The world of hydrocarbon project financing remains a contentious topic for many investors, with conflicting reports challenging their commitments to energy transition and climate change goals. Even as recent reports suggest a continued influx of capital into the global oil and gas sector, backed by prominent financial institutions, Norway's sovereign wealth fund, Norges Bank, has taken a bold stance. In a statement by Carine Smith Ihenacho, a senior executive at Norges Bank Investment Management, the largest global stock shareholder, criticism was leveled at Big Oil's transition efforts, which appear insufficient as carbon emissions continue to rise. The Norges Bank statement has come at a time when most oil and gas companies are reaping profits from surging oil and gas prices, while simultaneously resisting calls for more ambitious ESG (Environmental, Social, and Governance) targets and investments in energy transition. Some major oil companies, like Shell, have even openly questioned their commitment to the energy transition, focusing once again on large-scale oil and gas projects. This statement from Norges Bank also reflects the broader sentiment among international oil companies (IOCs) and national oil companies (NOCs), including Aramco, who have pushed back against the International Energy Agency's (IEA) recommendation to halt new oil field developments. It appears that the current discourse on climate change and emissions has become highly politicized.
Smith Ihenacho emphasized the need for a comprehensive overhaul of the entire energy system, urging companies to make more substantial strides in reducing their reliance on fossil fuels in favor of renewable energy sources. She pointed out that companies are not transitioning rapidly enough to achieve the net-zero emissions target by 2050. Norges Bank's position aligns with its long-standing commitment to addressing climate change and fulfilling the goals of the Paris Agreement. However, critics argue that Norges Bank, which has made billions off Norway's oil and gas sector, has not entirely divested from hydrocarbons, maintaining investments in hydrocarbon-related ventures, shares, and bonds.
While Smith Ihenacho did not directly address these investments, she called upon the world's largest investors to exert pressure on companies to develop robust transition plans. She extended her criticism not only to hydrocarbon producers but also to industries dependent on hydrocarbons, such as steel, chemicals, and transportation. Smith Ihenacho acknowledged that Norges Bank faces an uphill battle even within its own investment portfolio, with only 23% of the companies in which the $1.4 trillion wealth fund invests having credible net-zero targets. Additionally, Norges Bank holds significant stakes in major U.S. oil companies Exxon Mobil and Chevron Corp (1% each) and 3% stakes in Shell and BP. Smith Ihenacho admitted that divestment from these stakes is not an option and that she intends to apply pressure from within.
The intricate position of Norges Bank, along with fellow institutions like the Dutch pension fund ABP, is more complex than expected. According to a report by The Guardian in collaboration with Dutch investigative platforms Follow the Money and Investico, international banks, including European ones, continue to engage in hydrocarbon financing. The report reveals that global bond markets have facilitated approximately €1 trillion (£869 billion) in funding for fossil fuel companies since the Paris Climate Agreement, even as pressure mounts on European banks. Mainstream European banks, such as Deutsche Bank, HSBC, Barclays, as well as Dutch banks like ING, have supported bond issues for hydrocarbon projects worldwide. Notable beneficiaries have included Brazil's Petrobras and Russia's Rosneft since 2016. These staggering figures often go unreported in ESG-related disclosures, as bond sales are typically excluded from bank climate change performance reporting. Critics warn that hydrocarbon companies are increasingly turning to bonds as a means of raising capital, with banks making it an attractive avenue. Research reveals that Deutsche Bank, a German financial giant, has been the primary underwriter or bookrunner for fossil fuel bonds, raising a total of €432 billion since the Paris climate agreement. In the same period, HSBC raised approximately €423 billion for fossil fuel companies through bond sales. French banks Crédit Agricole and BNP Paribas assisted in raising €351 billion and €295 billion, respectively. Dutch banks ING and ABN Amro were involved on a smaller scale, contributing to around €100 billion.
To achieve climate change and emission targets outlined in the Paris Agreement, there is still a considerable journey ahead. The situation highlighted above is noteworthy but not surprising in financial or legal contexts. Even the European Union has recently acknowledged that global and EU economies will rely on hydrocarbons for energy and products for decades to come. Given the scale of the challenge, it's essential to recognize that many national oil companies are not even required to disclose their investment portfolios. The €1 trillion figure mentioned in The Guardian's report is likely just the tip of the iceberg, with no sign of it melting away. In the coming years, based on international reports such as those from OPEC and the EIA, demand for oil and gas is expected to continue growing until it possibly peaks after 2040. This means that financing, whether through bonds or project finance, will remain an attractive option, as long as significant players like Norges Bank refrain from taking more drastic measures and divesting from all hydrocarbon-related equity stakes. Real change may remain elusive, with media attention often driving the conversation more than concrete actions.
By Cyril Widdershoven for Oilprice.com
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