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Is This The Beginning Of The End For Fossil Fuels?

The eventual death of oil and thermal coal won’t come from environmentalists, or even directly from renewable energy--it will come when big banks decide to stop financing it, rendering it ‘unbankable’. 

That’s exactly what Goldman Sachs has just done, in a first for a major finance institution. 

As of last week, Goldman Sachs is the first big U.S. bank to rule out financing new oil exploration or drilling in the Arctic, as well as new thermal coal mines anywhere in the world.

The bank’s latest environmental policy declares climate change as one of the “most significant environmental challenges of the 21st century” and has pledged to help its clients manage climate impacts more effectively, including through the sale of weather-related catastrophe bonds. The giant bank also committed to invest $750 billion over the next decade into areas that focus on climate transition.

It may not be the last.

Moving in Lockstep

As Jason Disterhoft, a senior campaigner at Rainforest Action Network, has noted, the so-called Big Six banks tend to move in lockstep, and the other five will no doubt feel some pressure to up the ante by forgoing financing fossil fuel projects.

Goldman Sachs’ move comes amid growing pressure by a group of Native Americans who have been pushing Wall Street to stop financing oil and natural gas projects in some of the world’s fastest-warming regions.

The Arctic is one of these, with the region warming at nearly twice the global average rate, leading to adverse changes in weather and rainfall patterns, rising sea levels and more severe weather events. 

At the top of the group’s target list is JPMorgan Chase, which over the past two years has financed more fossil fuel projects than any other financial institution in the world. Others include Wells Fargo, Bank of America, Citigroup and Morgan Stanley, which together have conducted fossil fuel financing to the tune of nearly half a trillion dollars since the ratification of the Paris climate accord in 2015.

(Click to enlarge)

Source: Washington Post

Other major overseas banks have already ruled out financing for Arctic drilling. 

Goldman Sachs, however, is the first major U.S. firm to do so.

The move by the bank has raised hopes (and fears) that other major financial institutions in the US will follow its lead.  Related: The 5 Biggest Threats To Oil & Gas In 2020

After all, the dominos have fallen like that in the past. 

Leading up to the Paris climate talks, the Big Six made pledges to reduce their credit exposure to coal miners or freeze financing for coal projects especially in the developed world. 

The Rainforest Action Network has praised Goldman's commitments, calling them the "strongest fossil finance restrictions of any major US bank”. So, it’s also a bit of a public relations coup for Goldman. 

More than a dozen of the world's largest banks including UniCredit, Royal Bank of Scotland and Barclays have also pledged to stop drilling in the Arctic.

The Arctic is not the only region in the world where Wall Street is feeling the heat. 

Earlier in the year, several green groups from the U.S., the UK and the Netherlands asked the world’s largest banks not to underwrite Saudi Aramco’s IPO. 

Environmentalists are increasingly putting pressure on the private sector to lower dangerous emissions at a time when a majority of the world’s governments continue making glacial progress by failing to act quickly enough to avert worsening climate disasters.

While the Arctic drilling finance ban by Goldman is a first, coal is now really getting the short end of the funding stick. 

According to BankTrack, as of September this year, 22 banks have halted direct financing for new thermal coal mine projects globally, while 26 banks have ended direct financing for new coal plant projects. 

Those banks include big names such as Societe Generale, BNP Paribas, Deutsche Bank, USbancorp, Santander, StandardChartered and Barclays. 

It doesn’t mean they’re not financing coal indirectly, though, through general corporate lending or underwriting. 

And there’s nothing altruistic about it. They’re voting with their wallets.  Related: Have Oil Prices Reached An Inflection Point?

Major listed coal companies everywhere have been destroying significant shareholder value, with Peabody Energy Corp. (NYSE:BTU), the US’ largest coal miner with heavy exposure to thermal coal, shares down 71% in the year-to-date. 

In contrast, NextEra Energy Inc. (NYSE:NEE), the poster child of the renewable energy space, has seen its shares soar 43% YTD.

(Click to enlarge)

(Click to enlarge)

The UN climate talks in Madrid achieved precious little after the world’s largest carbon emitters failed to pledge to tackle global warming more aggressively. But outside political circles, investors are increasingly voting with their wallets--and a dramatic policy shift at one of the world's biggest and most prestigious banks a clear sign of the times.

The value of clean energy companies is soaring across the globe, while stocks of fossil fuel companies continue being pummeled. 

There’s an undeniable shift in global financial markets leading some to believe the world is at a watershed moment. The Institute for Energy Economics and Financial Analysis (IEEFA) has said:

"The world could well look back on 2019 as the tipping point..." and "[The moment] when global capital markets accepted the technology-driven inevitability [of a] crossover from polluting thermal coal and increased uptake of sustainable clean renewable energy." 

By Anes Alic for Oilprice.com

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Leave a comment
  • Steve Swihart on December 26 2019 said:
    Interesting. I tend to agree that if more infrastructure can't be built, less fossil fuel of the various types can be produced.

    I don't agree that the choices individuals make don't matter though. Putting solar panels on your house or helping to get some put up in your community reduce other kinds of energy generation. Driving an electric car reduces GHGs, though not to zero through its production and energy generation. It does get cleaner as time passes, though, as the proportion of clean energy increases.

    I also would say that from our family's point of view, EVs are something we'll never go back from. We're on our 3rd and I don't do much at all for maintenance, electricity (at least where I live) is about 40% the price of gas, they're fast, smooth, etc.
  • Mamdouh Salameh on December 27 2019 said:
    No it is not. This is no more than wishful thinking. Goldman Sachs’ move is no more than a trendy attempt to burnish its environmental credentials. Rest assured that the world will not be short of funds to invest in oil and gas. Governments could lend to governments and oil companies could equally do the same.

    Four major principles will govern global energy over the 21st century and far beyond. The first principle is that there will be no post-oil era throughout the 21st century and far beyond. The second principle is that that there will be no peak oil demand either.

    The third principle is that an imminent energy transition from hydrocarbon to renewables is an illusion. And the fourth principle is that oil and gas will remain the core business of the global oil industry well into the future.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Ernst Lopes Cardozo on December 27 2019 said:
    @Mamdouh Salameh: I just checked : Wall St. has an elevation of 4 meters (12 ft) ...
    Stating something is a "principle" doesn't make it true. Once climate change really hits home, many of today's rock fest certainties will prove to be rather transient.
  • Lee James on December 27 2019 said:
    Mamdouh Salameh, you are probably correct in characterizing world dependency on oil. It's the complacency of your stance that is troubling.

    In 2020, the world needs to continue transitioning away from burning up a valuable resource -- a resource that has a limited-time offer for burning, and a multi-lifetime opportunity for harmful and persistent pollution.

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