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Standard Chartered’s net zero strategy update fails to impress

Standard Chartered has today published its much-awaited net-zero strategy update, to be voted on at the bank’s 2022 AGM. Here's our response.

Standard Chartered has today published its much-awaited net-zero strategy update, which will be put to a vote to shareholders at the bank’s 2022 AGM. ShareAction, the UK responsible investment charity, responds:

Jeanne Martin, Senior Campaign Manager at ShareAction, says “Standard Chartered’s net-zero strategy not only fails to live up to climate science; it also falls short of current leading practices already being demonstrated by the bank’s European peers. We urge the bank to publish a further update of its strategy ahead of its 2022 AGM – or risk facing a shareholder rebellion.

ShareAction’s short analysis of the bank’s net-zero strategy update across four main pillars (coal, fossil fuel expansion, targets, and decarbonisation expectations for clients operating in the oil and gas and power sectors) can be found below:

1. Standard Chartered’s updated coal policy fails to live up to leading practice in the European banking sector

A group of 115 shareholders coordinated by ShareAction recently urged global banks including Standard Chartered to update its coal policy before COP26. Today, the bank has responded to this call by publishing a new coal policy.

The bank has committed to “stop financing, at an individual client entity level (i.e subsidiaries), companies that are expanding in thermal coal”.

Given the importance of phasing out from coal on an accelerated timeline, and the incompatibility of coal expansion with the Paris climate goals, restricting financing to coal developers is a key litmus test of banks’ climate credibility.

This is especially the case for Standard Chartered, the top UK banker for coal plant developers. Standard Chartered’s new policy fails this test. Despite taking a small positive step forward from the bank’s previous position, the impact of the new policy on coal expansion will be significantly limited by:

(1) the bank’s focus on entities – still allowing their parent companies to raise funds that could find their way down to coal-related activities;

(2) the perceived narrow focus on thermal coal power, which could allow the continued financing of clients building new thermal coal mines. [The bank’s new Metals and Mining policy only restricts financing for clients building new thermal coal infrastructure - which could include coal mining-related infrastructure -; investing in new or additional thermal coal power-generating capacity; and acquiring standalone thermal coal power assets. Therefore, whether Standard Chartered could continue to finance companies developing new thermal coal mines remains an open question.]

Finally, the bank has updated its screening thresholds by switching from EBITDA- based metrics to revenue-metrics. However, the bank has failed to update the ambition of its current policy, which at present only excludes companies that get 100 per cent of their revenues from coal [previous coal policy available on request]. This threshold, which will be reduced over time to 80% in 2024 and 40% in 2027, currently allows the bank to continue financing almost every company operating in the coal sector in the short-term.

Furthermore, the bank has not complemented its revenue-based threshold with metrics based on a company’s coal share of power generation and/or absolute metrics. Absolute metrics are important as thresholds expressed in relative terms disregards the cumulative impact of large coal producers on climate. Several banks have started implementing absolute thresholds including Credit Mutuel (5GW/y for coal power and 10Mt/y for coal mining), and BNP Paribas and Societe Generale (10Mt/y for coal mining).

2. The bank’s statement that its strategy is aligned with the IEA NZE is misleading as it fails to embed the NZE in its fossil fuel policy

Standard Chartered claims that its net-zero strategy “aligns to the International Energy Agency’s Net Zero Emissions by 2050 scenario (NZE).” Yet the bank has failed to incorporate the main findings of the NZE scenario into its fossil fuel policy. Banks’ fossil fuel policies are a core pillar of their net-zero strategy.

The IEA made headlines earlier this year by publishing a scenario that concluded that a 50 per cent probability of meeting 1.5C requires no new coal, oil, and gas developments, and that electricity generation in the power sector must be 100 per cent from clean energy in the OECD by 2035, and 100 per cent globally by 2040.

