The only climate trend more powerful for global financial institutions than the drive to achieve net-zero emissions by 2050 is the momentum to exit oil and gas. According to the Institute for Energy Economics and Financial Analysis (IEEFA), more than 50 globally significant financial institutions have put in place an oil and gas exit policy. For those who are counting, there are now more new policies being announced seeking to limit exposure to the oil and gas industry than those targeted at the moribund coal industry. In fact, in 2020, during the middle of a global pandemic and its associated recession, these policies were announced at a pace of one every month. The writing, as they say, is on the wall for oil and gas.
The problem is that despite this momentum, even sophisticated investors lack the breadth and depth of commitment to avoid the vast majority of speculative oil and gas investments. Instead, most oil and gas policies in the IEEFA database are exceedingly narrowly focused on removing financing for extreme projects (e.g., tar sands and Arctic drilling), which still leaves room for everything else under the sun. That includes midstream and downstream infrastructure like pipelines, liquefied natural gas terminals and a wave of ethane crackers driving a global plastic pollution crisis. It also means industries like utilities and auto manufacturers that make up the bulk of demand for oil and gas. So while it’s important that the trend has begun, it’s more important that we get the details of these oil and gas exit policies right.