Financing the energy sector
RBS is predominantly a deposit and lending bank. We take money in deposits and other sources and lend it in the form of loans. For the energy sector, as with other sectors, we provide loans and other banking services (such as overdraft and money transmission services) but we do not usually ‘invest’ in energy companies or take ownership stakes in them. The money we have lent to the energy sector is continually being repaid and re-lent.
The majority of our lending to the energy sector is in the form of general corporate lending, which isn’t usually tied to any specific use or project. When we provide general corporate lending, the client can make use of it in a variety of ways (for example by investing in their facilities or operations, purchasing other businesses or paying other costs). Much like the provision of a loan to a personal customer, a bank is restricted under these circumstances in stipulating how the loan is used, provided the client meets its requirements for the credit risks they represent.
As we have refocused our business on the UK, Ireland and Western Europe, we’ve also substantially reduced our lending to carbon intensive parts of the global economy such as coal mining and oil extraction. Our total exposure to the oil and gas industry, for example, now accounts for just 0.5% of our lending exposures. In 2017 we did not directly finance any new coal mining or coal power projects.
Between 2015 and 2017, RBS has continued to reduce its exposure to the energy sector as a whole. For example, RBS exposure to the power and oil & gas sectors has fallen from 1.4% to 1.2% of total lending exposures in 2017. Our exposure to coal mining companies is de minimus.
We also offer structured finance for specific energy projects in the UK, Ireland and Western Europe, where we know what the funds will be used for. These include wind farms, power stations and solar installations. This type of lending is usually done as part of a group of banks who all lend to the same project. The repayment terms of the loan tend to be more closely defined, usually involving a source of cash-flow identified at the outset (e.g. earnings from the sale of electricity), and the repayment period is generally longer, over 10 years in some cases. During 2017, lending to renewable energy projects made up 80% of our project financing. We provided more finance to solar projects (49%) than any other type of renewable energy.
RBS has a range of policies and procedures in place for the Power, Oil & Gas, and Mining & Metals sectors to ensure we assess the environmental, social and ethical risks associated with specific clients and projects. Where clients or projects don’t meet our criteria, we will withdraw our support. This means we will not, for example, provide funding to undiversified thermal coal mining companies.