Banks – Fossil fuels
Coal exit
Scope of application
In order for a policy to be truly binding on a financial player, certain points need to be clarified, particularly with regard to the policy’s scope of application. In the case of a sector-based policy such as coal or hydrocarbons, the following elements need to be specified: the scope of the policy, in this case the value chain of coal-related activities, and the financial activities concerned by the policy.
Value chain
The coal value chain corresponds to the various activities involved in the coal mining process, from extraction to marketing. The coal value chain covers the various activities involved in the coal mining process, from extraction to marketing.
New projects
In addition to exclusion strategies aimed at divesting more or less gradually from the sector, the player may decide to stop investing in new projects linked to the coal chain. New projects are an area to be treated differently from other assets, as they involve the financing of assets with a lifespan in excess of 30 years. A coal mine planned today will continue to operate after 2050. This is the date often used to achieve ‘carbon neutrality’. As a reminder, carbon neutrality can only be used at the level of the planet; at the level of financial institutions and companies in general, we speak of contribution to carbon neutrality, as ADEME points out in its March 2021 note.
Financial activities covered
Commitment or exclusion strategies may concern one or more assets, or the entire financial portfolio. In the case of banks, the type of assets may be loans and credits, securities structuring (bonds or equities), dedicated and non-dedicated financing, mergers and acquisitions or index-linked products.
Terms and conditions
In order for a policy to be truly binding on a financial player, certain points need to be specified, in particular how the policy is to be implemented. In the case of sector-based policies such as coal or hydrocarbons, the following elements need to be specified: the strategy’s inclusion in a timetable, and the measurability of the policy, corresponding in this case to the types of exclusion thresholds applied.
Calendar
In order to comply with the Paris Agreement and maintain a trajectory aligned with limiting global warming to 1.5°C, financial players must divest from the coal sector, with an exit timetable of 2030 in EU/OECD countries and 2040 in the rest of the world. Banks have therefore used these timetables to draw up exit strategies, and some have proposed more ambitious timetables than those recommended. Thresholds are set and regularly reviewed to reach the exit target at the dates presented below.
Exclusion strategies
Exclusion, or divestment, consists both in not investing in new coal-related projects and in terminating financing already provided in the sector according to thresholds and a scope of activity defined by the player.
Threshold type
Absolute thresholds are exclusion criteria that enable players to free themselves from coal. Under a coal exclusion policy, a player ceases to do business with companies whose coal-related activities account for more than X euros of sales, or which have a thermal coal-fired power generation capacity in excess of X GW. (X being the absolute threshold)
Relative thresholds are also exclusion criteria. In a coal exclusion policy, a player ceases all activity in companies whose coal-related activities represent more than X% of their sales, or whose coal represents more than X% of their electricity generation capacity. (X being the relative threshold)
Exposure to players in the coal industry
Exposed assets
Banks’ exposure to coal is calculated on the basis of amounts invested in coal mining and power generation companies listed in the GCEL. Financing granted to companies upstream or downstream of the value chain, or which use coal-fired electricity, is not included in the exposure calculation.
Oil and gas exit
Scope of application
In order for a policy to be truly binding on a financial player, certain points need to be clarified, particularly with regard to the policy’s scope of application. In the case of a sector-based policy such as coal or hydrocarbons, the following elements need to be specified: the scope of the policy, in this case the value chain of coal-related activities, and the financial activities concerned by the policy.
Value chain
The oil and gas value chain refers to the various activities involved in the oil/gas process, from extraction to marketing. For each type of hydrocarbon, it is important to specify which part of the value chain is covered.
New projects
In addition to exclusionary strategies aimed at disinvesting more or less gradually in the sector, the player may decide to stop investing in new projects linked to the oil & gas industry chain. Upstream expansion projects correspond to expansions in the exploration for new sources of oil and gas, and in the production and exploitation of these sources. Midstream corresponds to the transportation, processing and storage of oil and gas.
Financial activities concerned
Commitment or exclusion strategies may involve one or more assets, or the entire financial portfolio. In the case of banks, the type of assets may be securities structuring (bonds or equities), dedicated and non-dedicated financing, mergers and acquisitions or products associated with indices and trading.
Terms and conditions
In order for a policy to be genuinely binding on a financial player, certain points need to be specified, in particular how the policy is to be implemented. In the case of sector-based policies such as coal or oil & gas, the following elements need to be specified: the strategy’s inclusion in a timetable and the measurability of the policy, corresponding in this case to the types of exclusion thresholds applied.
Calendar
In order to comply with the Paris Agreement and maintain a trajectory aligned with global warming limited to 1.5°C, financial players must divest from the oil and gas sector. French banks have therefore used these timetables to draw up exit strategies, and some have proposed more ambitious timetables than those recommended. Thresholds are set and regularly reviewed to achieve the exit target at the dates presented below.
Exclusion strategies
Exclusion (or disinvestment) means not investing in new oil and gas projects, as well as stopping existing financing in the sector, according to thresholds and a scope of activity defined by the player.
Exclusion thresholds
Absolute thresholds (in units) are exclusion criteria enabling players to make the transition away from oil and gas. In an oil & gas exclusion policy, a player stops doing business with companies whose oil & gas-related activities represent more than X€ of sales or which have an oil & gas production capacity of more than X mmboe ( X being the absolute threshold). Relative thresholds (in percentage) are also exclusion criteria. In an oil & gas exclusion policy, a player stops all activity in companies whose oil & gas-related activities represent more than X% of their sales (X being the relative threshold). Relative thresholds can also be applied directly to power generation or to the energy mix. As part of the Global Oil and Gas Exit List, Urgewald has developed 6 thresholds for oil and gas, covering both Upstream (production, expansion, exploration) and Midstream (expansion and development of LNG terminals), which can serve as a benchmark for the policies of financial institutions.
Exposure to players in the oil and gas industry
Exposed assets
Banks’ exposure to oil & gas industry players is calculated on the basis of amounts invested in mining companies and energy companies that produce electricity from oil & gas, as listed by GOGEL according to the calculations requested by the ACPR. Investments in companies upstream or downstream of the value chain, or which use electricity produced from oil and gas, are not included in this exposure calculation.