An exit strategy for Amazon oil and gas financing and investment.
What is the Amazon Exclusion Policy?The Amazon Exclusion Policy is a commitment to end financing and investment for any oil and gas activity in the Amazon biome.
Ending financing and investment in oil and gas activity in the Amazon is in line with the need for a global shift out of fossil fuels outlined in the flagship IEA report published in May 2021, the United Nations High Level Expert Group on Net Zero, the UN Production Gap Report, and the Intergovernmental Panel on Climate Change AR6 synthesis report. Exiting oil and gas financing in the Amazon is also aligned with Indigenous demands for an end to all extraction financing in the region, as part of a measure recently approved by the International Union for the Conservation of Nature (IUCN) calling for 80% of the Amazon to be protected by 2025.
The Amazon is home to thousands of Indigenous and frontline communities and is critical to global climate regulation. Yet due in no small part to continued financing of and investment in industrial oil and gas activity in the region by major European and American banks, the rainforest is now at a tipping point, poised to become a climate change accelerator as it converts from being one of the world’s largest carbon sinks to a carbon emitter.
The push for an Amazon Exclusion Policy follows a precedent set by the successful Indigenous-led push for major banks to exclude financing for oil drilling in the Arctic and in the tar sands. The geographic nature of these exclusions, as well as the climate change, biodiversity, and Indigenous rights rationale behind them, are an example and a broad roadmap for a similar commitment in the Amazon.
An Amazon Exclusion Policy includes the following three commitments:
1). An immediate commitment (as soon as possible and by the end of 2023 at the latest) to not finance or invest in the expansion of any oil or gas activities in the Amazon biome.
2). A commitment to end, by 2025, financing for any and all companies currently engaged in oil or gas activities in the Amazon biome, for the purpose of facilitating the responsible wind-down of operations.
3). A commitment to exit all loans, bonds, shareholdings, letters of credit, and revolving credit facilities for all oil and gas activities originating in the Amazon biome by the end of 2023.
How is the Amazon biome defined?Like Arctic exclusions applied by banks, the Amazon biome is not defined by political boundaries.
The most commonly accepted definition of the Amazon uses hydrological, ecological, and biogeographical boundaries, dividing the Biome into 5 subregions. For an in-depth map of the Amazon Biome, see the RAISG5 online map. An Amazon Exclusion should also apply to the ‘Foz do Amazonas’ and ‘Para Maranhão’ basins – areas of offshore drilling at the mouth of the Amazon River. These are defined as exploration and production (E&P) areas by the Brazilian National Petroleum Agency (ANP).
Why do banks need to adopt an Amazon Exclusion policy?The Amazon must be protected from oil and gas exploitation immediately under bank decarbonization strategies.
It cannot be a draw for oil and gas investment over the near-term as banks transition out of fossil fuels. Only an exclusion enacted before 2025 would ensure that oil expansion doesn’t continue there while it is curtailed in other regions.
While targets and trajectories aim to decarbonize bank finance and investment portfolios by 2050 (with some interim targets for coal, unconventional oil and gas, etc), oil and gas fields with fiscal breakeven points are likely to still attract finance and investment over the medium term. This is because the higher cost fields will go offline first (becoming stranded assets) under the declining demand for fossil fuels predicted between now and 2050. The average cost for lifting a barrel of oil in the Ecuadorian Amazon, however, is $15-$19 USD per barrel (for a breakeven point estimate of $39 USD/bbl when administration fees, transport fees, and taxes are included). Under a scenario of $65 USD per barrel for West Texas Intermediate (a global oil benchmark), production of oil from the Ecuadorian Amazon’s Yasuní National Park would remain competitive while unconventional oil and gas (tar sands, shale) would be stymied.
Banks that continue to finance and invest in oil and gas activities in the Amazon biome expose themselves and their shareholders to the risks of propagating deforestation, biodiversity loss, Indigenous rights violations, pollution, corruption, and the exacerbation of climate disruption scientifically linked to oil expansion.
