‘A very big challenge’ — Claquin takes on Agricole climate strategy

Tanguy Claquin, the prominent green bond banker who has stepped up to head of global sustainability for Crédit Agricole CIB, believes the bank has moved ahead of its peers with its new goal to cut exposure to fossil fuels. But the intense focus, from many stakeholders, on how the financial industry is transitioning away from carbon means the bank will not be able to stand still if it wants to maintain an edge.

CA CIB’s target, announced at the same time as Claquin’s promotion on December 9, addresses a specific segment of the fossil fuel sector — exploration and production of oil.

The bank aims, by 2025, to cut its balance sheet exposure to this activity by 20% from its 2020 level.

At the same time, CA CIB will increase its credit exposure to production and storage of non-carbon energy by 60%. This will particularly focus on renewable energy and low carbon hydrogen.

“We think it is quite ambitious,” said Claquin in Paris. “I’m not sure there are many other players with significant exposure taking this kind of step.”

In October, La Banque Postale declared that it would cease providing any financial services to the whole fossil fuel sector by 2030. But its involvement is slighter: €1.2bn of exposure, or 2% of its corporate banking risk.

For CA CIB, oil and gas is the biggest non-financial sector it is exposed to: 8.8% of its €373bn of net credit exposure, or €33bn, at the end of 2020.

Crédit Agricole group already has a policy to divest fully from the thermal coal industry by 2030 in OECD countries and by 2040 elsewhere. But getting out of coal no longer qualifies as praiseworthy among sustainable finance supporters. They want banks and investment firms to be phasing out all fossil fuels.

CA CIB’s policy is to calculate the lending to be reduced by working out the percentage of oil production in each relevant client’s business and multiplying this by the financing it receives.

“We have not said anything about gas yet,” said Claquin. “Our focus right now is on oil. The capital will be redeployed on increasing low carbon energy financing.”

The pledge also does not apply to bond financing.

It may put CA in advance of some of its fellow members of the Net Zero Banking Alliance, which Agricole joined in July. But it is unlikely to satisfy environmentalists, which are sure to keep up the pressure on Crédit Agricole and other banks for more far-reaching action.

NGOs led by the Rainforest Action Network that track major banks’ financing of fossil fuels record that Crédit Agricole’s financing — including bond underwriting — has risen in four years out of the last five, from $8.9bn in 2016 to $19.6bn in 2020.

This makes it the 23rd most active bank in the world in this business, and the seventh busiest based in Europe.

Up to now, civil society groups have to do this research themselves using public information on individual transactions, because most banks do not reveal much about the scale of financing they do for environmentally damaging industries.

This is beginning to change. “Sustainability and climate change are now things on which banks will have to report,” said Claquin. “There is official reporting and we need to prepare a number of stress tests. The quality of the data needs to be managed from front to back — I want to make sure we strive on that front.”

Unlike many banks, Crédit Agricole publishes an estimate of the carbon footprint of its financing. It has been tracking this since 2011, using a methodology called P9XCA, created by two French universities and recommended by some French government agencies.

Claquin calls it a “top down approach”. Emissions are allocated to sectors in each country, and then Crédit Agricole’s market share in financing that sector is applied.

Crédit Agricole’s most recent integrated report, for 2020-21, did not mention the figures, but a separate document on CA’s website contains the figures for 2017, 2018 and 2019.

The number rose from 123m tonnes in 2018 to 139m in 2019. CA said this was partly because of a general increase in its financing, and partly because of a methodological change. The sum is equivalent to a third of France’s total emissions in 2018, according to the World Bank.

The most recent universal registration document for CA CIB alone gives a figure of 60m tonnes for the end of 2020.

Crédit Agricole’s operational emissions are less than 0.1% of its financed emissions. The bank’s total emissions from consuming gas, fuel and electricity (Scopes 1 and 2) in 2019 were 73,000 tonnes; another 46,000 came from train and aeroplane travel.

It has been aiming to reduce both operational and financed emissions for some time, and has some exclusion policies, which have been progressively tightened.

Most recently, it extended its ban on direct financing of onshore and offshore oil projects in the Arctic to a wider area, and included gas projects in that too.

