Largest Bank In Australia Tells Fossil Fuel Industry: No $$$$$ For You If You Don’t Behave! – CleanTechnica

Sign up for daily news updates from CleanTechnica on email. Or follow us on Google News!

---

The Commonwealth Bank of Australia, that country’s largest mortgage lender, is the first major Australian bank to start walking away from funding fossil fuel companies that do not have realistic emissions reduction plans, the Australian Broadcasting Company reports.

In its latest climate report, the Commonwealth Bank of Australia (CBA) stated that it had already been ditching clients not aligned with the Paris Agreement. The real world impact of the bank’s new policy could be put to the test as soon as next week, when a major methane loan is set to be approved without participation by CBA. Last year, the bank announced that beginning in 2025 it would not provide loans to any coal, oil, or methane companies that did not have a transition plan in place that aligns with the objectives of the 2015 Paris climate accords. This week’s report shows that it is applying that policy early.

The bank’s loans to fossil fuel companies decreased by 92% from 2018 to 2022 — from $4 billion to $267 million — according to analysis from Market Forces, a group that campaigns against investments in environmentally destructive projects. CBA has also halved its exposure to oil and methane companies in the past two years from $3.3 billion in 2022 to $1.7 billion today.

The bank’s new lending rules are a major win for the climate movement and groups such as Market Forces, which have targeted lenders who finance fossil fuel operations for years. “This announcement is massive for the domestic banking sector,” Morgan Pickett, a bank analyst at Market Forces, said. “CommBank is the biggest bank in Australia. They’re the biggest company on the ASX [Australian Stock Exchange]. For them to say ‘we’re not banking companies that aren’t compatible with a safe climate’ will be a really big signal to the rest of the market, not just the banks.”

Fossil Fuel Lending

Court cases, policies, protests, and shareholder climate activism have been ratcheting up the pressure on banks like CBA for years. If a bank commits to the Paris Agreement, but keeps investing in fossil fuels, it exposes itself to legal action. CBA was been sued twice by the same two shareholders over its climate risk policies and investments in fossil fuels. Climate change also presents a major risk for banks. As climate-related disasters increase, they are exposed through the homes covered by their mortgages. “To help us effectively manage our climate risks, we monitor the impact of weather events and natural disasters on our business and customers, including in our home lending portfolio,” CBA’s climate report stated. It calculated that it has about $30 billion in home loans exposed to high physical risks like cyclones, floods, and fires.

Cassandra Williams from the Climateworks Center at Monash University told ABC the world is moving away from fossil fuels, so they are increasingly uncertain investments. “Climate brings with it both risks from a stranded asset point of view, but also tremendous opportunities that can have a bottom line effect on both your company and your investment returns. The writing’s on the wall. Companies that move the quickest and approach climate as an opportunity, future-proof themselves for a net zero economy, and will stand to gain. This just makes good commercial sense,” she said. “What we’ve seen now is one of the big four making the move. CBA is leading the charge, and we’re really excited to see the other banks, ANZ, Westpac, NAB and Macquarie, what they’ll do next.”

Transition Plans

At the core of CBA’s climate strategy are what are known in the corporate world as transition plans. These comprehensive documents outline exactly how a business is going to bring down its emissions in line with what science says is needed to avert the worst effects of climate change. According to an analysis by the International Energy Agency, the world must not approve any new oil, coal, and gas projects to keep within those goals. “The science is clear. There’s enough fossil fuel infrastructure already in existence,” Morgan Pickett of Market Forces said. Commonwealth Bank uses independent assessors to check the transition plans of its fossil fuel clients, and if they do not meet the bank’s criteria, it will not loan to them.

Cassandra Williams says what is considered a robust transition plan is becoming a global issue and is turning the heat up on companies. “Making sure that transition plans are credible will be critical in this piece, and particularly from a ‘greenwashing’ and a ‘greenhushing’ perspective,” she said. “This ups the ante for banks, but also for companies … because otherwise your funding — your capital lifeline — might be cut off.”

Other Australian Banks Affected

Another part of a company’s transition plan that will come under scrutiny is the emissions that it covers. CBA required Scope three emissions to be included in the reports. These are the emissions that come from the products the company produces, such as the emissions from methane that is exported and consumed in other countries. Woodside, a major methane company, was stunned recently when its transition plan was rejected by its own shareholders, highlighting the increased scrutiny that companies are under.

CBA has put itself ahead of the other major banks in Australia, but there is movement in this space. Westpac has asked clients to have a credible transition plan in place by September 2025. ANZ told the ABC it is “supporting the energy sector to transition to net zero.” It said its financed emissions for “oil and gas and thermal coal sectors, have reduced by 25 per cent, 30 per cent and 96 per cent respectively, between 2020 and 2023.” The bank also said it wasn’t surprised to be included in the analysis by Market Forces as the largest domestic lender to Australia’s energy sector.

The National Australia Bank (NAB) released a statement this week saying it capped its oil and gas exposure at US$2.28 billion ($3.48 billion) and no longer loans money to thermal coal, the kind used for electricity. Its climate report, however, only says that NAB “intends to require a transition plan” from fossil fuel clients by October, 2025 and makes no commitment about what will happen if the transition plan doesn’t hold up to scrutiny.

“Every dollar that goes into the fossil fuel industry and enables expansion is one dollar that could be going towards a green energy transition,” Picket said. “If you’re providing a fossil fuel expander with money, even if it’s not clearly outlined that it’s for [an] expansion project, it still frees up capital within that business to deploy on new and expanded projects which aren’t compatible with the safe climate.”

Fossil Fuel Lending & Extreme Weather

In its report, CBA explained that there is a “growing concern about the frequency and impact of extreme weather events,” adding that these issues are having an adverse effect on property values as well as the insurability of some homes. It added that average insurance premiums went up by 28% in the past year and acknowledged that some 12% of households are “experiencing extreme home insurance affordability stress. While insurance affordability has not yet materialized as a financial risk to the bank, we have identified it as an emerging risk, given the risk it presents to our customers and subsequently the bank,” CBA made clear in the report. The bank also estimated that home loans at “high physical risk” from climate change totaled billions of Australian dollars, especially in terms of risks from cyclones, floods, wildfires and rising sea levels. All in all, that is 2.2% of CBA’s overall exposure.

The Takeaway

CBA may not be a financial giant compared to many US banks, but its actions are another crack in the dominance of fossil fuels. Any bank that tried this in the US would be sued by 27 states, 186 counties, and 467 municipalities, all of whom would caterwaul about “woke” capitalism and the pernicious influence of childless cat ladies. Australia may be small in terms of population but it has been a major exporter of fossil fuels — primarily coal — for nearly a century. If its financial institutions are closing their doors to new fossil fuel investments, that is proof that attitudes are changing. The only question is whether those changes will happen soon enough. The jury is still out on that question.