Banque de France to axe all investment in firms generating more than half of their revenue from gas, 10 per cent from oil, and any revenue from coal by 2024
Banque de France has announced plans to phase out the bulk of its investments in oil and gas companies by 2024, making it the first national central bank in Europe to set out a timeline to significantly slash financial support for fossil fuels.
In an update to its responsible investment policy published yesterday, Banque de France confirmed plans to this year expand its coal exclusion policy to target all companies making more then two per cent of their revenues from coal - tightening the threshold from 20 per cent today. In addition it confirmed it would axe investments in firms that make more than 10 per cent of their revenue in shale oil and gas, tar sands, or the exploration of the Arctic and deep water sites. It also pledged to vote against new fossil fuel development projects at shareholder meetings.
In 2024, the central bank also plans to stop financing firms engaged in more "conventional" fossil fuel activities. In an industry-leading move set to affect oil and gas majors - including French oil major Total - Banque de France pledged to cut off support for companies that make more than 10 per cent of their revenue from conventional oil or 50 per cent of their revenue from gas. Meanwhile, it will expand its coal exclusion policy to stop all support of companies that generate any part of their revenue from the fossil fuel.
The Banque said its oil and gas divestment policy was aligned with the EU Paris Aligned Benchmark (EU PAB) for investment, which is designed to steer decarbonisation in line with the Paris Agreement goal of limiting global temperature rise to 'well below' 2C above pre-industrial levels.
In an address to France's National Assembly last week, Banque de France governor François Villeroy de Galhau said the new fossil fuel policies would establish the central bank as a leader on sustainable finance. "Across our investments, our own funds and pension fund, we are the first central bank in the Eurosystem to make responsible investment commitments," he said."We publish a report every year which is considered somewhat of a benchmark in methodological terms. On coal investments, we will exit any company whose coal represents more than two per cent of the activity, an exclusion threshold which is already very strong, and we will be fully exited in 2024."
Central banks have come under increasing pressure to shift their portofolios away from risky, environmentally destructive investments in order to unlock financing for the net zero transition, and growing numbers of net zero commitments have begun to emerge across the private finance sector.
The Bank of England has said it is considering incorporating climate factors in its corporate bond portfolio, after revealing in climate disclosures last year that parts of its investment portfolio are currently aligned with a global warming trajectory of around 3.5C by the end of the century, a pathway far above the goals of the Paris Agreement. And across the Atlantic, the US Federal Reserve's decision to join the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) last December has been hailed as a major milestone in central bankers embrace of sustainable finance that could come as a precursor to new financial climate risk reporting regulations from the incoming Biden administration.
Green campaigners lauded Banque de France's latest commitment today, noting the near-term divestment programme was more ambitious than the flurry of 2050 net zero porfolio commitments recently unveiled by private investors and banks. However, they urged the central bank to close gaps in the policy that currently allow for the continued financing of environmentally destructive fossil fuel activity and pointed out the targets did not apply to the monetary policy portfolios, which they claimed constituted the bulk of the bank's assets.
"With this announcement, the Banque de France is catching up with and overtaking private financial players and recognising the urgency of cutting off financial support for fossil fuels," said Paul Schreiber, campaigner from NGO Reclaim Finance. "Now, it must apply this dynamic to its core business, by advocating for the immediate decarbonisation of European monetary policy, and not wait another three to five years as recent comments from its governor suggest,"
More than 67 of the 118 companies planning new coal-fired power plants could slip through the gaps of the central bank's near-term coal exclusion policy, given the revenues of these activities are either not reported or less than two per cent, Reclaim Finance warned.
The group urged the central bank to sharpen its policies to include a timeline for the phase out of support for companies that generate any form of revenue from unconventional hydrocarbons extraction or exploration. In particular, it called on the bank to extend its near-term ban on financing of Arctic and deep-water oil and gas production to cover all exploration activity, noting that French oil major Total currently has four new projects in the Arctic.
Reclaim Finance also demanded for more specifics about how the central bank plans to use its voting power at company AGMs to prevent new fossil fuel projects from progressing. "The bank says it will use its voting policy to follow this objective but does not specify what actions it implies," Reclaim Finance director Lucie Pinson said. "Given that resolutions requiring an end to investments in fossils are not commonplace at AGMs, will the Banque de France commit to vote against Patrick Pouyanné [chairman of oil and gas major Total] and all the other executive boards of booming oil and gas companies?"
Banque de France did not reply to BusinessGreen's request for comment on the campaigners' demands by the time of going to press.