Following the money behind Amazon oil development

Welcome back. For today’s edition we’ve teamed up with the non-profit Bureau of Investigative Journalism to bring you a tale that links a fragile Amazonian ecosystem with the corridors of European high finance.

An investigation by TBIJ’s Nimra Shahid and Robert Soutar found that Santander and HSBC worked on a transaction by Peru’s national oil company that casts a harsh light on the banks’ policies around protecting nature.

Read on for my analysis, and check out Nimra’s and Robert’s full report here. — Simon Mundy

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Banks’ biodiversity pledges put to the test

When Peru’s state oil company issued $1bn of bonds in 2021, the prospectus for the securities included some troubling details about its operations in the Amazon region.

In just the past eight years, Petroperú warned investors, there had been 53 separate leakage events from its Norperuano pipeline — a central part of its business that runs through the Amazon region of northern Peru, bringing crude oil towards its Talara refinery on the Pacific coast.

“Approximately 20,095 barrels of crude have been released into surrounding areas because of pumping activities in the Norperuano pipeline,” the company estimated, going on to describe fierce opposition to oil production by local indigenous communities.

Such warnings should give pause to any financier — especially those with clear policies against supporting investment that threatens fragile ecosystems. Banks with such policies include two that worked on Petroperú’s 2021 bond offering: Santander and HSBC.

An investigation by The Bureau of Investigative Journalism found that both banks worked on this transaction despite having policies in place restricting their support for investments that threaten vulnerable Ramsar sites. This refers to wetlands of international importance, as designated under the 1971 Ramsar Convention.

The world’s 2,500 Ramsar sites include the Pastaza river complex, the largest wetland in the Peruvian Amazon — and Petroperú’s leaky Norperuano pipeline runs right through it.

In 2019, Santander had published a policy ruling out support for “projects or activities in recognised Ramsar sites”.

Back in 2014, HSBC had published a policy stating that it would not “knowingly provide financial services directly supporting projects which threaten the special characteristics of Unesco World Heritage Sites or Ramsar Wetlands”.

A 2020 update of HSBC’s policy was slightly tougher, removing the word “knowingly” from the above sentence.

Both banks said they could not comment on specific client relationships, while Petroperú did not respond to a request for comment.

Santander provided this statement:

“We understand fully the importance of protecting the Amazon and supporting sustainable development in the region. While we cannot comment on specific clients or transactions, all financing decisions are guided by a strict policy framework approved by our board of directors. We are also actively involved in several industry initiatives to protect the region and work proactively with clients, as well as other banks, governments and regulators to help improve practices, recognising this is a highly complex challenge that requires a multi-faceted, multilateral response.”

HSBC said:

“We are committed to supporting a just transition in developing markets and are, therefore, engaging with clients on their transition plans and operating models. Our work with clients is in line with our policies which include specific standards for environmental and human rights considerations. Our 2022 energy policy has restrictions around activities in environmentally and socially critical areas, including the Amazon biome.”

Neither, then, directly addressed the question of whether their work on this bond issuance violated their policies on Ramsar wetlands. If they were to do so, they would probably point to the “use of proceeds” section of the bond prospectus.

While the Norperuano pipeline and future increases to Amazon oil production feature prominently in the prospectus as a whole, this short section of it states that the proceeds of the 2021 bond issuance will go towards the modernisation of the Talara refinery.

That project — one of the biggest undertaken by the Peruvian government in recent years — has been aimed at increasing the refinery’s output by 46 per cent (as well as producing less polluting fuels with lower sulphur content). If Petroperú’s wider strategy comes to fruition, much of the additional crude to be processed will come from oilfields in the Amazon, passing through the Norperuano pipeline — and through the protected Ramsar site around the Pastaza river. It would seem bold, then, for Santander or HSBC to argue that the Talara capacity expansion poses no risk to the Pastaza river complex.

While some readers may think these two banks have made a mockery of their respective green pledges, others may consider it harsh to focus on them simply because they’ve bothered to adopt such policies. They are hardly alone in providing financial services to Amazon oil producers. A report last year by the non-profit Stand.earth found that eight banks accounted for 55 per cent of the $20bn in financing for Amazon oil and gas projects since 2009: JPMorgan was the biggest contributor, followed by Citi, Itaú, HSBC, Santander, Bank of America, Bradesco and Goldman Sachs.

But the biodiversity of the Pastaza basin is only one reason to worry about Petroperú’s plans to scale up its Amazon oil operations. Another is the welfare of the people who live there. Indigenous groups including the Achuar and Wampis peoples have fought long-running campaigns to restrict oil production in their region; in 2022 community members travelled to the US to lobby banks to cut ties with Petroperú.

This local opposition has hampered Petroperú’s plans to start producing crude from two large blocks in the Amazon. Its struggles are bad news for investors in its 2021 bond issuance. This month, Peruvian finance minister Alex Contreras was forced to promise emergency financial assistance for the company, which could otherwise be unable to meet payments to bondholders.

For many banks — now perhaps including Santander and HSBC — support for Amazon oil development must look like much more trouble than it is worth. (Written by Simon Mundy; reporting by Nimra Shahid, Robert Soutar and Simon Mundy)

Smart read

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