ANZ, NAB, Westpac hit with AGM protest on loans expanding fossil fuels

The landmark IEA 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.

The IEA envisages no new coal mines or extensions of existing ones, no new natural gas fields beyond those already under development, and fewer liquefied natural gas facilities than are currently being built or planned.

Market Forces, an affiliate project of Friends of the Earth Australia, says this report has racheted up the bar for lenders to meet community expectations.

Major banks lending to expansionary fossil fuel projects fell by almost half in 2020 compared to the $1.6 billion lent in 2019, but Market Forces says any lending to new projects is inconsistent with pledges to support the economic transition to net zero emissions by 2050.

The group says is hypocritical for boards to commit to the Paris Agreement and net zero without ruling out funding for new or expansionary projects.

“Australia’s major banks have all committed to net-zero by 2050 but continue undermining that commitment through their financing activity,” Mr Bertolus said.

The demand on the banks come as Resources Minister and senior Nationals MP Keith Pitt called for the federal government to become a lender of last resort for the mining sector through a $250 billion loan facility if it wants Nationals’ support for net zero emissions by 2050.

Similar Market Forces resolutions lodged in 2020 with ANZ and NAB, calling for more transparency on environmental policies, received support of 28 per cent and 26 per cent at the AGMs, representing roughly a doubling of the support received in 2019 as shareholders become more concerned about banks’ failure to embrace the global push to a lower carbon world.

ANZ and Westpac have held special ESG briefings in the past fortnight. ANZ chairman Paul O’Sullivan said last month the bank’s environmental plans were the most discussed issue with its global investors.

National Australia Bank and ANZ are preparing to update fossil fuel lending policies before their AGMs in December. Westpac is planning on its next update in 2023, which Market Forces says is too long to wait.

NAB CEO Ross McEwan told a parliamentary committee last month the bank will be “measuring ourselves against” the conclusions in IEA’s Net Zero by 2050 report, which painted the need for more rapid energy transition, including limiting the development of gas, which major banks still broadly support.

“No new natural gas fields are needed in the [net zero emission scenario] beyond those already under development. Also not needed are many of the liquefied natural gas (LNG) liquefaction facilities currently under construction or at the planning stage,” the IEA report said.

The CBA board will front shareholders next week in a virtual AGM, with questions on environmental commitments dominating the meetings over recent years.

CBA’s latest “glidepaths” use the IEA’s “sustainable development scenario” (known as IEA SDS) – but this was based on getting to net zero emissions by 2070.

The IEA is now modelling using a 2050 scenario. CBA committed to “review our reference scenario within the next 12 months having regard to the availability and quality of data” but Market Forces says this is not fast enough.

The pressure puts banks in a bind given gas remains a popular fuel as economies transition to cleaner energy and governments support projects that manage a gradual and secure transition. Commodity prices are high and gas companies remain profitable customers, but lending to them now comes with risks to banks’ reputations.

For banks, climate policies are about more than ESG and are being assessed through the prism of reducing risks. APRA has been stress-testing banks during ongoing vulnerability assessments.

For banks, severe weather can damage property pledged as security for mortgages, while they could also be exposed to the loss in value of big assets that become stranded during the transition to a low-carbon economy.

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.

In terms of particular projects, all the major banks participated in a $244 million loan last November to fund Santos’s 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.

The $835 million in expansionary projects funded by the majors in 2020 will ultimately release 1.1 billion tonnes of CO2 into the atmosphere, according to Market Forces calculations.