Hej from Swedish Lapland, where I’m visiting a steel plant with a difference. Outside the snowy city of Luleå, steelmaker SSAB has started processing iron ore using hydrogen in place of coal — a process that it wants to use to replace all its blast furnaces within a decade.
This is the first stop on my travels to shoot the next in our series of Moral Money documentary films (we’ve been delighted to see that the first, on fusion power, has attracted more than a quarter of a million views across all platforms). This film will look at the role that hydrogen could play in moving Europe’s industrial economy beyond fossil fuels, featuring some of the most exciting work happening in the space.
You’ll find more on my Lapland trip in a forthcoming edition, the first of a series of dispatches on the emerging hydrogen economy. In the meantime, we want to hear from you. Where are the biggest opportunities in this space, and who is doing the most compelling work? Or do you think the hydrogen story has been hideously overhyped? Drop us a line at [email protected], or just reply to this email.
In the meantime, make sure to read on for the latest in Kenza’s terrific run of reporting on Gfanz, shedding new light on developments behind the scenes at the world’s biggest corporate climate alliance. For global financial institutions, fossil fuel funding is proving a hard habit to kick. — Simon Mundy
Global climate finance group is stuck in neutral over oil and gas commitments
Disagreements over coal financing led some banks to threaten to quit the world’s biggest climate finance group last year.
Now the hot topic is whether to cut off lending to oil and gas companies, and the debate shows all signs of being equally contentious. These flows make up the biggest chunk of members’ “financed emissions” — their real-world carbon footprint.
The Glasgow Financial Alliance for Net Zero is a mammoth grouping of more than 550 leading banks, insurers, asset managers and asset owners. Its industry subgroups are pivotal in debates about the shift to cleaner capitalism.
According to a leaked document seen by Moral Money, the Net Zero Banking Alliance, a Gfanz subgroup led by global banks including HSBC and Morgan Stanley, made plans last year to tell members to slash their fossil fuel financing based on a straightforward metric of carbon emitted.
This paper marked a significant step up, requiring banks to make real-world changes to reduce emissions. Its passage would have effectively concluded the debate about whether banks should cut lending to fossil fuel companies.
The proposals were open for consultation until September and appeared to target a swift implementation of the rules. The paper looked ahead to “when the guideline is formally adopted by the NZBA Steering Group (next meeting on the 11th of October)”. More than five months later the NZBA said it has still not been sent to executives for approval.
A key sticking point has been the compulsory use of a tougher “absolute” accounting metric for measuring decarbonisation, according to a bank executive who sits on the NZBA’s leadership group and did not wish to be named. Most banks in Europe already set absolute targets, while few US banks do — with the exception of Citigroup.
Currently many banks, particularly in the US, focus instead on pushing energy companies they finance towards less carbon-intensive production, like how Saudi Aramco invests in renewable energy and carbon capture to reduce the day-to-day emissions of its oil rigs. The NZBA’s current position allows banks to use a weaker intensity metric that can be met with no change in real world carbon emissions.
Four in 10 global banks increased their lending exposure to oil and gas companies last year, including alliance members NatWest and Barclays, according to analysts at Autonomous.
Mike Coffin, head of oil, gas and mining at the think-tank Carbon Tracker, which advises the NZBA, said institutions should focus on cutting real financing flows to the oil and gas sector, by making absolute emissions cuts compulsory. “Decarbonised fossil fuels are a bit of a myth,” he said.
Metrics aside, another sticking point remains over the strength of the guidance. While the original draft used the words “should” and “shall”, the latest working draft replaces these commands with softer language like “could” and “may”, according to a person who has worked on the paper for the NZBA.
This linguistic tweak was agreed on last year to protect banks from the risk of being attacked under competition law for collusion on climate goals, the person said. Such worries triggered the departure last week of Munich Re, one of the world’s biggest reinsurers, from the insurers’ group it helped to found, citing “material antitrust risks” to collective action.
But critics also attribute financial companies’ slow progress on tightening standards to a reluctance to forego oil and gas sector business at a time of booming profits and renewed focus on energy security.
“The failure to produce this paper reveals banks’ unease about net zero targets and what these imply for their relationships with the oil and gas sector in practice,” said Lucie Pinson, founder of the NGO Reclaim Finance.
Energy companies BP, TotalEnergies and Shell, which use a mixture of absolute and intensity targets in their own net zero goals, were listed as expert advisers to the NZBA’s oil and gas working group in the document seen by the Financial Times, alongside an industry group and non-profits.
“The presence of fossil fuel companies as expert members [is] not causing a delay in the progress of this work track,” the NZBA said. It added that the draft paper outlines a range of options that banks can choose from to set targets, and that it is continuing to work on its oil and gas position.
A different draft position paper seen by Moral Money tells another story of thwarted good intentions. It shows that the Net Zero Asset Owners Alliance (NZAOA) — whose members include UK insurance group Aviva and Calpers, the biggest public pension plan in the US — also made plans last year to bring in tough rules on oil and gas.
These rules recommended that investors should avoid investing in new oil and gasfields, not only through project finance, but also through equities and bonds. Most oil and gas financing is done at corporate level, not project level.
When the group published new guidelines last week they had been noticeably softened. They said members should cut off project finance for oil and gasfields or baseload gas-fired power generation without carbon capture technology. But they did not refer to corporate bonds or equity stakes.
The NZAOA declined to comment. Formed before Gfanz was founded, the grouping has a strong reputation for climate commitments. It now represents more than $11tn in assets in portfolios that are directly owned and therefore easier to tweak. So its appetite for decarbonisation (or lack thereof) could set the tone for the pace of change by banks and asset managers. (Kenza Bryan)
Smart watch
Swedish actor and Zoolander star Alexander Skarsgård has recorded a tongue-in-cheek take for the New York Times on Cambridge professor Sir Partha Dasgupta’s theories about including the cost of nature in mainstream economics, which can be neatly summarised as “Pay for what we use”. Revisit Moral Money’s interview with Dasgupta here.