However, companies that engage in these activities — such as TotalEnergies, which in May greenlit a project to produce liquefied natural gas in the Russian Arctic — are not excluded from financing provided for general corporate purposes.

Crédit Agricole is a decentralised group, but tries to co-ordinate its corporate social responsibility efforts, including decarbonisation, across its businesses, including CA CIB and Amundi, the listed asset manager of which it owns 69.5%.

Eric Campos is head of CSR for the group.

Claquin’s new job has been in the works for several months. “It extends what I was doing before to the climate and sustainability strategy of the bank — our net zero commitment and all the commitments that implies,” he said. “We already had a system for that, relying on sectoral experts, but we needed a central team.”

The climate and sustainability strategy team will have a new head, not yet announced, reporting to Claquin.

He will keep his existing responsibility as head of sustainable banking, overseeing all business the bank does with clients on environmental, social and governance issues.

Five bankers report to him in the banking side of the business, including Antoine Rose, who took over as head of sustainable banking for Asia Pacific and the Middle East in June, and Romina Reversi, hired from JP Morgan in September to lead the business in the Americas.

In Europe there are three heads for different client groups. Laurent Adoult is head of sustainable banking for financial institutions and supranationals, sovereigns and agencies. Pascale Forde-Maurice looks after corporate clients, while Nathalie Sarel is in charge of small and medium-sized enterprises.

Claquin described his goals in the new post. “We want to develop sustainable finance as a tool that contributes to making sure finance plays its role in bringing transactions that move the needle — that’s what the sustainable investment banking team is doing, and it remains a very important objective for me,” he said. “On the strategy side, the objective is that we put in place the decarbonisation strategy at the right pace and with the right tools. All banks have this challenge — while keeping on being relevant, looking at what our clients are doing in transition and building a net zero trajectory.”

Beyond that, he said, “We are at the core of the business, and also closely linked to the risk part, which now has to cope with a number of regulations.”

In 2020, Agricole took part in the climate stress tests run by the Autorité de Contrôle Prudentiel et de Résolution, the French banking regulator. The bank and regulator discussed how CA CIB’s balance sheet would evolve by 2050 and the models it was using.

Claquin’s new job will put him in the driver’s seat — or at least the navigator’s — at CA CIB as it, alongside other banks, begins one of the most difficult journeys the sector has had to attempt.

Banks have to rid their financing portfolios of carbon — something only possible if the wider economy does the same. But they also cannot be just participants — they must try to push their clients to go faster.

“It’s a very big challenge,” Claquin said.

The work faces obstacles — technical and commercial. “The main difficulty we have is quality of data,” said Claquin — “having to assess all these different elements, and work against a public policy backdrop that may not be the same as the scenarios.”

Banks are anxious about the lack of standardised methodologies for financial institutions to measure their financed carbon emissions. They are anxious to work collaboratively on developing these systems, and several efforts are going on.

Crédit Agricole will not be able to rely solely on its P9XCA model for much longer. It is working on other models, but Claquin would not comment on these.

One of the most prominent ventures, the Platform on Carbon Accounting Financials, does not list Agricole as a participant on its website, and in fact only has one French adherent, Crédit Coopératif.

Agricole was also not one of the 17 earliest adopters of the Paris Agreement Capital Transition Assessment (Pacta), a tool developed by the Two Degree Investing Initiative.

However, it has developed some in-house tools, including an energy transition score for corporate clients, which it began working on in 2019 and launched at the beginning of 2021.

Now broadened into a climate transition score, it complements the bank’s financial scores for clients, assessing how they are exposed to the transition and adapting to it.

A 2020 document Agricole produced on the rating system said: “The transition score is conceived both as a measurement tool — to determine whether or not a company is engaged in a dynamic of adaptation to the changes required by the energy transition — and as a tool for dialogue — to encourage the counterparty to engage in such a dynamic, whatever its starting point (incentive rather than sanction).”

The tool, it said, was “not conceived as a risk tool but… to define the intensity of the bank’s commercial relationships, giving us a better rounded picture of the client’s business case, supplementing the existing financial score.”

