Press release: 19 May 2022
World’s top banks risk billions by investing in plastics – new report
Several of the world’s biggest international banks have collectively invested almost €22 billion in just two petrochemical companies over the past five years, exposing themselves to significant financial risk, according to a new study.
The report, from Belgian sustainable finance experts FairFin and commissioned by ClientEarth, reveals that between 2016 and 2021, banks including JP Morgan Chase, Barclays, HSBC, Citigroup, BNP Paribas, and ING Group invested nearly €22bn in petrochemical companies INEOS and Borealis.
Petrochemicals companies produce plastics, which are derived from fossil fuels.
There are major economic risks for banks investing in companies that produce plastic. The report highlights that the combination of an already saturated plastics market and a decline in demand for plastic, which is expected to continue to fall due to new laws restricting plastic use, puts banks’ customers' money at great risk when used to invest in plastic projects.
This failure to assess and manage exposure could expose the banks and its customers to stranded assets.
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. 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."
According to the findings, the banks’ investments contributed towards INEOS’ new plastics project “Project One” and Borealis’ “Kallo Project”, both planned to be built in the Port of Antwerp in Belgium. The data show that the lion’s share of the investments are going to INEOS.
INEOS has also been granted a government guarantee of €250-500 million from the PMV, the Flemish government's investment fund – putting part of the financial onus on the local taxpayer.
However, last year INEOS decided to suspend half of its plans for the already delayed Project One due to demand for propylene – one of raw materials needed to make the building blocks of plastic – falling.
This is just one example of the risk banks expose their clients to by putting the odds on plastic.
Clientearth lawyer Tatiana Luján said: “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.
“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. Banks should be reading the writing on the wall so that their customers don’t bear the cost of such nonsensical investments.”
While banks are steadily putting restrictions on the financing of fossil fuels, the petrochemicals sector seems to be a distinct blind spot in the credit and investment policies of the banks targeted in FairFin’s research.
Ghiotto added: “With the petrochemicals industry being the largest industrial user of energy, and third largest greenhouse gas emitter, it is alarming that banks lack a comprehensive plastic credit and investment policy addressing these climate and financial risks. That is why we demand that banks stop investing in companies that expand plastic production.”
Notes to editors:
Read the full report here.
Plastic production is the largest driver of petrochemicals, which are derived from oil and gas. Petrochemical companies are therefore key drivers of the global fossil fuel demand, as they use the derivatives of fossil fuels to primarily make plastics.
While climate risk is now under constant discussion within the ‘traditional’ fossil fuel industry, plastics executives are all too often unaware of the risks closing in on the petrochemicals sector, including increased regulation around plastic, waste and carbon emissions. ClientEarth authored a report, “Risk unwrapped”, in 2018, to demystify the issue.
According to a study by the International Energy Association, petrochemicals – components derived from oil and gas – are becoming the largest drivers of global oil demand.
In conjunction with the launch of the report, FairFin is launching a letter of complaint with which concerned Belgian citizens can address their banks about these harmful practices, and put pressure on their banks to exclude companies that are planning to expand their plastic production from their credit and investment policies.
ClientEarth, FairFin and 12 other organisations have taken legal action to stop the expansion of INEOS’ plastics project.
The environmental groups submitted an appeal against the decision to approve Project One’s permit citing the Flemish authorities’ failure to fully assess the far-reaching consequences of the project – a clear breach of EU and national laws. The appeal was submitted to the Environmental Ministry of Flanders who will decide whether or not to uphold the decision to approve the permit. If the NGOs’ appeal is rejected, the groups can challenge the decision in court. The groups’ initial legal case delayed the project by over a year – an example of the litigation and ensuing financial risk plastic projects are exposed to.
According to Ineos’s Environmental Impact Assessment for Project One, about 90% of the ethylene production worldwide is for plastic applications. According to IEEFA, approximately 63% of the global production of ethylene can be linked to the production of plastic that aligns very closely with the definition of single-use plastics.
A report by Material Economics observed that plastics operate like a slow-burn combustion system as it releases carbon emissions at each stage of its life cycle. According to the report, even with a high recycling rate of 70% (against less than 10% today), some two-thirds of the carbon would be released as CO2 to the atmosphere within 15 years.
A recent analysis by the Institute for Energy Economics and Financial Analysis (IEEFA), also shows the existential risks facing Project One. The briefing questions the viability of the project by identifying a series of weak financial conditions that it faces if it were to go ahead.
Tatiana Luján is a Colombian-qualified lawyer.
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ClientEarth is a non-profit organisation that uses the law to create systemic change that protects the Earth for – and with – its inhabitants. We are tackling climate change, protecting nature and stopping pollution, with partners and citizens around the globe. We hold industry and governments to account, and defend everyone’s right to a healthy world. From our offices in Europe, Asia and the USA we shape, implement and enforce the law, to build a future for our planet in which people and nature can thrive together.