Banks shun fossil fuel financing, refiners say

Motorists and industrialists are in for a rude surprise as banks in Europe are now shying away from financing crude oil refiners in a bid to reduce their exposure to fossil fuel projects, refining executives have said.

The implication is that, the cost of refining would increase, thereby raising the cost of importing fuel into the country.

If the removal of fuel subsidy stands, it than means pump price at fuel stations ill have to increase further.

“If you have the word ‘refinery’ anywhere in your title, you’re not going to get finance,” Alwyn Bowden, chief executive officer of Malaysia’s Pengerang Energy Complex, said at an industry conference, as quoted by Bloomberg.

Banks are also increasingly demanding emission-cutting targets from the oil refiners seeking financing, Bowden noted.

Some banks in Europe have already started to reduce funding to oil and gas projects as part of their own climate targets.

The most drastic measure yet was taken earlier this year by France’s biggest bank, BNP Paribas, which said in May that it would no longer provide any financing for developing new oil and gas fields regardless of the financing methods. The bank also pledged to reduce its financing for oil exploration and production by 80% by 2030 as part of its energy transition goals.

Climate change is the single largest motivation of investment institutions to decide to exclude companies from their portfolios, a newly launched ‘exclusion tracker’ showed earlier this month.
Investors have become increasingly wary of investing in ‘sin industries’, which for many now include fossil fuel companies alongside the weapons and tobacco sectors.

Pension funds and other institutional investors in Europe have excluded some major oil and gas companies from their portfolios, while some European banks have scaled back financing for fossil fuel projects.

But in the United States, there has been growing pushback against ESG investing, and fossil fuel-producing states have blacklisted and vowed not to do business with funds they believe are “boycotting” their oil and gas industries, which finance large parts of the state programs including for schools.

Despite the recent shift of the market narrative from ESG to energy security after the Russian invasion of Ukraine and the energy crisis, investors continue to push for more transparent emissions disclosures and for credible action plans to reach net zero by 2050.

Not all investors are dumping fossil fuels—some believe that owning stocks could help them influence decisions at oil and gas firms regarding emissions reductions. Not all banks are ditching financing for oil and gas, either.

Yet, many investors have excluded stocks of oil and gas companies in recent years due to concerns about the impact the business of fossil fuels has on climate.

The most common motivation for excluding companies is climate/fossil fuels, with 40 per cent, or 13,929 out of 34,882 investors and banks citing this reason for dumping a particular stock, according to the Financial Exclusions Tracker launched this month by several Non Governmental Organisations (NGOs).

Moreover, banks across Europe may have to include environmental and social risks in their capital requirements and risk management under new recommendations by the European Banking Authority (EBA).

“Environmental and social risks are changing the risk profile for the banking sector and are expected to become more prominent over time,” the authority said in a recent report.
“They affect traditional categories of financial risks, such as credit, market and operational risks. Hence, environmental and social factors may affect both the risks faced by individual institutions and the financial stability of the entire financial system.”