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Campaign groups and law firms are calling for increased regulation for environmental financing after it was revealed that the UK-based lender Barclays used one of its “sustainable finance” initiatives to provide funding for the oil and gas company Shell.
The lender classified a $10 billion revolving credit facility that it created for Shell as “social and environmental financing” – ramping up concerns among environmental organisations that banks are potentially misleading the public by branding loans to the oil sector worth hundreds of billions of dollars as sustainable finance.
Barclays counted its share of the credit facility towards meeting a target to deliver $150 billion in social and environmental financing, according to an analysis of the bank’s loan classification framework by the investigative journalism organisation Point Source that was published by the Telegraph.
The decision by Barclays to classify the facility as “sustainable finance” has been heavily criticised by environmental groups.
In June, Shell CEO Wael Sawan committed to funding new oil and gas projects for years to come, unveiling plans to maintain oil output at current levels and grow its giant gas business. The company plans to invest $40 billion in oil and gas over the next three years.
Shell is one of the world’s most polluting companies in terms of carbon emissions, according to the environmental law charity Client Earth. It says the company’s planned emissions from 2018 to 2030 are estimated to account for close to 1.6% of the global carbon budget.
The $10 billion financial instrument was created by Barclays in 2019 and was eligible to be counted towards the $150 billion target because the fees and interest rate paid on the borrowed money were linked to Shell’s progress towards reaching its carbon intensity target rather than financial credit ratings.
Shell has said that it is aiming to reduce the carbon intensity of the energy products it sells by between 9-13% by 2025 compared to 2016 levels.
Both Barclays and Shell declined to disclose details about how the interest rate for the credit facility is impacted by the oil company hitting or missing its environmental targets.
Critics of the credit facility say that solely using the carbon intensity metric, without also using targets for total emissions, means that Shell can significantly increase its total carbon emissions while still satisfying the loan requirements.
Lucie Pinson, director of the campaign group Reclaim Finance, believes that the targets set out in the loan are not compatible with the international climate policy goal of limiting global warming to less than 1.5°C above pre-industrial levels.
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“The targets that have been set out in this agreement are not fit for purpose when it comes to responding to the climate emergency,” she said. “The only purpose they are fit for is to create the illusion that Shell and Barclays are taking action while they really continue with business as usual.”
Maaike Beenes, spokesperson for the environmental campaign group BankTrack, believes that the credit facility created for Shell highlights worrying gaps in the way that environmental finance is currently regulated.
“There is a huge need for clear regulations around what can be classified as sustainable or green finance,” she said. “The credit facility created for Shell highlights how easily banks currently label financing agreements as sustainable seemingly without genuine commitment to reducing real world emissions.”
In recent months, there have been growing concerns among regulators about the potential misuse of sustainability-linked loans (SLLs) and a lack of transparency over their environmental targets.
On 29 June, the Financial Conduct Authority 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”.