‘Radical reinvention’: Lloyds Banking Group vows to stop financing new oil and gas projects
By Amber Rolt, Business Green | October 25, 2022
Lloyds Banking Group has announced it will no longer directly finance the development of new oil and gas projects, in a first for a UK bank.
In a company announcement yesterday morning, Lloyds said it would no longer be providing finance to new clients in the oil and gas sector, unless it was for “viable projects into renewable energies and transition technologies” developed by companies with “credible” net zero transition plans in place.
Noting that its support for customers that require financing for new oil and gas exploration currently focuses on North Sea oil fields, the bank confirmed it will longer directly finance new greenfield oil and gas developments, either through project finance, or reserve-based lending.
Listing the other projects that it would not support moving forwards, Lloyds pointed to ‘self-finance’ involving upstream oil or gas exploration; development and production in the Arctic region and Antarctic territories; and ‘reserve based lending’ or ‘borrowing based financing for oil and gas companies in the Arctic’.
It has also said it will stop providing ‘project specific finance’ for any projects which involve the exploration, extraction, production, refining, storage or transportation of fossil fuels from oil sands, or to companies involved in similar activities. Coal liquefaction, as well as any finance involving onshore oil and gas and shale fracking, will also be banned moving forward.
“Our sustainability strategy outlines our commitment to support the UK’s transition to a sustainable, low-carbon economy,” the Bank said in the update. “We support the aims of the 2015 Paris Agreement, and the UK government’s commitment to a Net Zero economy by 2050, which we recognise will require a radical reinvention of our ways of working, living and doing business.”
It said its move to stop providing financing for new oil and gas projects would complement its ongoing effort to work to ensure all its existing clients had “credible and impactful” transition plans in place by the end of 2023. Development of assessment methodologies and an engagement strategy that would enable it to help clients establish these plans is well underway, the bank said.
Lloyds also set out its intention to take action to tackle methane emissions by aligning itself with the Global Gas Flaring Reduction Partnership (GGFR) and endorsing the World Bank’s Zero Routine Flaring by 2030 initiative.
Lloyds’ new policy was applauded by campaigners who have long called for British banks to bring their financing activity in line with climate goals.
Jeanne Martin, head of banking programme at ShareAction, the sustainable investment group which has previously engaged with Lloyds over its oil and gas strategy, hailed the bank’s decision to stop financing new oil and gas fields “a new standard for the UK banking industry”.
“We commend the bank for doing so and urge major UK banks such as Barclays and HSBC to swiftly follow suit,” she added. “However, asset-level financing is only a fraction of the financing provided by banks to new oil and gas. Lloyds Banking Group should not rest on its laurels just yet, but instead urgently turn its focus to the companies behind these new oil and gas fields.
“With only a few years left to prevent the worst impacts of climate change, which is already devastating people’s lives around the world, it’s vital that banks ensure their funding accelerates, not hinders, the transition to net zero.”
The IEA has warned that no new exploration should take place if the world is to hold tempreatures at 1.5C, the target set out in the Paris Agreement.
According to research conducted by ShareAction earlier this year, European banks provided more than $400bn to the top 50 companies expanding oil and gas production between 2016 and 2021, with HSBC, Barclays, and BNP Paribas found to be among the worst offenders.
The report also found that 92 per cent of financing to the top 50 upstream oil and gas expanders by top European banks was in the form of general purpose corporate finance, with only eight per cent of finance in the form of project finance or dedicated financing.
ShareAction said the findings illustrated the importance of banks restricting financing to both fossil fuel projects and to the companies building and operating them.
This story was first published by Business Green.