Is the energy crisis an opportunity for banks?
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Is the energy crisis an opportunity for banks?

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New opportunities in oil and gas as supply is reoriented away from Russia highlight the question of how quickly cuts to financed emissions will match banks’ enthusiasm for growth in clean energy.

Financial services companies, especially European banks, are often eager to talk about how sustainable finance, the transition to a lower-carbon economy, is a huge business opportunity for them. One of most cited figures is from the World Economic Forum, which estimates that $50 trillion of incremental global investment will be needed to reach net zero by 2050.

Analysts at Morgan Stanley estimate that this energy transition could award wholesale banks extra revenue of between $15 billion and $20 billion in the next three to five years alone. And in a recent joint report, consultants at Oliver Wyman say that capturing green business, and the accompanying chance to deepen client relationships, requires a growth-driven mindset – rather than a focus on the risk and compliance aspects of the transition.

Yet the extra banking business that Morgan Stanley models by 2025 as part of this transition comes firstly from a rebound in investment in oil and gas, after a post-pandemic slump, to tackle near-term energy needs.

During this period, investment in renewables, electricity infrastructure and energy efficiency will struggle to match the expected $800 billion of investment in fossil fuels, data in the report shows.

This upfront opportunity for banks in oil and gas highlights a fundamental dilemma facing the banking industry: To what extent should banks implement real reductions in financed emissions now, to match their push in green business growth?

Note how, just before COP27, Mark Carney’s Glasgow Financial Alliance for Net Zero (GFANZ) had to loosen its ties to the UN’s Race to Zero campaign, largely because of concern among some banks in the US that they would be forced to start making cuts to fossil-fuel financing.

Sustainability choices

European banks have been clearer this year than US peers that the energy crisis underlines the urgency of a genuine transition to green finance in the longer term. That is despite, or even because of, smaller reserves of fossil fuels in Europe.

But the crisis will accentuate sustainability trade-offs at European banks, too. Consider, for example, the choices European banks will face as more oil and gas projects in the North Sea and Africa are licensed, thanks to the energy crisis and new political backing for such projects. There are already urgent calls for more liquid natural gas import infrastructure in Europe, and ballooning financing requirements by clients in fossil-fuel trading and carbon-intensive electricity generation.

There are bankers that feel they can be getting the fossil-fuel business in the short and medium term, even if some of that will lock in infrastructure that we don’t need
Ben Caldecott, Oxford Sustainable Finance Group

Ben Caldecott, an academic and founding director of the Oxford Sustainable Finance Group, agrees that banks recognise the commercial opportunity of sustainable finance and want to be seen to be doing good. That is especially true in Europe, where climate sceptics are less audible.

However, banks in Europe and elsewhere will be reluctant to let go of profitable brown business. And they will not be eager to spend lots of money on a new layer of compliance and reporting, this time on emissions.

Caldecott argues that cutting legacy fossil-fuel business will be even more painful for banks’ income streams now, because the war in Ukraine means much of that business is doing better than before.

“There are bankers that feel they can be getting the business in the short and medium term, even if some of that will lock in infrastructure that we don’t need,” Caldecott says.

The Morgan Stanley and Oliver Wyman report insists that the energy transition is still a structural growth opportunity for banks, thanks to the growth of businesses such as carbon trading, as well as conventional commodities trading and oil and gas financing. Nevertheless, they model a less benign scenario, in which banks lose legacy business to shadow banks and energy traders. In that scenario, less revenue from fossil fuels is not matched elsewhere in global financial markets, nor by green investment, and sees them lose about $5 billion of revenues by 2025.

This adverse scenario is easily imaginable if banks keep to their climate commitments.


Today, the world is nowhere near the levels of green investment required to reach net zero. According to another Oliver Wyman report, only 11% of companies around the world have targets aligned with the Paris Agreement’s goals on global warming. Even the best banks in sustainable finance have only just begun to reorientate their businesses to green projects.

Because Citi is a large financier to the energy sector, the carbon intensity of our loan book is relatively high. But this gives us significant influence with our clients in the hard-to-abate sectors
Keith Tuffley, Citi

For all the opportunities the climate transition brings, the report also says it endangers as much as $90 billion in wholesale banks’ annual revenues from oil and gas and other legacy businesses in areas such as transport, real estate development, metals, mining, cement and agriculture.

The choices bankers face on climate change now are therefore much like the choices facing economic policymakers.

Particularly in the US, there is a prominent strand of thought – sometimes argued citing the work of Nobel Prize-winning economist William Nordhaus – that suggests radical action against climate change will do more harm than climate change itself.

The counterarguments to this don’t deny there will be economic cost to radical action, rather than questioning the scientific basis for downplaying environmental risks.

Banks that want to look serious about the environment will consequently need to accept reductions in brown finance, not just the pursuit of growth in green finance.

Is this happening?

Corporate customers

In 2021, for the first time, investment bank fees from green bond syndication surpassed fees from direct fossil-fuel bond syndication, according to data from the Stockholm-based Anthropocene Fixed Income Institute. That is because green issuance has been steadily climbing for a decade.


