Responsible investment?

French banks blithely financing the fracking industry

by Olivier Petitjean

All, or nearly all, claim that they are sensitive to environmental concerns. This does not, however, stop French banks, most prominently Société Générale and BNP Paribas, from bankrolling natural gas fracking, an industry which has adverse effects on water resources, local communities, and the global climate. This is the conclusion of a study commissioned by Friends of the Earth Europe. The study details the source of investments and loans financing the oil and gas companies most active in the global fracking industry. In contrast to French banks, other large banks have excluded natural gas fracking from their investment portfolios.

This article was originally published in French, in a slightly longer version. Translation: Egor Lazebnik.

France has closed its doors to fracking. But some of its national companies actively promote shale oil and gas developments in Europe and elsewhere, and invest considerable resources into this industry. This is true of the big oil and gas companies, Total and GDF Suez, and other firms directly involved in the fossil fuel sector (click here for our report on this subject.) It is also the case with banks. According to a study commissioned by Friends of the Earth Europe, to which we have had exclusive access, French banks figure prominently among the financial institutions supporting fracking for oil and natural gas around the world.

Société Générale is on the ball when it comes to shale gas

The study details different types of investments - loans, stock and bond holdings, stock and bond issuance - providing critical financial support to 17 of the global firms most active in shale oil or shale gas exploration and development worldwide, including Total, Shell, Chevron, or the Spanish Repsol, as well as lesser known North American and Polish companies. The study then evaluates the extent to which each particular bank or financial institution is financially involved with these companies. The key findings, as regards French banks, are as follows. Société Générale is the French bank that is most actively involved in the tracking industry, having invested to the tune of 2.4 billion euros since 2010 through stock purchases and bond underwriting. In second place is BNP Paribas, with more than 2 billion euros, followed by BPCE (Banque Populaire Caisse d’Epargne), with more than 1.2 billion euros invested, and by Credit Agricole (373 million euros invested). Axa is also on the scene, with investments worth 100 million euros. The French banks are mostly invested in Total (capital investments), along with the Spanish oil group Repsol and the Polish PGNiG. By comparison, the largest US bank, JP Morgan, financially supports the fracking sector to the tune of 5.8 billion euros (mostly Total, Shell, and Chevron).

Given the extremely controversial nature of the shale oil and gas industry, one would have thought that a bit more prudence was called for. The only viable technique available so far for shale gas extraction is hydraulic fracturing, or fracking, which is widely associated with groundwater pollution and increased earthquake risks. The impacts of shale gas extraction on air pollution and climate change are now also increasingly being highlighted. Hydraulic fracking releases methane, a greenhouse gas much more potent than CO2. The gas itself, as a fossil fuel, also causes greenhouse gas emissions.

An "awareness of the risks" which does not impede investments

Friends of the Earth Europe wrote to the banks and insurance companies involved in the fracking business to highlight these risks and demand that they divest from the sector. Only Société Générale chose not to respond. For its part, BNP Paribas claims to be "fully aware of the risks and opportunities related to this activity", having participated along with other financial institutions in drafting a "guide for financiers," titled "Prospecting and producing natural gas: Fundamental Issues and Responsible Commercial Practices [1]." This document lists the most controversial aspects of shale oil and gas operations and describes, in a general manner, "best practices" to be adopted in order to reduce these risks. But BNP Paribas says nothing about how it has concretely applied these investment guidelines. As for Amundi, an investment fund owned by Crédit agricole and Société Générale, involved in particular in the Polish shale gas business, it says it is "particularly sensitive to environmental questions and more generally to ESG (Environment, Society, Government) issues." But its criteria for "analysis and choice of investment", it would seem, are not strict enough to exclude companies involved in shale gas.

But the fundamental question is this one: Can we really trust the shale gas industry to respect the social and environmental rules to which it is theoretically held? And can we trust the banks to effectively control the enforcement of said rules, and to direct their investments appropriately? A study done by a group of US ethical investors titled "Transparency and Risks in Hydraulic Fracking Operations [2]" suggests that the answer is negative.