This announcement is a failed opportunity for Standard Chartered to update its position on oil & gas, which is clearly lagging behind European leading practice. The bank will only restrict financing to a limited number of unconventional or risky oil and gas assets from March 2022 (NB this commitment seemed to apply immediately in the previous position statement) and these restrictions do not apply to the companies developing them.

More importantly, the bank also has not introduced any financing restrictions or decarbonisation requirements for companies that are expanding oil and gas production. Instead, the bank states that “production of some fossil fuels may rise” in some of the markets it operates. If the bank were truly committed to net-zero, it would take a clear stance against the companies that are increasing production of fossil fuels. As such, the bank’s claim that its strategy is fully aligned with the IEA NZE is misleading at best.

The bank’s decision to pick and choose what to apply the IEA NZE to is also at odds with what some of its shareholders asked the bank to do in July of this year. In a letter to the bank, 115 shareholders asked that it incorporates the findings of its chosen 1.5C scenario across its entire strategy: “reviews of sectoral policies, company targets, client expectations and accounting numbers should be undertaken to reflect the selected 1.5C scenario”.

3. The bank’s targets are intensity-based and fail to cover all relevant financial services

Standard Chartered has committed to “targeting 2030 reductions in revenue-based carbon-intensity (i.e. the quantity of greenhouse gas emitted by [its] clients per USD of their revenue) of:

  • 63 per cent for power
  • 33 per cent for steel and mining (excluding thermal coal mining)
  • 30 per cent for oil and gas”

Intensity-based targets for the fossil fuel sector are inappropriate. The priority should not be to encourage oil and gas companies to produce more oil and gas efficiently, but to commit to a managed decline in output.

In the words of Nigel Higgins, chair of the Board at Barclays, Europe’s largest fossil fuel financier, “The [Energy sector, which is responsible for extracting fossil fuels from the earth – mainly coal, oil and gas] is different because it cannot reduce its emissions intensity below a certain point (a barrel of oil cannot be de-carbonised), and so a reduction in absolute emissions is the more appropriate measure.”

Standard Chartered’s targets simply follow the IEA NZE benchmark. This is concerning as the IEA NZE only has a 50% probability of reaching net-zero. ShareAction has been urging banks to add buffers to their targets given inherent uncertainties about tipping points and other climate phenomena, and the low probability of success of most climate scenarios.

Finally, Standard Chartered’s targets are set for “in-scope corporate lending assets”, meaning that off-balance sheet activities like capital markets underwriting are not included. The bank will thus be in a position to continue arranging finance promoting fossil fuel expansion such as the $6bn bond issued by Saudi Aramco (one of the world’s top fossil fuel expanders) in June and a controversial $300m sustainability-linked bond issued by an entity affiliated with the Adani group (which just developed the Carmichael coal mine in Australia) in July. In 2020, almost two-thirds of bank fossil fuel financing came from capital markets.

In contrast, Barclays has set an absolute target for its energy portfolio that cover both lending and a share of the bank’s capital markets activities.

4. Standard Chartered fails to set clear and timebound decarbonisation requirements for clients operating in the power and oil and gas sectors

The bank has also said it “expect[s] all clients in the power generation, mining and metals, and oil and gas sectors to have a strategy to transition their business in line with the goals of the Paris Agreement” by the end of 2022. The bank’s use of the word “expect” instead of “require” suggests there will be few, if any, consequences for the companies that fail to comply with this expectation.

Furthermore, the bank fails to clearly define what criteria it will use to decide whether clients’ strategies are in line with the goals of the Paris Agreement.

Its white paper suggests two possible transition pathways for the power and oil and gas industries, but fails to set red lines and decarbonisation requirements for clients operating in these sectors. Furthermore, the pathways identified seem to encourage clients operating in the power industry to switch from coal to gas, despite the IEA NZE finding that a 50% probability of meeting 1.5C means no new fossil fuels – and growing evidence that gas will never be a transition fuel. The bank also avoids talking about the elephant in the room – that meeting net-zero requires a managed decline in fossil fuel output, starting today.

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