Lenders are paying attention to the recent Supreme Court decision  holding bankrupt fossils responsible for cleaning up the production sites they abandon. The result may be tougher loan terms for new oil and gas projects.
Last week, Moody’s Investors Service “said the ruling could mean banks will be less willing to lend to oil and gas producers, because they may now expect to recover less of their loans if firms go belly up,” National Observer reports. “While the agency believed banks already accounted for environmental costs in their decision to issue loans,” the decision could end up shrinking the credit available to smaller fossils, Observer adds, citing a statement by Moody’s Senior Vice President David Beattie.
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Moody’s cast the decision as “credit negative for these companies and for banks,” cautioning that “for Canadian banks and other creditors, whose claims would be superseded by the need to fulfil environmental regulations, recovery rates would be reduced in the event that an oil and gas producer goes into default.”
The Canadian Bankers Association was somewhat more circumspect in its reaction to the case, having previously argued that lenders shouldn’t be held liable for fossils’ activities. “‘Polluter pays’ doesn’t mean polluter’s lender pays,” CBA lawyer Howard Gorman said  last year. “It means what it says: the polluter pays.”
Now, “the banking industry respects the Supreme Court of Canada’s decision,” CBA Director of Media Strategy Mathieu Labrèche told Observer. “The CBA intervened in this case and argued to preserve the careful balance that has been achieved over many years in bankruptcy and insolvency law, which helps to ensure that the rights of various stakeholders can be met while also helping borrowers access reasonably priced credit to sustain operations, grow, and be successful.”
In light of the ruling, “banks remain committed to working with the resource sector and are confident that they will continue supporting this vital part of Canada’s economy,” he added. At the same time, “anything that impacts the ability of a borrower to fully repay a loan must be factored into the decision about the amount and pricing of a loan.”