In February, Danske Bank revised its Position Statement on Fossil Fuels, extending it to include the Group’s investment strategies. One year after adopting an ambitious exclusion policy for oil & gas companies involved in exploration and production development, this is another necessary step towards achieving net-zero emissions in its lending and investment portfolios by 2050.

In this blog we point out some of the positive elements of this new policy and some gaps that risk undermining its ambition. 

Good practice disclosure of data on the policy’s impact 

In Danske Bank’s press release accompanying the new policy, the bank states that, while its previous fossil fuel restriction covered around 15% of all assets under management, the new policy will cover an additional 70% of total assets, and will lead to “a significant reduction in the number of companies involved with fossil fuels in its investment universe, from almost 1900 to around 170”. Such concrete data about the impact of new policy developments is rare and useful practice which other banks would do well to follow.

The bank should insist on short timescales for “aligning” to net zero

Under the new policy, Danske Bank will only invest on behalf of its customers in fossil fuel companies that it considers “aligned” or “aligning” towards its recently published Net-Zero Pathway Framework (NZPF). (1) Those that are considered “aligning” are subject to time-bound engagement. 

While the bank indicates that it will “setup time-bound engagement objectives” for each company, this approach could undermine the overall ambition of the new policy, particularly as the bank is unclear on the timescales for this engagement. Danske Bank should make public the deadline for “aligning” fossil fuel companies to become “aligned”, and make sure these timescales are consistent with a 1.5ºC scenario. 

New asset management restrictions are weaker than existing lending commitments

In addition to the lack of timescales for these “aligning” customers, there are a couple of problematic inconsistencies between the bank’s new asset management commitments and the lending commitments it introduced a year ago. 

In its lending activity, Danske Bank will only provide financing services to fossil fuel companies with “a commitment to not expand supply of oil and gas beyond that which was approved for development by 31 December 2021”. However, in its asset management, the bank will not invest in upstream oil and gas companies “that have IEA NZE expansion overshoot >5%” (i.e. companies that develop resources that would exceed by more than 5% the level of oil & gas demand modelled by the International Energy Agency (IEA) in its 1.5ºC aligned Net Zero Emissions (NZE) roadmap for 2050.) 

Here, the bank’s lending policy is well aligned with the NZE Roadmap, which sets out that new oil and gas projects are not needed. However, the new investment commitment falls short of this. Danske Bank should not invest in companies developing new oil and gas projects, independently of their IEA NZE expansion overshoot.

Further, the new criteria for asset management only apply to upstream oil and gas companies with fossil fuel expansion activities costing “at least USD 5 million after 2021”. However, this is also clearly inconsistent with the NZE Roadmap. Danske Bank should assess as “not-aligned” any upstream O&G companies with expansion activities, independently of their cost. Red lines should be drawn for companies expanding oil and gas, without exceptions. 

Aligning with a net-zero pathway must mean no expansion!

Danske Bank’s new policy also allows some companies to be assessed as “aligning” to a net-zero pathway, even when they are expanding extraction or have IEA NZE expansion overshoot over 5%, provided they are assessed as having “the highest management quality criteria”,(2) with reference to the Transition Pathway Initiative (TPI)’s assessment.

Under the TPI’s assessment criteria (now in a beta version), 12 oil and gas companies will be ranked with this highest level of management quality.(3) Of these 12 companies, 10 are included in Urgewald’s 2023 list of Oil and Gas companies building a bridge to climate chaos (GOGEL), including Eni and Repsol. 

The fact that Danske Bank could assess these companies as “Aligning” to a net zero pathway” is inexplicable when Urgewald’s GOGEL clearly demonstrates that these companies are still developing O&G projects that are clearly incompatible with the IEA NZE Roadmap. For example, on exploration, ENI’s strategic plan 2023-2026 anticipates “2.2 billion barrels of oil equivalent of new resources in the 4-year Plan, of which 60% gas”. And Repsol plans to “deploy 2.2 billion euros in unconventional” oil and gas in 2024-2027. 

We urge Danske Bank to ensure it does not consider any oil and gas company with expansion plans as “aligning” to a net zero pathway.

Renewable energy finance should contribute to the energy transition

In line with the Paris Agreement, there should be no finance for companies developing new fossil fuel projects, without exceptions. In accordance with this, it is positive that Danske Bank has adopted additional criteria, under which even companies that have more than 50% renewable energy capacity cannot be assessed as “aligning towards net zero” if they are linked to expansion or IEA NZE overshoot. 

This approach is needed to ensure that renewable energy financing concretely contributes to the energy transition. Companies that develop renewable energy and fossil fuel expansion projects at the same time are not transitioning. BankTrack supports Beyond Fossil Fuels’ advocacy for the 6:1 sustainable power supply to fossil fuel financing ratio by 2030, which means that for every euro spent on fossil fuels,(4) six should be spent on sustainable energy supply.

A significant step forward, but not yet fully aligned with the science

In summary, despite inconsistencies between its lending and investment commitments, Danske Bank’s new policy is a significant step forward and demonstrates climate ambition. However, to strengthen its policy and ensure it is fully aligned with 1.5 degrees, Danske Bank should not invest in oil and gas companies with expansion plans approved for development after 2021, without exceptions. It should also set a public deadline for “aligning” fossil fuel companies to become “aligned” with the net-zero pathway and set a science-aligned date to become a completely fossil free bank. To conclude, Danske Bank’s new statement confirms that the bank is a climate leader within the banking sector, but some elements should be removed as they could undermine its overall ambition.

BankTrack contacted Danske Bank for a response before publication of this article. The bank provided the following statement: "Danske Bank believes its crucial to utilise time-bound engagements with companies that are aligning, but are not yet fully aligned, to a net zero pathway, to drive positive impact. Excluding such companies would limit our ability to support the green transition".

Notes:

(1) The scope of Danske Bank’s investment position is defined in its Position Statement here.

(2) Transition Pathway Initiative, TPI’s methodology report, November 2023: “Management Quality describes companies’ carbon management practices and governance, in other words their governance of greenhouse gas emissions and the risks and opportunities arising from the low carbon transition”. The highest management level “Transition Planning and Implementation" means that “the company uses its strategic understanding of climate and transition risk/opportunity to create a detailed and actionable transition plan which aligns business practices and capital expenditure decisions with their decarbonisation goals.”

(3) TPI online tool, Oil & Gas sector, BETA (V5.0). Oil & gas companies with a level 5 ranking in management quality are: BP, Canadian Natural Resources, Eni, Formosa Petrochemicals, Galp Energia, Hess, INPEX, Neste, Repsol, Sasol (Oil & Gas), Suncor Energy and Woodside Petroleum. The TPI online tool also comprises a separate carbon performance component, in addition to the management quality scores. Through these carbon performance assessments, TPI quantitatively benchmarks companies’ carbon emissions against international climate targets made as part of the 2015 UN Paris Agreement, including a 1.5° scenario. Even based on such assessments, none of the above companies can be considered fully aligned with a 1.5° scenario.

(4) The IEA NZE indicates that “Even with the ambitious and rapid clean energy transition in the NZE Scenario, some elements of fossil fuel infrastructure continue to contribute to the secure operation of the overall energy system for many years to come.”