Royal Bank of Scotland: Profits threatened by fossil fuel financing

As the Royal Bank of Scotland (RBS) prepares to announce its interim 6-month profits on Friday, NGOs such as Friends of the Earth and People & Planet warn that the bank’s financing of oil & gas projects may threaten current & future profit margins. Calculations indicate that the bank is carrying unaccounted for current carbon liabilities of up to almost £1 billion, over 20% of the bank’s interim profits. According to a study, in 2006, RBS’ estimated embedded emissions resulting from loans to oil & gas extraction totaled over 43.7 million tonnes carbon dioxide. If costed according to a social price calculated by Sir Nicholas Stern, these carbon liabilities add up to £940m over six months - equivalent to over 20% of RBS’ expected interim profits. Even at the EU’s carbon trading figure – generally recognised as lower than the real cost of carbon, due to overly generous permit allocations - internalising these costs would set RBS back £598m per year.

The bank’s forays into conflict areas bring further risks. RBS is working to source financing for a $6bn gas project in the Niger Delta involving Shell. The Olokola LNG project threatens to displace local communities and cause conflict. The largest rebel group in the Niger Delta, the Movement for the Emancipation of the Niger Delta, has threatened, “It is inconceivable that … they can be protected from our ability to sabotage the Olokola facility. We will test the integrity of that protective measure.”

RBS’ insurance divisions have been particularly hard hit by the recent extreme weather events and floods that hit England, widely associated with climate change, could bring £300 million of claims to Direct Line & Churchill, through which RBS controls 16% of the home loans market. Mika Minio-Paluello from Platform said “Unless the bank begins to recognise its climate responsibility and take its carbon liabilities seriously, shareholders may be in for a revenue shock in the future. On its current course, RBS faces a double whammy – greater insurance losses as a result of climate change; and higher costs should Governments impose financial charges to reduce climate changing emissions.”