01-02-2021 16:11

Lending and investments in fossil energy

Society is now facing the next great shift, to sustainability. The path to a sustainable future is more important and urgent than ever. The world needs to build a new low-carbon economy and banks will play a vital role in this.
Ylva Hannestad, Deputy Head of Group Sustainability.

– The goal is clear. However, excluding all companies with high emissions today is not the solution. Taking responsibility means looking ahead. We need to support the companies willing to make the transformation,” says Ylva Hannestad, Deputy Head of Group Sustainability at Nordea.

Investments and lending to the fossil energy sector are an increasingly debated topic. Recently a report from BankTrack together with Fair Finance Guide Sweden, Fair Finance Guide Norway, Oxfam IBIS and ActionAid addressed this issue.

How do you view investments and lending to the fossil energy sector?

– Transitioning the fossil energy sector is key. It is widely concluded that it is the transitioning of the energy sector that needs to happen if we are to reach the Paris Agreement. Therefore, as a financial institution, we need to take our responsibility and help this sector in the transformation. 

Why don’t you just leave this sector altogether?

– Exclusion in itself from Nordea does not solve the problem with the companies' emissions. Rather, we believe in being an active bank, with demands on both customers and companies we invest in, in order to be a driving force in the transition to a sustainable future in line with the Paris Agreement. However, should we not see any ambition to change in a company, then exclusion is strongly considered.

What is your view on the report that was released from BankTrack and supporting organisations?

– First of all, we welcome the report from BankTrack as it is good that this issue is prioritised. However, it is important to remember that today fossil energy is still a large part of the energy mix on which the world depends, which makes this a complex issue. Not only are we still very dependent on fossil energy, the companies being the current providers of it have important infrastructure and components for the future energy systems and distribution, which makes them important for the transition. Therefore we need to assess companies on the basis of the opportunities and commitments they have taken to transition their operations, in accordance with expectations in the Paris Agreement.

In the report Nordea’s largest investments in the fossil energy sector are listed. What can you say about these companies?

– Six out of the seven companies defined in the report as coal companies are on our Paris-Aligned Fossil Fuel list (pdf, 944 KB). This means that the companies all have their own transition strategy that is compatible with being well below the two-degree goal, which in practice means that they are phasing out the use of coal quickly enough. The exception is Tenaga Nasional, which is a position that Nordea has divested.

  • DTE Energy: has historically had one of the most emission-intensive power portfolios in the US, but is at the same time implementing solutions that contribute to one of the most significant emission reductions in the market. The company's target is to halve its emissions by 2030 and reach zero emissions by 2050. It has already closed down around 20 per cent of its coal power plants over the past two years and will close down around 50 per cent in the coming two years. The remaining coal power plants will be closed down over a slightly longer horizon. At the same time the company is aggressively investing in renewable energy and is expecting to reach at least 25 per cent renewable energy in the coming years.
  • Enel: Enel’s share of renewables in electricity generation has steadily increased over the years and amounted to almost 43.3 per cent in 2019. It is an example of a progressive energy company that has committed to supporting the climate transition, and its climate strategy is certified by the Science-Based Targets Initiative, which is in line with the Paris Agreement
  • Entergy: is already today one of the largest producers of fossil-free power in the US (mainly nuclear power), but also has a small portion of coal (5 per cent) and a portion of gas (33 per cent) in its portfolio. The company has a convincing transition plan in line with the Paris Agreement's goals, including a zero-emissions target by 2050. In the near term the company is working towards this target by closing down all coal power plants by 2030 and multiplying the share of renewable capacity.
Sustainable banking