WestLB will not provide finance to any offshore oil and gas drilling in the Arctic, according to a new environmental policy that is understood to be the first of its kind.
In an eight-point statement relating to financing offshore drilling, published this week, the German bank says that “the oil rig (or vessel etc.) may not perform any exploration or production activities within the 10°C-isotherm, both at the beginning and throughout the life of the financing.”
The 10°C-isotherm is the area where the average temperature for the warmest month is below 10°C.
This is the first time a bank has explicitly excluded activity in this geographic area, believes Dustin Neuneyer, Düsseldorf-based sustainability manager, group development, at the German corporate and investment bank.
Oil spills: bad enough in warm waters, let alone cold (Photocredit)
“The further you get into the icy regions, the more expensive everything gets and there are risks that are hard to manage,” he says. For example, remediation of any spills “would cost a fortune”, and natural processes by which spilt oil would be broken down are slower or non-existent at freezing temperatures.
“There are projects that are evidently unsustainable in an encompassing sense. For WestLB, the risks and costs are simply too high.”
Environmental groups are becoming increasingly concerned about oil and gas exploration in polar regions, as rising oil prices encourage exploitation of ‘frontier’ hydrocarbon reserves, and the increasing accessibility of these regions as average global temperatures rise.
The statement also requires that offshore drilling activities funded by WestLB must use best available technology, and use the “highest technical safety standards”, certified by an independent third party.
It also insists that “ultimate environmental responsibility must explicitly be assigned to concessionaires in the operating agreements”.
Neuneyer said that the bank has been implementing these issues in offshore financings in recent years, but this is the first time they have been codified and spelt out. He was unable to give a figure for the volume of lending involved, but said that the offshore sector represented “a significant share in the bank's energy project finance activities”.
He said that the bank so far has not turned away any business as a consequence of applying these principles, but it had changed several projects and he believes that it will, over time, change the overall mix of deals seeking finance in the banking market.
“Other banks contacted us and are very interested in this approach and policy,” Neuneyer added.
By. Mark Nicholls