(Bloomberg) --
Credit Suisse Group AG, ING Groep NV and BNP Paribas SA will stop providing trade financing for oil exports from the Ecuadorian Amazon, after pressure from climate activists.
The three banks were collectively responsible for $5.5 billion of such financing in the past 11 years, according to research by Amazon Watch and Stand.earth. The two activist groups called out the companies for double standards, saying they promoted corporate sustainability while also financing the Amazon oil trade that contributes to climate change.
Financial institutions, which provide some of the world’s biggest polluters with funds to extract and trade fossil fuels, are increasingly succumbing to pressure from environmentalists and their own shareholders to square sustainability ambitions with how they lend money. Credit Suisse, ING and BNP now join the likes of Bank of America Corp. in limiting financing for hydrocarbons in environmentally sensitive areas.
The European banks, which had provided letters of credit to U.S. companies including Marathon Petroleum Corp., Phillips 66 and Citgo to buy Amazon oil, have pledged to stop financing such transactions.
“These commitments showcase a growing concern from global financial institutions about the reputational risk that comes with financing the trade” of such oil, Moira Birss, climate and finance director for Amazon Watch, said in a statement.
Bank Pledges
At the end of 2020, Credit Suisse decided to phase out trade finance for crude exports from the Ecuadorian Amazon, according to email correspondence with the climate groups. It has also restricted financing for thermal-coal extraction, coal-power generation and oil and gas projects in the Arctic. In a statement to Bloomberg, Credit Suisse confirmed it had stopped financing Ecuadorian oil.
“As part of our commitments to address climate change, protect biodiversity and respect human rights, we introduced further restrictions on financing fossil fuels in the course of last year,” the bank said.
BNP recently pledged to exclude Ecuadorian Amazon oil from its trading activities, saying in a statement that it’s “committed to the continuous improvement of its sustainability strategy.”
ING said in December it was reviewing its exposure to trade finance for Ecuadorian Amazon oil and would decline new business. In a statement to Bloomberg last week, the bank said: “We have decided not to engage in any new contracts for the financing of oil and gas trade flows” from the region.
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Ecuador has South America’s third-largest oil reserves, after Venezuela and Brazil, with the bulk of these in the Amazon’s Oriente Basin. Much of its crude is tied up in prepayment deals with China, which guarantee the Asian nation oil in exchange for loans. The barrels are then sold on to traders and refiners who use letters of credit instead of the oil cargoes as collateral. So-called L/Cs are a crucial financial lifeline for commodity traders to finance short-term trades.
Citgo said it has no current L/Cs with any of the institutions specified. Phillips 66 and Marathon declined to comment.
Out of 19 banks assessed in an August report on Amazon oil transactions, Amazon Watch and Stand.earth found that ING, Credit Suisse and BNP, together with UBS Group AG, Natixis SA and Rabobank Group, accounted for 85% of all bank trade-financing for Amazon oil. That was despite having policies with respect to human rights, biodiversity and climate change.
UBS said last week it’s committed to the “highest environmental and social standards.” The bank has declined transactions where the origin of oil is “verifiably associated with breaches of our standards,” a spokesman said.
Natixis said it has “declined to finance any new clients involved in oil exports from Ecuador since mid-2020 and has reduced the number of existing clients it works with in this area.” The bank “continues to proactively monitor the situation with reinforced selectivity,” a spokesman said.
Rabobank said it hasn’t been involved in Ecuadorian Amazon trade flows since early 2020.
Beyond environmental pressures, plummeting oil prices and rising bankruptcies are forcing some European lenders to review their trade commodity financing activities. Banks have already been retreating from the sector in regions such as Asia since before the pandemic, as high-profile collapses and scandals, such as that of Singapore trader Hin Leong Trading Pte., roiled the industry.
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Last year, France’s Societe Generale SA halted fresh funding to oil trading firms, specifically in the Asia Pacific region, while undergoing a global review. BNP shut its Swiss commodities-trading unit in September, and the Netherlands’ ABN Amro Bank NV has said it will pull out of commodity trade finance altogether.