The extent to which western banks should use sustainable finance initiatives to fund fossil fuel companies has come under scrutiny again after a UK newspaper reported that Barclays bank made a $10bn revolving credit facility available for oil giant Shell under the category of “social and environmental” financing.
Barclays counted its share of the loan towards meeting a target to deliver $150bn in social and environmental financing because Shell aims to reduce the carbon intensity of the energy products it sells by between 9% and 13% by 2025, compared to 2016 levels, according to a report in The Telegraph today (Tuesday).
The oil company qualified for the Barclays credit facility which linked fees and interest rate to progress towards reaching that target, according to the report.
The credit facility was granted in 2019 but Shell, along with several other big oil and gas companies, has argued that the war in Ukraine has affected energy security and highlighted a need to stave off the decline in oil and gas production that was expected to take place in the current decade.
Demand for sustainable investment opportunities has mushroomed in recent years, but there is also a growing concern expressed by campaigners and regulators about the “greenwashing” of activities that do not contribute meaningfully to attempts to tackle climate change.
Some activist shareholders and campaigners have accused Shell of watering down earlier commitments to start phasing out oil and gas production and plough more investments into renewables.
Critics argue that oil companies should use targets for total emissions when qualifying for sustainable investment mechanisms. Calls extend to counting Scope 3 emissions in targets, thus including end consumption of fossil fuel products in the reckoning.
Sustainability-linked loan (SLL) facilities have indeed been attracting the attention of market regulators, amid questions about efficacy and transparency in meeting environmental targets.
Earlier this year, the UK’s Financial Conduct Authority (FCA) carried out a review of the SLL market and stressed “the importance of building trust and integrity in sustainability-labelled instruments, products, and the supporting ecosystem”, describing this as "a key enabler of the role of finance in delivering a market-led transition to a more sustainable economy.”
The FCA sent a letter to financial institutions warning of “the possibility of potential risks to market integrity and suspicion of greenwashing in the context of SLLs."
According to the Telegraph report, Shell argues that it met its carbon intensity target eight years early by selling a US fracking business.
Shell’s own credit facility was jointly coordinated in 2019 by Barclays and Bank of America and the financing was provided by a syndicate of 25 banks including BNP Paribas, Citigroup, and Deutsche Bank.
A Barclays spokesman told the Telegraph: “We believe that Barclays can make the greatest difference by supporting our clients to transition to a low-carbon economy, facilitating the finance needed to change existing business practices and scale new green technologies.
“Sustainability-linked loans and bonds facilitate the integration of sustainability factors into a broader set of products and offer an additional means of engaging clients on sustainability considerations. We categorise sustainability-linked loans and green financing separately in our disclosures.”
'No' to ESG
At the other end of the political spectrum, there is also a growing backlash among those who believe that ESG is a vehicle for overzealous regulation of the corporate world.
The controversy is more evident in the US, where some asset managers, including BlackRock, have found themselves in the middle of a growing political storm over their supposed support for ESG metrics, while others have backed away from ESG entirely.