “We’ve been duped.

HSBC pre-tax profit in 2023: $30.3bn, almost double the year before. 

The case of Barclays

Barclays is another founding member of the NZBA and one of the top ten fossil funders from 2016 to 21. In February 2024 (better late than never?), it announced a ban on funding new exploration projects. Once again, the devil is in the detail.

Barclays' commitment is again at the project level, not the corporate level. Yet since 2016, only 1% of its funding to the sector has been for direct projects, leaving the other 99% untroubled. In 2020, for example, it extended $1.8bn in general funding to Equinor, the majority owner of Rosebank. 

Its commitment contains other loopholes, too. It applies only to upstream expansion; midstream projects like pipelines, which enable production growth, need to be mentioned. They will place restrictions on ‘non-diversified clients’ that won’t touch firms like Equinor, which is building out renewables at the same time as it chases after new oil. 

From January 2026, Barclays says it will only finance firms that align with net-zero targets. This only applies to scope one and two emissions, with no minimum standards for scope-3 emissions, which make up 90% of an oil major’s footprint. Customers who don’t meet sustainability benchmarks will be audited, but this will be done by Barclays themselves, who leave themselves plenty of latitude to “determine whether continued financing support is appropriate.” 

That’s a lot of wriggle room for a bank with a shocking track record.

A leading light: Danske Bank

It is (sadly) all too easy to criticise. Let’s also recognise that a few banks are showing that moving away from funding fossil exploration is possible. Last month, Danske Bank updated its fossil fuel policy. It declares it will not offer “long-term financing or refinancing to E&P [exploration and production] companies engaging in activities relating to oil or gas expansion.” 

Read that again, and look for the crucial distinction: “companies,” not “projects.” 

This policy explicitly covers general finance, project finance, and investment services and includes conventional, unconventional, and frontier exploration.  It also makes financing any fossil fuel firm conditional on a Paris-compliant transition plan that commits to no new supply beyond projects approved at the end of 2021 – the IEA’s end-stop date. 

This is a genuine, material turnaround. Between 2020 and 2022, Danske extended $2.3bn to fossil fuel firms, including $1.1 billion to companies engaged in (highly controversial) arctic oil operations. It joins Commerzbank, Credit Mutuel, and La Banque Postale in the rare category of large European banks with meaningful restrictions.

There is still work to do. The Danske project doesn't mention midstream investment and doesn’t apply to short-term finance facilities. Eventually, banks need to stop funding the sector altogether. But it is a credible start and shows that HSBC, Barclays, and the like have no excuse. 

Post-truth promises

As I researched this problem, I was reminded of my recent articles on Post-Truth Accounting. Bank promises to halt fossil fuel exploration strike me as subtle examples of this phenomenon

To begin with, the aim is to win big. When the subject is decarbonisation, nothing is more significant than nothing; getting to zero is the biggest win there is. Being able to declare a complete halt has a psychological resonance that is much more impactful than correctly stating, ‘We will stop funding direct projects that makeup 1% of our lending.’ 

For maximum impact, these declarations are often paired with huge green promises for the future, such as HSBC’s $1tn of new climate investment by 2030. The weasel wording of such restrictions is a classic example of claiming without shame. They sound absolutist – no means no – but contain loopholes you could drive an oil tanker through, as listed above.

A related example is HSBC’s announcement that it would reduce financed emissions from the oil and gas sector by 25% by 2030. Only in the small print on page 54 of their annual report do they admit this only includes upstream, scope one emissions. They must have slipped with that decimal point. 

Finally, these firms bank words, not deeds. The declaration gets the headlines and decorates the website; what subsequently happens in the real world is irrelevant. HSBC extended $47bn for exploration to some of the world's most significant growth plays in the year after its announcement! When confronted with this fact by journalists, the bank simply replied: ‘It is wrong to suggest that our policies allow for financing that is at odds with a science-based net zero transition.’ Unbelievable. 

This is the sad reality of transition plans at some of the world’s biggest banks – they aren’t worth the paper they are written on. Until their shareholders start holding them to account, the rest of us will continue to be victims of a few voracious oil explorers intent on driving us over the climate cliff.

illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.

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About the author

Christopher Caldwell is the CEO of United Renewables, where he employs his past experiences as a corporate lawyer, investment banker, and team leader to lead all aspects of the business. Chris holds a degree in business from Trinity College Dublin, an MBA from London Business School, and is currently reading part-time at the Yale Center for Business & the Environment. 

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