In examining banks’ exposure to these risks in the Amazon biome, researchers have found that banks with high-risk exposure (banks that provide high levels of financing and investment for oil and gas in the region) tend to have low risk management (weak or nonexistent policies in place to avoid the six major risks listed above). While high-risk exposure correlates to low risk management, low-risk exposure does not correlate with high-risk management. This incongruence indicates that an Exclusion policy is necessary to prevent banks with low-risk exposure from taking on greater risk exposure in the future.
In order to manage risk and reduce exposure, banks must adopt an exclusion policy. However, while an Exclusion policy may improve a bank’s risk management policy, it cannot reduce its risk exposure unless accompanied by an Exit Strategy. An Exit Strategy is a plan to implement a bank’s risk management.
What have banks done so far?While some banks are taking steps in the right direction, no major bank has yet committed to a full Amazon Exclusion.
Following the August 2020 release of a groundbreaking report from Stand.earth and Amazon Watch that investigated top European banks financing oil trading from the western Amazon, BNP Paribas, Credit Suisse (now UBS), and ING released commitments to exclude new Ecuadorian Amazon oil from their trading activities.
Building off of the August 2020 report findings, Stand.earth and Amazon Watch released another report the following summer, this time examining European and US banks’ financing of any oil and gas related activities in the entire Amazon biome, and comparing banks’ risk management policies to their actual exposure to those risks in the Amazon.
Just one month after the release of the scorecard report, Italian bank Intesa made a public commitment to exclude financing for oil from the Amazon Headwaters region of Ecuador and Peru. While the policy is not perfect, it’s a step in an optimistic direction.
Banks Must Exit Amazon Oil and Gas
In line with the need to protect 80% of Amazonia by 2025 and the campaign's demand to end financing and licensing for industrial activities in the Amazon, campaigners at Amazon Watch and Stand.earth have teamed up with leadership from COICA, CONFENIAE, AIDESEP, and other Indigenous organizations to call on banks to live up to their commitments to sustainability and human rights: Banks must immediately adopt an exclusion policy to exit Amazon oil and gas.
How are banks without Amazon Exclusion commitments tied to Amazon destruction?Research from Amazon Watch and Stand.earth highlights several ways that financing oil and gas in the Amazon is harmful..
BNP Paribas, Credit Suisse (now UBS), Goldman Sachs, JPMorgan Chase, Crédit Agricole, Deutsche Bank, and UBS hold hundreds of millions of dollars in bonds issued to PetroAmazonas, the oil exploration unit of Ecuador’s national oil company, PetroEcuador. PetroAmazonas is leading oil expansion in Yasuní National Park, a UNESCO Biosphere Reserve, where the process of building roads to access new oil drilling sites often triggers deforestation, and brings drilling to the doorstep of Indigenous peoples living in voluntary isolation. The company is responsible for thousands of oil spills over the last decade.
JPMorgan Chase and Deutsche Bank are dragging their heels on implementing sound ESR policies, including in the Amazon. JPMorgan Chase is the biggest banker for the fossil fuel industry worldwide, and it continues to fund Brazil’s national oil company, Petrobras, which is ranked one of the largest fossil fuel expansion companies globally.
Credit Suisse, before its acquisition by UBS, continued to finance the trade of oil from the Putumayo region in the Colombian Amazon, which faces heavy Indigenous resistance and brutal police crackdowns, despite existing biodiversity and human rights policies that clearly indicate it should not be financing in the region.
Société Generale, ABN AMRO, Citi, Crédit Agricole, Deutsche Bank, Goldman Sachs, ING, Rabobank, and UBS all provide financing via revolving credit facilities to problematic oil traders including Gunvor and Vitol, which have been implicated in recent bribery scandals. This is happening despite all banks having corruption policies, but only viewing it as a business risk and not including it in their ESR frameworks.
JPMorgan Chase and Credit Suisse (now UBS), recently helped arrange the issuance of a $150 million dollar bond for GeoPark, a Chilean oil company currently operating in the Colombian Amazon that is allegedly paying paramilitary groups to ensure the continuation of its operations on and near the territories of Indigenous groups that opposed oil operations.