Since the transition score was meant to help the bank’s businesses and to avoid it seeming like a black box, they were involved in designing it and “it is built first and foremost with their contribution”, the bank said.

It is based on public information from data providers, and “a benchmark of the various transition/climate measurement tools developed on the market” including Pacta, the Net Environmental Contribution Initiative, ACT Assessing Low Carbon Transition, Science-Based Targets and the Transition Pathway Initiative.

Up to now, 8,000 large companies have been scored — this will be gradually extended to medium-sized firms. All parts of the CA group are using it.

“It’s the same for all clients in the group,” said Claquin. “It’s quite an ambitious task.”

At the end of 2021, Agricole was due to carry out a study to address the scores’ effectiveness, gauging how much they had been used internally and what measures companies were taking to transition.

The development of models and metrics will continue, but banks also have to take action. The Net Zero Banking Alliance requires members to begin setting out their decarbonisation plans within 18 months after joining.

“Many banks are addressing this question of decarbonisation sector by sector, starting with the most carbon-intensive sectors,” said Claquin. “We’ve started with the energy sector, and we’re going to publish in the coming months, probably in the first quarter, targets for the next most carbon-intensive sectors.”

Asked about when the bank would publish reduction targets in terms of emissions figures, Claquin said: “We will have to have carbon reporting in future, but we have questions around the quality of data and double counting. We didn’t want that to stop us from making commitments.”

The most recent target was therefore expressed simply, as a cut to financing the specific activity of oil production.

That in itself will please NGOs, which often argue that banks should use such simple exclusions, rather than delaying cutting emissions just because these cannot be measured perfectly. The elephants in the room are plain to see.

However, the substance of Agricole’s commitment is likely to disappoint pressure groups.

Reclaim Finance, based in Paris, has criticised the new policy of Amundi, announced the day before CA CIB’s.

Amundi’s policy, like CA CIB’s, involves excluding companies that make more than 30% of their revenue from “unconventional” oil and gas production — from shale and tar sands — but Amundi has not joined in the 20% cut in oil financing.

However, Reclaim Finance’s objection to Amundi is broader: “It completely ignores the need to stop all oil and gas expansion to limit global warming to 1.5°C.”

Environmentalists have this year seized on the International Energy Agency’s Net Zero scenario, which argued that if net zero was to be achieved by 2050, no new fossil fuel production infrastructure should be built. This means stopping expansion of gas as well as oil. Crédit Agricole’s new target falls far short of that.

“This is one scenario,” said Claquin. “A scenario published by one player is not something we have to adhere to strictly. It’s a tool. There are a number of other hypotheses that deserve a lot of discussion, regarding technical breakthroughs.”

He added: “Defining exactly what [no new exploration] means is not that easy. And the players in that space can have different profiles — some are diversified, some are not. It’s not one size fits all. We believe some players have roles to play in the transition and others do not.”

Oil majors such as BP, Shell and TotalEnergies are striving to position themselves in financial markets as leaders of the transition. They are investing in renewable energy, but will still remain predominantly fossil fuel producers for a long time to come.

For the time being, Crédit Agricole’s new oil policy will enable it to remain aligned with these companies. Total, for example, plans to reduce its own oil sales 30% by 2030. Its product mix will change to 30% oil, 50% gas, 15% electricity and 5% biomass and hydrogen.

“If you look at the scenarios by the IEA, and what needs to happen in the next five years, the speed at which we need to reduce oil is not the same as gas,” said Claquin. “They are all showing a very aggressive decrease on the oil side and a long approach for gas. We know there is no debate now about the need to decrease oil.”

However, greens fear this is missing the point. Total’s overall energy production will grow 30% by 2030, with half the growth coming from renewable electricity and half from liquefied natural gas. That means Total’s greenhouse gas emissions will not fall, but rise.

As a member of the NZBA, Crédit Agricole is theoretically committed to halving its total financed emissions by 2030. Some tough decisions lie ahead.

Photo of Tanguy Claquin: Ludovic Le Couster, AFP Services

Photo of FPSO worker: Hervé Pirraud, Total