Oil and gas majors are as irresponsible as Texas cowboys

The study covers 24 businesses active in the shale gas sector in the United States, several of which are partly financed by French banks. The report assesses the companies’ transparency policy regarding the risks of hydraulic fracking and the measures put in place to prevent said risks: water pollution, air pollution, toxic chemicals, impacts on local communities, general project governance… The result is damning: not one of the 24 businesses gets a score above 50%. But "measurement and disclosure of best management practices and impacts is the primary means by which investors can assess how companies are managing the impacts of their hydraulic fracturing operations on communities and the environment", write the authors of the report. In other words, if these companies are largely opaque in regards to their operations and their impact, how can banks be sure that they are respecting their investment criteria?

The report also puts the lie to an argument that has been widely used by the European shale gas lobby: that any environmental problems with fracking in the US are largely due to the careless of small Texas companies who pioneered the sector. In reality, the big companies do not fare better than their smaller counterparts: Shell got a 7 out of 32, BP a 2 out of 32, ExxonMobil 2 out of 32 and Chevron 3 out of 32. No room for argument here! "These data obviously exacerbate our fears at a time when many of these companies are moving outside of the United States, into Europe and also other regions of the world", says Antoine Simon, from Friends of the Earth Europe. "Neither the most advanced technologies nor the ’best available techniques’ can really enable the industry to extract shale oil and gas cleanly and safely. All industrial operations carry a risk, but the risks in this industry go far, far past what is acceptable."

Dutch banks divest from shale gas

Another argument put forward by the French banks against those arguing for divestment: the companies they provide finance to are active both in the conventional fossil fuel sector and in "non-conventional" fossil fuels, such as shale gas. Therefore, banks are unable to effectively discriminate shale gas investments. "BNP Paribas does not directly finance these activities but may be indirectly involved through its investments in and financing of large energy groups operating in Europe or in other countries where exploration is authorized," explains France’s biggest bank. In the past, BNP Paribas has, however, been able to put together a list of economic sectors that it will not invest in, such as asbestos fiber, PCBs, or fishing nets that exceed 2.5 kilometers in length.

Other banks manage to exclude, pure and simple, shale gas from its investments. This is true of two large Dutch banking and insurance institutions, ING and Rabobank. In its new oil and gas policy, Rabobank has committed to "no longer providing money that would be used to extract non-conventional fossil fuels [shale gas and tar sands]". ING, for its part, has told Friends of the Earth that it "has decided to abstain from financing shale gas in Europe until the end of 2016, at the earliest." If ING and Rabobank did it, why not BNP Paribas?

Shale gas speculation

Rabobank even sued the oil company Cuadrilla two years ago. Cuadrilla wanted to pursue drilling by hydraulic fracking only a few dozen meters from the underground vaults where the bank keeps its databases. Nation-wide, 120 municipalities and 3 large regions of the Netherlands have declared themselves "frack free", refusing all hydraulic fracking on their lands. The Dutch opposition to shale gas is partly explained by recent seismic tremors caused by drilling for conventional natural gas. The policies of Rabobank and ING are also part of a Dutch tradition of citizen surveillance and pressure on the banks, which is stronger than in other countries.

BNP Paribas, Société Générale, and other banks still involved in the fracking sector should be wary, as shale gas now appears as a speculative and a high-risk investment. "The goal is mostly to make a lot of money in the short term. Shale gas is by its very nature a speculative industry, based on a quick succession of ’booms’, a permanent headlong rush," says Antoine Simon. Yesterday, the US, today Argentina, Ukraine, or Romania. "The majors are all faced with the decline of conventional supplies. It is in their interest to buy these shale gas licenses to complete their inventory, even if the concrete development perspectives prove illusory, as in Poland, and even if it means losing money in the long term. This is pure publicity, intended to placate financiers and investors," explains Antoine Simon.

Olivier Petitjean (and Ivan du Roy)

Photo: WCN247 CC