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ClientEarth warns 10 top banks to stop financing Saudi Aramco, or face potential legal action

By Farah Khalique
Image via Mercury Bloomberg

Environmental campaign group ClientEarth has threatened potential legal action against 10 global banks unless they stop financing Saudi Aramco – the world’s biggest corporate emitter of greenhouse gases.

ClientEarth, chaired by former City investment banker Howard Covington, sent letters last month to leaders at JP Morgan, Goldman Sachs, Morgan Stanley, Citibank, HSBC, BNP Paribas, Société Générale, Crédit Agricole, Mizuho and SMBC in Japan. 

The group wrote: “Your bank must immediately put in place and implement a policy that it will no longer provide on- or off-balance sheet services relating to projects, or to companies involved in projects, that involve new exploration, expansion or development of fossil fuels.”

ClientEarth targeted senior figures including CEOs, chief risk officers, heads of compliance and chief legal officers in its correspondence. It is understood that one bank has responded, offering to discuss the contents of the letter in the New Year.

Building blocks for potential legal action

The development follows a warning from the UN in August that financiers of Saudi Aramco could be violating international law. 

A spokesperson for ClientEarth told Banking Risk & Regulation: “We expect the UN communications regarding Saudi Aramco and its financial backers published in the summer to serve as building blocks for potential legal action.”

ClientEarth climate lawyer Alex Lombos adds: “Certain banks are financing clients engaged in fossil fuel expansion, such as Saudi Aramco, in a manner which may be contrary to human rights laws. If this continues, ClientEarth cannot rule out future litigation against those entities.”

In a 2021 legal complaint, ClientEarth accused the world’s biggest oil producer of the largest ever climate-related breach of international human rights law by a business. The Saudi Arabian government, the majority-owner of Saudi Aramco, strongly opposed phasing out fossil fuels at COP28 in 2023.

Legal experts have warned that banks face a “wave of human-rights litigation” when a new EU directive is adopted in 2024. The Corporate Sustainability Due Diligence Directive is controversial, with many member states pushing for banks to be exempt. 

Shirley Pouget, a lawyer at DLA Piper, said told Banking Risk & Regulation in September: “Even if the financial sector ends up being largely excluded from the scope of the CSDDD, a wave of human rights related litigation [related to banks] is to be expected.”

In its recent correspondence, ClientEarth warned the 10 banks that their involvement with “adverse climate-related human rights impacts” leaves them exposed to material, reputational and legal risks, including litigation risk. 

“Such risks will become more severe over time and could expose the bank to significant financial liabilities, in particular as climate-induced human suffering increases, systemic climate-related financial risks crystallise, and/or human rights impacts-focused climate litigation proliferates.”

What are ClientEarth’s red lines?

ClientEarth’s demands include the banks setting out “red lines” including bans on exploration, expansion or development of fossil fuels. A spokesperson says: “Our letters explicitly set out the litigation risk facing the banks if they continue to fail to exercise leverage, or responsibly terminate the business relationship with Aramco and other such clients failing to transition their businesses into alignment with the Paris Agreement.”

The not-for-profit group, which employs more than 250 people and operates in 69 countries, was founded in 2006 by environmentalist James Thornton. 

It has had mixed success — earlier this year, it won a case against the UK government over its net-zero strategy, but also lost its high court fight against Shell over its climate strategy.

ClientEarth’s message to 10 leading banks

  • Commit to stop funding projects that involve “new exploration, expansion or development of fossil fuels, in line with the International Energy Agency’s Net Zero Roadmap”. 
  • Set out red lines for clients that include the first commitment
  • Force fossil fuel-intensive clients to publish Scope 1, 2 and 3 emissions data and detailed Paris-aligned transition plans by the end of June 2024
  • Cut funding to companies that refuse to comply or make insufficient progress
  • Clearly communicate these commitments and the consequences of non-compliance

Source: ClientEarth

Saudi Aramco,
JP Morgan, Citibank, Goldman Sachs and HSBC declined to comment; Morgan Stanley, BNP Paribas and Crédit Agricole did not respond to a request for comment.

Société Générale would not comment on the letter but a spokesperson said it “strives to take a constructive attitude when engaging in dialogue with its stakeholders”. SMBC also would not comment on the letter but said it “will continue working to strengthen its efforts to respond to climate change and fulfill its responsibility to respect human rights in order to contribute to realization of a sustainable society.”

Mizuho declined to comment on the letter but a spokesperson said that “addressing environmental issues and climate change is one of our most important corporate priorities, and respecting human rights is fundamental to our corporate philosophy.”

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