'Wildly irresponsible': How top banks could be risking billions on the petrochemicals industry

ClientEarth and FairFin claims world’s top banks are exposing themselves to major stranded asset risk by backing major petrochemicals projects

Scores of the world’s biggest banks are exposing themselves to massive stranded asset risks by continuing to invest tens of billions of Euros in petrochemicals companies such as INEOS and Borealis, which produce plastics from fossil fuels, fresh research has warned.

Over five years between 2016 and 2021, major banks including JP Morgan Chase, Bank of America, Barclays, HSBC, BNP Paribas, and ING Group collectively invested almost €22bn in the two petrochemicals giants, despite fears that an already saturated plastics market could soon face curbed demand and stricter regulations, according to the report.

The study, drawn up by Belgian sustainable finance experts FairFin and commissioned by UK non-profit ClientEarth, argues demand for plastic is set to fall in the coming years due to incoming laws aimed at curbing plastic use, and that therefore are putting their investments at risk.

Such a failure to assess and manage their exposure to the risky plastics production market could further banks and their customers to stranded assets, as global markets shift towards from more sustainable materials that do not use fossil fuels in their production, ClientEarth threatening.

“These banks have people’s future in their hands, but they are choosing to risk it on vulnerable and volatile industries that contribute to climate change,” said Clientearth lawyer Tatiana Luján.

“Market signals have already caused companies like INEOS to revise their projects and this report clearly shows that funding further plastic production carries too great of a financial risk to be justified,” she added. “Banks should be reading the writing on the wall so that their customers don’t bear the cost of such nonsensical investments.”

Plastic production is the largest single driver of demand for petrochemicals, which are derived from oil and gas, and petrochemicals producers are therefore also key drivers of fossil fuel demand. As a result, the sector is also one of the world’s largest greenhouse gas emitters, which the report argued remained a “distinct blindspot” in the credit and investment policies of major banks.

The report, published late last week, cites the example of INEOS opting to suspend half of its plans for a long-delayed plastics facility in Antwerp due to declining plastics demand, despite securing a guarantee of €250m-€500m for the facility from the Flemish government’s investment fund PMV.

FairFin’s Amadeo Ghiotto said “channelling so much money into new and unnecessary plastic production is wildly irresponsible”.

“It is well-documented just how much of a threat plastics pose to our health, nature and the climate,” he said. “Investments of this scale should be going towards tackling the energy crisis and rocketing energy prices instead of providing a lifeline for these energy-intensive fossil fuel operations.”

INEOS, as well as most of the banks named in the report did not respond to BusinessGreen‘s requests for comment on the research at the time of going to press.

In a statement, however, BNP Paribas stressed that it was not contacted ahead of the release of the study, and therefore could not comment “on the methodology or alleged financial exposure”.

“Within the frame of its ESG risks management system, BNP Paribas has already included specific criteria on waste management for relevant sectors,” it said. “BNP Paribas also considers that the implementation of best practices in this area through positive-impact banking solutions and services is key.”

Last week, HSBC’s head of responsible investing Stuart Kirk sparked a major debate over the extent to which banks should concern themselves with stranded asset risk by arguing that loanbooks that last an average of just six years mean it is not an issue banks should concern themselves with . But as FairFin’s report highlights, the assumptions and market dynamics that underpin many fossil fuel-related assets can shift suprisingly quickly. And investors that fail to understand these risks could find themselves badly exposed as environmental regulations tighten and competition from clean tech alternatives intensifies.

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