How a French bank set the gold standard for climate action

Tim McDonnell - 
Quartz

The headquarters of La Banque Postale resemble a towering greenhouse in a quiet residential neighborhood of Paris, about a mile west of the Eiffel Tower. These days, the building’s glass facade is wrapped in a billboard, featuring three chic young women and the message: “When you’re 16 years old, the environment isn’t optional.”


© Provided by QuartzThe headquarters of La Banque Postale in Paris resembles a greenhouse, with a billboard advertising the bank's climate policy.

LBP is one of the youngest banks in France, created 16 years ago as a subsidiary of the government-owned postal service. With $900 billion in assets, it’s also smaller than multinational competitors like BNP Paribas and Crédit Agricole. And in October 2021, it became the world’s first bank to set a hard deadline—2030—by which it will end all financing for oil and gas. While most major banks in the US and Europe have adopted a long-term goal to decarbonize their lending portfolios, few have been willing to get specific on when and under what conditions they will stop serving fossil fuel clients (if at all).

La Banque Postale’s policy, according to a major report by environmental groups in March, “sets a new bar that every major bank must meet in this crucial decade for the climate.” In an interview over coffee and croissants, chairman Philippe Heim said the bank’s ambitions are driven by a conviction that credible climate action can be a source of profit, as well as a powerful tool for marketing.

“The point for us was to say, ‘How can we distinguish ourselves in a very competitive landscape? How can we be seen as consistent and truly committed?'” Heim said. “We want to be synchronized with our clients, especially with young people. We want to demonstrate it’s possible that we can change the way we do banking, and we want to be a laboratory in positive impact finance, which for us is an element of economic performance.”

Green banking opportunities outweigh the loss of fossil fuels

While some small banks in the US have already cleared their books of fossil fuels, most of those had hardly any investment in the sector to begin with. LBP, however, has been among the top 60 global lenders to fossil fuels since 2016, providing $423 million in that time. (The world’s top fossil lenders, like JP Morgan, have lent hundreds of billions.) After the oil and gas exit deadline was adopted, LBP immediately halted new lending to companies with plans to expand oil and gas production, in line with what the International Energy Agency says is necessary to achieve the Paris Agreement climate targets. That means no new loans for Total, the French oil major, which is pursuing controversial new oil projects in East Africa and elsewhere.

By 2030, any oil and gas companies doing business with LBP in 2030 need to be well on their way to a new business model. At that point, the bank will sever ties with any oil or gas company that lacks an approved plan for ending its fossil fuel operations by 2040. The bank estimates that about $28 million of its existing oil and gas business (including loans, investments, financial services, and other offerings) fits that description, and will thus need to be phased out. (The remainder is mostly linked to two electric utilities that have decarbonization plans approved by the Science-Based Targets Initiative, and a pipeline services company.)

“Clearly, this is a loss of opportunity,” Heim said. “But there are so many opportunities to finance clean energy projects that the consequence would be completely digestible for us.”

LBP’s next climate test

One arm of LBP that is not covered by its oil and gas exit target is the asset management division, which still manages shares in fossil fuel companies like Total. (The division will produce its own climate strategy later this year, Heim said.) The bank will reveal more about what it considers a legitimate transition plan for oil and gas companies on May 25, when Total holds its annual shareholder meeting. That meeting will include a “say on climate” vote, in which investors give a non-binding thumbs-up or thumbs-down to the company’s climate plan. Last year, LBP voted against Total’s plan, but the oil major has since agreed to publish a more detailed strategy.

While that may be a step in the right direction, the company’s continued push for new pipelines leaves much to be desired, said Guillaume Pottier, a corporate engagement strategist at the French research nonprofit Reclaim Finance. “If [LBP] doesn’t vote against Total’s plan, they’re not taking climate seriously—that’s the litmus test.” (LBP “will vote [at Total] according to its policy,” a company spokesperson said, which requires “alignment on a pathway that is compatible with the Paris Agreement.”)
Bankers need to take the long view

For a bank’s climate policy to make scientific sense, Heim said, it needs to look beyond the typical loan-book horizon of a few years. But that view is still rare among bankers; on May 22, HSBC suspended one executive after he said in an interview with the Financial Times that “climate change is not a financial risk that we need to worry about” because it’s too far in the future.

The important timeline, Heim said, is the lifespan of fossil fuel projects, which is measured in decades. “If you want to meet the climate objectives of 2050, you have to act now,” he said. “If we wait until 2030 to change anything, it will be too late to have an impact in 2050.”