Several European banks have been forced to stop financing the trade of oil from Ecuador’s Amazon basin following environmental and social issues. As banks align their activities with the Paris Agreement, the reputational risk of ESG failings is no longer acceptable.
Ecuador is Latin America’s fifth largest oil producer, extracting approximately half a million barrels per day. Like its southern neighbour, Peru, most of Ecuador’s operational oilfields and infrastructure is in Ecuador’s portion of the Amazon basin. The region is inhabited by many indigenous communities who have become increasingly frustrated by the policies of Ecuador’s national government and the conduct of the petroleum industry.
An expert on Community relations in the Amazon explains, “Oil production in Ecuador started in the late 1960s so the people have seen the devastation it has brought to the environment, their culture and resources. Also the promises of governments and companies have repeatedly fallen short.”
“Oil production in Ecuador started in the late 1960s so the people have seen the devastation it has brought to the environment, their culture and resources.”
Expert, Amazon community relations, Ecuador
Additionally, last year Ecuador experienced what was described as its worst oil spill in at least a decade. Mudslides during April 2020 ruptured two pipelines carrying a combined 800,000 barrels a day from the Amazonian oilfields to the Pacific coast port city of Esmeraldas. The incident caused an estimated 12,000 to 15,000 barrels of crude oil to be discharged into the Coca river. Alarmingly, reports from six months after the spill claim that the spills have not been adequately cleaned up.
In August 2020, ING, Credit Suisse, Natixis, BNP Paribas, UBS and Rabobank were accused of double standards by indigenous groups in Ecuador after a report published by Stand.earth and Amazon Watch highlighted the banks’ commitment to action against climate change in contrast to their role in financing the trade in oil from the Amazon.
The Head of Climate and Finance at Amazon Watch explains that they are not just focusing on the trade financing activities but also corporate finance activities from those same banks and other American banks, “We traced the corporate financing for those oil drilling companies in the Amazon like Geopark, Andes Petroleum and Amerisur and found that some of the largest US banks are funding them through equity investment or underwriting and bond holding of those companies, so we chased Goldman Sachs, Citigroup, HSBC (in the UK) and we’re also looking at their holdings.”
Credit Suisse initially claimed that the issues raised in the report were not in breach of its lending policies on environmental or social risk. Similarly, BNP’s initial response was to call the report “opaque”.
Fast forward just a few months and in December, BNP Paribas stopped trading exports of oil from Ecuador’s Esmeraldas region citing its environmental finance policies. Additionally, last week Credit Suisse and ING followed suit expressing concerns over climate change, the Amazon rainforest and its indigenous people.
Our source at Amazon Watch believes this signals that financial flows will be moving away from ‘toxic’ projects and companies operating in the Amazon as many banks are tightening their ESG policies and various stakeholders will hold them to account. “We think this is just the start and while US banks may not change their positions in the coming months, they will in the medium-term.”
“We think this is just the start and while US banks may not change their positions in the coming months, they will in the medium-term.”
Executive, Amazon Watch
Separately, in December 2020, Ecuador’s indigenous Waorani filed a lawsuit alleging PetroOriental (a subsidiary of China’s state-owned China National Petroleum Corporation), had been flaring and venting natural gas in the Amazonian Orellana. The Waorani assert PetroOriental’s activities are contaminating the surrounding land, rainfall, and water sources.
While Petroecuador seems to have downplayed the latests developments in their recent press release, there are multiple suits underway against their environmental standards too.