This article was written for the Morning Star as part of the launch of WDM's Carbon Capital campaign
From offshore drilling to gas fracking, it's boom time for fossil fuels - and the City of London is at the heart of it.
Oil exploration and production requires huge reserves of cash, which first comes from selling shares and bank lending.
The London Stock Exchange provides a platform to channel investors'
money, much of it from ordinary people's pension funds and insurance
policies, to fossil fuel companies.
Shell and BP are the largest and third-largest companies in the FTSE 100, but they are far from alone.
Almost a fifth of the index is made up of companies directly involved in
extracting oil, gas or coal, while another fifth of the FTSE 100
consists of financial services companies investing in these activities.
London is also one of the world's main banking hubs, hosting the global
headquarters of HSBC and Barclays, and the European, Middle Eastern and
African operations of every leading US investment bank. Between them
they lend billions every year to fund new extraction projects.
The City of London and Canary Wharf also play host to an enormous
supporting cast of financial analysts, ratings agencies, corporate
lawyers and accountants.
And if things go wrong, Lloyd's of London is the world's biggest
insurance market, covering everything from oil leaks to the "political
risk" that extractive projects may face civil disturbances or state
To see how this plays out let's take the example of Tullow Oil, a small
company by the standards of the oil industry, but still the 40th-largest
player on the FTSE 100.
Fans of Sunderland football club might know it via Invest in Africa, a Tullow-run front charity that sponsors their shirts.
But Tullow is only really a household name in Ghana, where the company's
offshore discoveries turned oil into the number one issue in recent
As the history of nearby Nigeria's "oil curse" shows, it's mainly
foreign corporations, politicians and security firms who strike it rich
when oil is discovered, while poor people remain poor.
Production in Ghana began in 2010, and the early signs don't look good.
Against a backdrop of inadequate environmental regulations, flaring -
burning off toxic waste gases - is already widespread.
Tullow gets its funding from a mix of equity - selling shares to raise funds - debt and sales revenues.
The vast majority of its shares are held by "institutional investors."
The largest of these is BlackRock, whose 11 per cent stake in the
company is distributed across a dozen or more of its funds, which manage
money for anyone from large insurance companies to rich individuals.
Pension firms including Prudential, Legal & General and Scottish Equitable are also major shareholders.
The combined value of Tullow's shares, currently over £7 billion, is
mostly based on the company's estimates of how much oil it can extract
from drilling sites including Ghana, Uganda and Kenya.
While some of the biggest corporations issue bonds - large "I-owe-you"
slips - Tullow is typical of companies its size in agreeing a loan
package with a syndicate of lenders.
Last year it set the seal on a deal with 27 major banks, including RBS
and Lloyds TSB - in which the British government owns significant stakes
- and the World Bank's International Finance Corporation (IFC),
allowing it to borrow over £2.2bn until 2019.
Revenue from oil sales translates into large profits - £445 million
post-tax in 2011 - which are paid out to shareholders and reinvested in
further exploration and production. The oil is mostly sold as futures
ahead of actually being extracted, with Tullow using London's network of
brokers and commodity traders to find buyers, many of whom will use it
as the basis for financial speculation.
A whole host of Tullow's support services can be traced back to London's financial services industry too.
City law firm Ashurst is helping the firm to sue the Ugandan government for a £250m tax claim.
Several City insurance firms limit Tullow's liabilities in case of oil
spills. Investment banks, including Barclays, and specialists structure
"mergers and acquisitions" that free up cash for new exploration.
The City of London is a financial services hub that helps fossil fuel
companies to maximise profits and minimise accountability.
Shareholder activism can shine a spotlight on abuses, like the recent
protests at GCM Resources over its controversial coal mine planned in
But companies won't really change unless the rules governing them
change, which means we need to push the British government and the EU to
Even small measures could help, such as "publish what you pay" rules to
force extractive industries on the London Stock Exchange to disclose
their payments to foreign governments.
This could help campaigners in the global south to track unfair deals and government kickbacks.
Britain could set an example by using its board positions at the
European Investment Bank, IFC, RBS and Lloyds TSB to force through
cleaner lending policies.
It could help create an international tribunal that holds firms and
their executives accountable for any environmental and human rights
abuses they commit.
It could even take a lead in pushing the European Union to decarbonise electricity supplies and transport.
As a first step, the World Development Movement is demanding that the
government force banks, pension funds and other finance companies to
come clean on the impact of the dirty energy projects they finance.
New regulation coming into force later this year will mean these
businesses will have to disclose the carbon footprint of the lightbulbs
in their London offices, but they won't have to report on the carbon
emissions from the coal and oil projects they finance around the world.
The government must be put under pressure to start holding the finance
sector to account and to make banks disclose the carbon footprint of