Over the last several months, some of the nation’s biggest banks announced they will not finance new oil and gas development in the Arctic. The new policies are the first steps by American banks to restrict lending to the oil industry, and they come after years of campaigning by environmental groups.

But a close look reveals that the policies may not amount to much at all. That’s because they generally limit only direct funding for Arctic operations, while banks rarely, if ever, provide such loans.

In fact, amid trillions of dollars in energy industry financing that advocacy groups have tracked over the last few years, not a single loan represented the type of deal that would be prohibited under the new policies.

“It’s safe to say that project financing in particular for extraction in the Arctic is very rare,” said Alison Kirsch, a researcher with Rainforest Action Network, which publishes an annual report tracking fossil fuel financing.

What’s more, drilling in the Arctic remains one of the more expensive propositions within a global oil and gas industry that has no shortage of other opportunities for growth. Even before oil prices tanked as a result of the coronavirus pandemic, oil companies were facing huge debts to banks that they’d used to fuel the fracking boom. Now, with the industry cutting spending by tens of billions of dollars as oil demand has plummeted, financial institutions may not be eager to support Arctic development for purely business reasons, leaving aside environmental concerns.

Still, advocates argue that the loan restrictions represent an important step in a campaign to end drilling in the Arctic. Ben Cushing, with the Sierra Club’s Beyond Dirty Fuels campaign, said the restrictions could make it harder for some smaller oil and gas companies operating in Alaska to secure loans. And beyond any direct impact, he said, the announcements carry symbolic value that could shape public opinion and policy.

“Having some of the world’s largest banks, having huge names on Wall Street, banks people recognize, sending a signal about what they do and don’t want to finance I think sends a really important signal to the public and to politicians,” Cushing said. 

On Monday, Politico reported that Sen. Dan Sullivan (R-Alaska) and a group of Republican senators were planning to send a letter to banks condemning the restrictions.

A spokesman for Sullivan did not immediately respond to a request for comment.

A Campaign Builds Momentum

The new bank policies—announced most recently by Citigroup and Morgan Stanley—are the culmination of years of campaigning by environmentalists and indigenous groups that began after Congress opened a portion of the Arctic National Wildlife Refuge to drilling in 2017.

“It was clear that the years- and decades-long playbook to protect the refuge was going to need to be updated,” Cushing said, “and we were going to need to focus on other targets” beyond politicians.

Together with the Gwich’in Steering Committee, which represents indigenous people who live near the refuge, the Sierra Club and other groups began talking to the banks about their concerns. They worked with pension funds, responsible investment firms and other institutional investors to build support. They attended the banks’ shareholder meetings and launched public campaigns to pressure the lenders from the outside, too.

“It’s important to recognize what this fight has meant to the Gwich’in people and the Gwich’in Steering Committee, for whom this is really a fight for their way of life,” Cushing said. The Gwich’in have for thousands of years subsisted off the caribou herd that migrates through the refuge. “It’s gratifying to see some of the largest banks in the world listening to them.”

The Gwich’in Steering Committee did not respond to calls and emails requesting comment.

A Quiet Turnaround in the Alaskan Arctic

European and Australian banks were among the first to adopt policies restricting lending, with Goldman Sachs the first American bank to announce one in December. According to Rainforest Action Network, at least 20 banks have now implemented some form of restrictions, six of which include broader corporate-wide limitations for companies operating in the Arctic.

For the banks, it may have been an easy sell.

Oil prices had stagnated after crashing in 2014, and fracking was surging in Texas, North Dakota and other states, leaving the Arctic as a side story for much of the industry. Even before the campaign, one Goldman Sachs analyst told CNBC in 2017, “We think there is almost no rationale for Arctic exploration,” noting the abundance of other, cheaper options for growth, such as U.S. shale fields.

Citigroup said in its announcement last month that it had never provided the type of project-specific financing it would now prohibit, and Wells Fargo said in its policy that it had actually halted such lending two years earlier as “part of a larger 2018 risk-based decision.”

Meanwhile, the Trump administration’s push for drilling in the Arctic refuge has stalled.

Still, apart from the controversy over the refuge, there has been a quiet turnaround in Alaska’s Arctic.

“It’s somewhat under the radar, but there’s a little bit of a boom happening in Alaska these days in the Arctic,” said Nikos Tsafos, a senior fellow at Center for Strategic and International Studies.

A series of recent discoveries outside of the controversial Arctic national refuge have ended a decades-long decline in Alaska’s oil production, to the point that the state now forecasts output will hold steady for years. It’s there, Tsafos said, that the restrictions on lending would have any impact.

The policies are unlikely to cause difficulty for a company as large as ConocoPhillips, one of the top operators in the Arctic, which can fund its drilling with cash while drawing loans for general operations. But Tsafos said it’s possible that banks could rule out lending to smaller firms that have a majority of their operations in Alaska.

While the lending restrictions certainly won’t help the state’s efforts to boost drilling, he said, it’s impossible to say what impact they might have. “It’s another thing I add on the negative scale, but it’s hard to say how negative it will be,” Tsafos said.

Reid Porter, a spokesman for the American Petroleum Institute, said in an email that Alaska represents one of the largest opportunities for new oil and gas development in the country, and he pointed to comments from Alaska’s Congressional delegation criticizing attempts to limit financing.

Cushing acknowledged that the policies may have only a limited effect on the pace of drilling in Alaska, but he said they’re an important step in a longer campaign. He pointed to policies that some of the same banks have adopted on coal, which include broader limits on financing.

“These things happen step by step. And up until now, for most of the banks, the only type of exclusion of any kind they had, even for project financing, was just for the coal sector,” Cushing said. “This is a big first step in that direction, and so these banks drawing that big red line on the oil and gas industry I think signals that this is going to be the direction of travel for them.”