Climate Responsibility in Banking: Fossil Fuel Expansion (Chapter 6)

In this episode of Bank.Green’s series, Katherine breaks down the concept of fossil fuel expansion and shares our perspective on the practice at Bank.Green. She also explains how this activity is incorporated into our online bank-rating system. Don’t have time to watch the video? Read our blog instead!

What is fossil fuel expansion?

Anoushka: In our latest episode we're going to be talking about fossil fuel expansion. What do we mean when we refer to fossil fuel expansion?

Katherine: Great place to start. So expansion essentially just means building new fossil fuel infrastructure. So, this could be exploring and developing new oil fields, building new coal powered plants, constructing new pipelines – anything across the whole spectrum of the value chain.

Now these projects are very, very big and they require a lot of capital, and it's very common for several banks to pool their efforts and their funds and lend to those project developers and this infrastructure as a sort of consortium. The best source of information on fossil fuel expansion is the Banking on Climate Chaos Report. It's an annual report that tracks the amount of money that large banks pour into fossil fuel projects. One of the sections of the report specifically focuses on expansion financing. The biggest fossil fuel expansion project in 2024 was by a Canadian energy company, Enbridge, which poured $35 billion into construction of pipelines, and also build-out of new methane gas capacity in Canada. This financing is supporting 1,260 kilometers of new pipelines. According to the report, the biggest funders of expansion between 2016 and 2023 are Citibank, JPMorgan Chase, and Bank of America – all among the largest U.S. banks. The biggest UK bank involved is Barclays, while the leading German and Spanish banks are Deutsche Bank and Santander, respectively. An example that's relevant to our U.K. friends are NatWest and Lloyds – both banks are interesting and made commitments not to fund expansion. They've set net zero targets and they joined the Net-Zero Banking Alliance, but in 2024, it was found that they were funding Ithaca, a company that played a key role in developing Rosebank, an oil field northwest of the Shetland Islands. This followed the UK government's approval of Rosebank's exploration in September 2023. It's actually the UK's largest untapped oil field, estimated to contain about 500 million barrels of oil.

So, we still see examples of companies with net zero targets and commitments that are nonetheless funding expansion.

One other thing I would say is that some of these projects are financed by European and North American banks, but actually the projects themselves take place outside of those countries – so in Africa and Southeast Asia. There, many local residents have no political power and are not involved in the decision-making process around whether this infrastructure should actually be built in the first place.

What is Bank.Green's view on fossil fuel expansion?

Anoushka: What is our view? What's Bank.Green's view on expansion?

Katherine: What is our view? If you want a frank opinion – very unfiltered view – It's criminal. Right? We know that emissions associated with these projects are killing people, killing humans, non-human species, and causing devastation and destruction. We know that. And it's also completely unnecessary when we have cleaner sources of energy, which are cheaper to develop and cheaper to produce. So it's just not needed.

But it’s not just the banks – it’s not solely their fault. World governments are also permitting these new projects; they're allowing them to proceed. They're allowing them to go ahead. Again, don't forget, many of these projects are in petrostates where the government owns the land and where citizens either can't, or don't, exercise their right to vote or to influence these political decisions. So it starts with policy makers and then banks are just jumping on the bandwagon. But we don't see any excuses for financing any further expansion.

Does Bank.Green consider fossil fuel expansion when rating a bank's climate efforts?

Anoushka: Does Bank.Green take that into consideration – do we put a bank's fossil fuel expansion involvements into our rating process at all?

Katherine: Oh, you bet. Something to bear in mind is that our methodology changes every year. Societal expectations change. The regulatory environment changes. International agencies update their guidance. I've mentioned the International Energy Agency – which is the preeminent authority on these matters – and they produced a net zero roadmap report several years ago and they've since updated it. And it essentially sets out what the energy production path needs to be for us to stay within the goals of the Paris Agreement. And it states very clearly and unequivocally that in order for us to reach the goals of the Paris Agreement, that those goals are incompatible with the development of any new fossil fuel infrastructure. So, we absolutely cannot meet these goals whilst at the same time developing new oil fields and building new pipelines. This comes from an authority that is respected and it is followed by many standard sets around the globe. And so, we at Bank.Green follow that best practice and guidance and mirror that in our ratings.

Until next month!

Anoushka: Thank you Katherine! See you next month for a deep-dive into banks' current decarbonisation efforts.

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