Banks are two-faced when it comes to climate action: Market Forces

It says AGM pressure is warranted because the landmark International Energy Agency report Net zero by 2050, released in May, said there should be “no investment in new fossil fuel supply projects” if the world is to hit its climate targets.

After the OECD last week warned Australia to massively accelerate the pace of its decarbonisation efforts, ANZ chairman Paul O’Sullivan told the bank’s ESG briefing investors are ramping up pressure to curb fossil fuel lending further.

It is very clear from the analysis that banks are not acting consistently with their climate commitments.

— Jack Bertolus, Australian campaigns co-ordinator, Market Forces

Westpac CEO Peter King will conduct an ESG briefing on Tuesday afternoon.

Market Forces’ analysis shows total fossil fuel lending by the majors rose by 18 per cent in 2020 to $8.9 billion. Commonwealth Bank and Westpac reduced the size of their overall exposures but ANZ and National Australia bank increased theirs.

Banks are withdrawing from coal funding faster than gas and much of the new lending has been to major gas projects, a fossil fuel that is less carbon-intensive than coal and is considered by some as a transition fuel that will ultimately lead to lower emissions. But gas is still responsible for carbon dioxide emissions.

“It is very clear from the analysis that banks are not acting consistently with their climate commitments,” said Jack Bertolus, Australian campaigns co-ordinator at Market Forces.

“They have all committed to the Paris Agreement, they have all committed to net zero, and it’s been hammered home by the release of the IEA net zero report that it is clear there can be no new fossil fuel supply projects if we are to achieve net zero by 2050.

“And yet banks are all continuing to pump billions of dollars into companies expanding the scale of the fossil fuel industry and into new fossil fuel projects that are totally incompatible with net zero by 2050.”

Updating policies

ANZ lent $3.17 billion across 28 deals to fossil fuels companies in 2020, up from $1.98 billion across 22 deals in 2019; while NAB lent $2.29 billion across 31 deals in 2020, up from $1.98 billion in 2019.

The lift at ANZ was propelled by its co-arrangement of a $US400 million ($550 million) loan to Udenna Corp for the acquisition of a stake in the Malampaya gas field off Palawan, Philippines. ANZ also participated in loans totalling $965 million to CLP Power for the Hong Kong Offshore LNG Terminal Project.

NAB provided a $129 million loan to Canada’s Coastal Gaslink Pipeline project in April 2020 and a $110 million loan to Whitehaven Coal in February 2020, according to the group.

Both NAB and ANZ are in the process of updating their fossil fuel lending policies, which could be released ahead of their end-of-year AGMs.

All of the major banks participated in a $244 million loan last November to fund Santos’ share of the Barossa offshore gas field 300 kilometres north of Darwin, a project Market Forces calculates will release 401 million tonnes of CO2 over its lifetime, or 80 per cent of Australia’s total annual emissions.

ANZ and Westpac have supported the Ichthys LNG project, which will emit 1.1 billion tonnes of CO2, or twice Australia’s annual emissions.

Since 2016, the month after 200 nations signed the Paris Agreement, CBA has been the biggest lender to expansionary projects with $3.1 billion of loans to projects that will release 5.8 billion tonnes of CO2, followed by ANZ at $2.5 billion (with 4.6 billion tonnes of CO2 emissions); NAB at $1.5 billion (3.6 billion tonnes); and Westpac’s $861 million (2.3 billion tonnes of CO2). The big banks have lent $44.4 billion to fossil fuel projects since 2016, including $9.3 billion to 17 Australian companies pursuing new and expanded projects.

NAB CEO Ross McEwan has suggested NAB would take a tougher stance than Commonwealth Bank, which modelled its latest “glidepaths” to reduce fossil fuel lending on a scenario of getting to net zero by 2070. NAB had previously said it was “taking into account” the May IEA report, but Mr McEwan told the House of Representatives economics committee this month it will be “measuring ourselves against” the latest IEA conclusions.

With all the banks touting higher lending to renewable energy, Market Forces found that all still lend more to fossil fuels than renewables and since 2016 the big four banks loaned nearly three times as much to fossil fuels than renewable energy.

ANZ has the highest ratio of fossil fuel to renewables lending, $6.20 to $1, according to the analysis. Commonwealth Bank lends $3.63 to fossil fuels for every $1 lent to renewables, while Westpac’s ratio is $2.93 to $1 and National Australia Bank lends $1.46 to fossil fuels for every $1 to renewables.

UN climate summit

The Market Forces report was using global media and resources project information services, including IJGlobal, along with releases on fundraisings made by various law firms and investment banks. This is the fourth year it has done the analysis.

As the world prepares to meet in Glasgow for November’s UN climate summit, the Australian Prudential Regulation Authority is stress testing bank exposures to climate risks and said this month it wants banks to “build a comprehensive understanding of their climate risk exposure”.

The Reserve Bank of Australia last week pointed to lower coal exports and the prospect of stranded coal assets as global appetite for coal tapers off from 2030.

“Current coal reserves at operating Australian mines notably exceed projected export demand to 2050 under the net zero and below 2°C scenarios; this suggests there is potential for ‘stranding’ even if there is no investment into new mines,” the RBA said in a research paper.

Nevertheless, pulling back from project financing of some fossil fuel projects provides a dilemma for banks, given the government wants to see the energy transition managed gradually and as strong commodity prices are expected to lift company profits in much of the natural resources despite the ESG headwinds.

Banks have said they don’t want to cut and run from corporate customers and are working with large emitters to help their clean economy transition plans. ANZ CEO Shayne Elliott said at the ESG briefing last Thursday it might be better to be a lender to a fossil fuel company with a strong transition plan than a non-fossil fuel company which nevertheless was an emitter without a plan.

But Mr Bertolus said the issue was consistency with commitments to meet net zero by 2050. “The most basic step and first hurdle is if you are going to be making those sorts of climate commitments, it is abundantly clear there is no room for new projects,” he said. “So, it seems like the most obvious first step is to rule that out. But none of the banks have done that – they have gone the other way.”

Correction: An earlier version of this story said ANZ’s lending had resulted in 6 billion tonnes of CO2 emissions, rather than 4.6 billion tonnes, while CBA was said to have lent to projects emitting 4.6 billion tonnes, instead of 5.8 billion tonnes. Market Forces inadvertently swapped the emissions values but has updated its website to reflect these correct values.