British banks that continue to fund polluting, low-return oil sands projects are “picking up pennies in front of a steam roller”, corporate governance campaigners warn.
Research by ShareAction found some of the world’s biggest banks have ploughed US $102 billion (£78 billion) into the sector since the Paris Agreement was signed in December 2015.
ShareAction, which co-ordinates shareholder activism in international companies, said around 10% of this total has come from European banks.
British institutions Barclays and HSBC were among the 15 largest investors.
Oil sands are a mixture of sand, clay and water soaked with an extremely thick form of crude oil known as bitumen which occur in northern Canada, and also in Russia, Kazakhstan and Venezuela.
Its extraction involves injecting steam into the deposit to reduce the viscosity of the bitumen so it can be pumped out for processing.
Production alone can result in emissions three to five times higher per barrel than conventional crude, and leaves large volumes of contaminated water that are at risk of polluting waterways.
It has also been blamed for deforestation and biodiversity loss in Canada’s boreal forest, and has triggered a number of human rights controversies concerning the indigenous peoples in the region.
According to data analysed by ShareAction, Barclays has sunk an estimated US$3.2 billion (£2.4 billion) into oil sands since 2016, followed by HSBC at $2.6 billion (£2 billion).
Both Barclays and HSBC this year announced a commitment to become net zero banks by 2050, although they have been criticised for a lack of detail in their policies.
ShareAction revealed that since its net zero commitment in March, Barclays has participated in 11 deals to oil sands companies, including those which are building extra capacity pipelines.
Elsewhere, analysis 24 of Europe’s largest banks revealed none had set out specific steps to phase out investment in oil sands.
As well as the reputational damage, ShareAction warns investments risk becoming stranded assets as oil demand falls, as oil sands production costs can be as much as double that of conventional crude.
The report’s authors likened banks’ commitment to oil sands to “picking up pennies in front of a steamroller” given the high risks and low returns.
One of the authors, Xavier Lerin, told the PA news agency: “Why banks are so committed to these (projects) considering the downsides in terms of reputational risk is a bit unclear to us.”
He added: “The environmental, social and governance challenges facing oil sands are well understood, but now in the context of lower oil demand they are uneconomic as well – so any bank going into that sector is taking a big risk.”
“Basically they are exposed to a severe reputational risk for no valid reason,” he said.
ShareAction is now calling on European banks to immediately halt investment in new oil sands projects and associated infrastructure.
It also wants to see banks implement a time-bound plan to phase out their exposure to companies highly dependent on the sector, as well as restrictions on investments throughout the value chain.
Banks should ask clients who generate only a small percentage of their revenues from the sector to publish plans outlining how they propose to exit the industry by a specific date, ShareAction said.
Both Barclays and HSBC declined to comment on the report’s findings.