June 16, 2024

UK universities ramp up pressure on banks to cease financing of fossil fuels

Sixty UK universities and trusts, including Oxford and Cambridge, are the latest groups to add their call for banks to do more to ensure investors’ money does not end up financing new and expansionary fossil fuel infrastructure projects.

The leading institutions and trusts in UK higher education, which also include the universities of Edinburgh, Southampton, Leeds and St Andrews, issued a “request for proposal” to financial institutions to develop “cash products” such as deposits and money market funds that do not contribute to the financing of fossil fuel expansion. 

“The university treasurers in this group all share a common goal, which is to manage money in a way that doesn’t contribute to the financing of fossil fuel expansion and to find something that aligns with the [International Energy Agency] Net Zero Emissions Scenario, and that is lacking in the cash space at present,” said Heather Davis, University of Cambridge’s head of group treasury.

The institutions want to avoid financing companies that are constructing coal- and gas-fired power plants in OECD countries. 

“What we and our partners are focused on with this mandate is finding financial services products that do not contribute to the expansion of fossil fuels, in particular new coal- and gas-fired plants which lock in demand for decades,” says University of Cambridge chief financial officer Anthony Odgers.

“Responsible investment is a mainstream part of equities investing, but it is still not widespread in the debt markets even though a large majority of the new capital for companies constructing fossil fuel power stations or exploring for new reserves comes from debt.”

The calls by universities for banks to do more to end the flow of money to new fossil fuel infrastructure comes just days after Barclays published a new climate change strategy that announced no project finance or other direct finance for upstream oil and gas expansion projects or related infrastructure, restrictions for new energy clients engaged in expansion, and the expectation for energy clients to produce transition plans or decarbonisation strategies by January 2025.

Barclays’ recent announcement was billed as “historic” by some, given that the UK bank had provided some $190.5bn in financing to fossil fuels since 2016, according to the Banking on Climate Chaos report, making it one of the top 12 banks globally for financing fossil fuels.

However, NGOs claimed it left the door open for the bank to continue to finance diversified companies in the oil and gas sector that are already customers. “These companies are responsible for developing more than 70 per cent of expected new oil and gas fields,” said Reclaim Finance director Lucie Pinson. 

Barclays did not respond to a request for comment. It has been the University of Cambridge’s bank for more than 200 years, but last year the university suggested it could cut ties and seek an institution with “robust climate policies” to manage its cash and money market funds.

A recent ECB assessment of misalignment of banks’ financing with the EU climate objectives revealed that although oil and gas production in the eurozone area is declining, European banks are continuing to finance the expansion of production outside the euro area. 

“Since the transition necessitates moving away from oil and gas use, oil and gas production assets might become stranded,” the ECB warned in its assessment.

The request for proposal issued by the 60 institutions focuses on banks and the bond market as the primary sources of external financing for fossil fuel expansion. It is an effort by universities to direct funding towards the development of renewable energy to accelerate the transition away from fossil fuels, particularly in areas where finance is a key constraint for growth, such as in low-income countries. Fossil fuels are responsible for around 80 per cent of greenhouse gas emissions globally.

The criteria used in the universities’ request is based on the IEA’s scenario that would allow for net zero emissions by 2050 and in line with emissions reductions laid out in the Intergovernmental Panel on Climate Change’s Sixth Assessment Report.

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