However, 2020 was a record year for bond issuance by oil companies. Even in 2021, the volume of fossil-fuel issuance in 2021 was not vastly different to that of the early 2010s. If oil prices were to fall, oil companies’ liquidity needs would rebound, as they did in 2020. The institute, moreover, does not count issuance by fossil-fuel-burning electricity companies, which have had to increase borrowing this year, including from bond markets, because of high gas prices.

Banks’ policies are most severe in coal, even though some electricity companies in countries such as Germany are now turning back to coal because of gas shortages.

In 2020, BNP Paribas said it would halve its number of corporate customers using coal for a share of their power generation, due to a new policy to end any use of coal by its electricity-generating customers in OECD countries by 2030.

Even in the US, banks have stepped back from financing dedicated coal projects. Citi, generally seen as the US leader in its coal policies, announced last year a 2030 policy to exclude OECD clients using coal for more than 5% of power generation.

Yet big banks often argue that change is more likely if they keep polluting clients.

“Because the global energy system is heavily carbonized, and Citi is a large financier to the sector, the carbon intensity of our loan book is relatively high,” admits Keith Tuffley, global co-head of Citi’s sustainability and corporate transitions group. “But this gives us significant influence with our clients in the hard-to-abate sectors. Clients listen to us. The key is to use that influence to accelerate the transition to net zero.”

Some remain sceptical.

James Vaccaro, executive director of the Carbon Safe Lending Network, says banks are primarily concerned about the damage to their income of steeper declines in fossil-fuel lending – and that’s why some banks have privately pushed back on the Race to Zero demands.

With the US joining the EU in implementing a fiscal boost to sustainable projects worth hundreds of billions of dollars, as part of the Inflation Reduction Act, Vaccaro says banks know sustainable finance business will come, regardless of whether they cut their emissions in real terms.

“Banks want to claim all the credit for the good things without taking any responsibility for the bad things,” Vaccaro warns.

ING highlights sustainability trade-offs

Sustainability has become an increasingly prominent part of ING’s strategy since Steven van Rijswijk became chief executive in 2020. A move to immediately stop dedicated financing to new oil and gas fields, announced in late March, underlined its aspiration for industry leadership in this area, even amid an energy crisis.

But some still see signs of equivocation, despite vocal recommitment to growth in sustainable finance, after the Ukraine invasion. It is a telling study of how there is sometimes ambiguity about fossil-fuel finance, even at banks that are regarded as sustainability leaders.

Anne-Sophie Castelnau, ING

The Dutch bank’s framework for reaching net zero by 2050 is, in fact, the best of 25 large European and US banks, according to a ranking by US consultancy Alvarez & Marsal. That is based on the aggressiveness of emissions-reduction targets and the specificity and disclosure of its emissions pathways.

ING’s annual Terra report gives unusually detailed insights into its financed emissions, drilling down into nine polluting sectors, A&M notes.

The strength of this framework helps ING understand its clients, and ultimately to win more sustainable finance business, according to Anne-Sophie Castelnau, global head of sustainability. She points to a mandate for Cemex, last year, to help the Mexican cement producer develop a sustainability-linked financing framework.

“Clients look at how your bank behaves and how you’re taking ownership of this topic,” she says.

ING is widely acknowledged to have pioneered sustainability-linked loans in a deal for Phillips in 2017. However, sustainability-linked financing has sparked doubts as it has spread, with critics saying lax demands in some deals allow polluting companies to continue as normal.

Bolstered results

Meanwhile, ING is one the world’s top players in commodity trade finance, the most important part of which is the oil trade. That business has bolstered the group’s financial results over the past year, because high oil prices and the disruption of commodities trading with Russia has led to higher financing volumes.

All three of ING’s biggest oil and gas clients are commodities traders, according to data compiled by the Rainforest Action Network, and four other non-governmental organizations focused on climate.

The same NGOs show that ING is the only European bank to figure among the top 10 banks globally by volumes of new fossil bonds and loans publicly underwritten by the bank ($5 billion). That is despite data from the Terra report showing that ING’s exposure to upstream oil and gas fell by 14% in 2021, thanks to high oil prices and the accompanying lower liquidity needs of oil producers.

Johan Frijns, executive director at BankTrack, which co-authored the NGO report, is Dutch and based in the Netherlands. He likens ING’s policy approach to oil and gas – like its prior policy of gradually jettisoning coal finance – to parents throwing children out of a sled pursued by wolves, one by one, to save the most cherished offspring.

ING’s target to reduce its oil and gas portfolio by 19% between 2019 and 2030 is “modest and slow”, in his view.

Stopping “dedicated financing” to new oil and gas fields, from now, genuinely blazes a trail among big banks globally, according to Frijns, but it lacks substance as oil and gas companies normally develop upstream assets using general purpose loans and their own cash. As such it is most useful as a shaming tool to dangle in front of banks that are doing even less.

“It is not the breakthrough we need,” he says of van Rijswijk's March announcement. “The message we get is that the bank will remain a financier to oil and gas for decades to come.”


Dominic O'Neill head.jpg
EMEA editor
Dominic O’Neill is EMEA editor. He joined Euromoney in 2007 to cover emerging markets, focusing on central and eastern Europe, Middle East and Africa, and later on Latin America. Based in London, he has covered developed market banking since 2015.
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