By Iain Withers and Simon Jessop
LONDON (Reuters) -British bank NatWest said on Thursday it would immediately stop all reserve-based lending for new customers financing oil and gas exploration and extraction, before phasing it out entirely by the end of 2025.
The lender's commitment comes as financial firms face greater pressure from policymakers and investors to reduce the scale of climate-damaging carbon emissions linked to their finance.
Rival Lloyds has already pulled back from new lending tied to the value of oil and gas in some projects. The NatWest move would see the bank pull all such credit to those expanding production, something most major oil firms are planning to do.
A NatWest spokesperson said the bank would still honour reserve-based lending contracts entered by existing customers before the end of 2025 until they expire.
Climate campaigners said the move represented progress but voiced concern at the delay.
"[The] decision to wait three years before implementing its policy is at odds with the urgency of the climate crisis," said Tony Burdon, chief executive of climate campaign group Make My Money Matter.
While only a small player in energy lending, NatWest - part-owned by the British government - is still the country's biggest business bank, and retains exposure to companies operating in Western Europe and the North Sea.
Smaller oil and gas producers rely heavily on reserve-based lending facilities, which provide a line of credit based on oil and gas reserves.
NatWest did not say how much reserve-based lending it did in the sector, but its overall exposure to oil and gas businesses was 3.3 billion pounds in 2021, based on its climate disclosures, including 1.7 billion pounds of lending.
"I hope this sends a strong signal that we are serious about ending the most harmful activity whilst financing the transition [to net-zero]," NatWest CEO Alison Rose said on Thursday.
The bank also announced it would provide at least 10 billion pounds of lending to the most energy-efficient homes - with grade A or B energy performance certificates - by the end of 2025.
Rose has made limiting the lender's impact on the climate a key part of her strategy, including existing goals to halve the climate impact of its financing activity by 2030.
The bank is set to launch its first climate transition plan - commitments to move to a net-zero economy - next week, alongside its full-year results.
Regulators have stepped up scrutiny of banks' actions on climate, with the Bank of England warning last year lenders that failed to manage the risks could face a 10-15% hit to annual profits and higher capital demands.
(Reporting by Iain Withers and Simon Jessop, Additional reporting by Shadia Nasralla and Ron Bousso; Editing by Bernadette Baum, Jane Merriman and Deepa Babington)