Oil and gas projects won't be funded by NatWest

NatWest will no longer fund projects dependent on reserves for oil and gas

The British bank NatWest announced on Thursday that it would discontinue all reserve-based lending for any new clients financing oil and gas exploration and extraction. They will gradually phase it out by the end of 2025.

The lender’s promise comes as the amount of climate-damaging carbon emissions associated with the loans and financing they offer to the real economy is under increased pressure from governments and investors.

NatWest Group, formerly known as Royal Bank of Scotland Group, is a large financial services company based in the United Kingdom. Like many financial institutions, NatWest has invested in a range of industries, including the oil and gas sector.

The oil and gas sector is under financial pressure

The oil and gas industry has faced increasing pressure in recent years to transition toward more sustainable energy sources. It is due to concerns about climate change and the environmental impact of fossil fuels. As a result, some financial institutions, including banks, have started to divest oil and gas companies or limit their investments in this sector.

NatWest’s rival Lloyds has already stopped making new loans for projects where the value of oil and gas is involved. The majority of the large oil companies want to withhold all such loans from those who are increasing production, as a result of the NatWest action.

According to a NatWest representative, the bank will continue to honor reserve-based loan agreements made by current clients before the end of 2025 until they expire.

Even though it is a minor player in the energy loan market, NatWest, which is partially controlled by the British government, is nevertheless the largest business bank in the nation and continues to have exposure to businesses in Western Europe and the North Sea.

Smaller oil and gas companies will lose credit lines

Smaller oil and gas companies extensively relied on reserve-based loan facilities, which offer a line of credit based on oil and gas reserves upon.

Although NatWest declined to disclose the amount of reserve-based lending it made in the industry, according to its climate disclosures, it had a 3.3 billion pound exposure to the oil and gas sector in 2021, which included 1.7 billion pounds of lending.

Alison Rose, CEO of NatWest, stated on Thursday that according to her, this sends a strong signal that the bank is serious about removing the most damaging activities while financing the transition to net zero.

The bank also declared that by the end of 2025, it would lend at least 10 billion pounds to homes that are the most energy-efficient and have grade A or B energy efficiency certificates.

Everyone must meet the targets

With current targets to reduce the climate impact of the lender’s financing activity by half by 2030, NatWest’s CEO has made lowering the lender’s influence on the climate a core component of her plan.

Next Monday, the bank will announce its first climate transition plan, which includes goals to transition to a net-zero economy.

The Bank of England issued a warning to bankers last year that failing to manage the risks may suffer a 10-15% fall in yearly profits and greater capital requirements. Regulators have increased their monitoring of banks’ actions related to climate change.