US aims to put pressure on banks to keep up fossil fuel lending

US banks that decide to stop lending to fossil fuel businesses could face penalties unless they can demonstrate they are doing so because of purely financial concerns, under a new rule proposed by the outgoing Trump administration.

The Office of the Comptroller of the Currency said its rule would require banks to offer services equitably based on impartial risk analysis, rather than for political reasons.

The banking regulator’s move is the latest in a series of administration attempts to push back against the advancing ESG movement, which argues environmental, social and governance factors should be taken into account in investment decisions.

The rule stems in part from complaints by Alaskan politicians who said banks’ decisions to stop lending to new oil and gas projects in the Arctic have been hurting the local economy.

In the past 12 months, banks including Goldman Sachs, JPMorgan Chase, TD Bank and Deutsche Bank have said they will no longer finance new drilling projects in the region, according to the Sierra Club, an environmental advocacy group.

“It is one thing for a bank not to lend to oil companies because it lacks the expertise to value or manage the associated collateral rights,” the OCC said on Friday. “It is another for a bank to make that decision because it believes the United States should abide by the standards set in an international climate treaty.”

Banks have come under pressure to stop doing business with organisations involved in politically controversial but lawful businesses — from energy companies, to gunmakers, to private prison operators, to family planning clinics — in recent years, the OCC said. But all “are entitled to fair access to financial services under the law”.

Its proposal applies to US and international banks with $100bn or more in assets. 

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The OCC’s proposal will be open to public comment until January 4, leaving a small window for it to be finalised before President-elect Joe Biden’s term starts on January 20. The OCC’s head can be removed by the president.

The current comptroller, Brian Brooks, is serving in an acting role, and President Donald Trump this week proposed to nominate him to the Senate for confirmation.

“There is a chance” that the OCC proposal could be finalised before Mr Biden takes office, said Graham Steele, a former Senate banking committee aide who is now at the Stanford Graduate School of Business. “They are trying.”

Last month, the Labor Department adopted new rules governing retirement savings plans aimed at discouraging the use of funds that take ESG considerations into account, although the final rules were weaker than those originally proposed earlier in the year.