Activists keep pressure on big banks despite $10b cut in fossil fuel lending

Australia’s big four banks have cut their lending to fossil fuel companies by more than 20 per cent in the past two years, as activists pressure the lenders to provide financing only to customers who have strong climate transition plans.

A Macquarie analysis of banks’ environmental, social and governance (ESG) strategies found the Commonwealth Bank, ANZ, Westpac and National Australia Bank have slashed their lending to oil and gas, metallurgical and thermal coal businesses from $43.4 billion in 2022 to $34 billion this year, with ANZ still having the largest exposure driven by oil and gas.

Climate activists protest against NAB’s climate change policies at the bank’s 2022 AGM in Melbourne.Credit: Elke Meitzel

About 60 per cent of CBA’s top 100 carbon intensive customers have a transition plan endorsed by their respective boards. About a dozen companies must now provide plans that meet the bank’s core criteria within the next fortnight, or CBA will not provide new corporate or trade finance, or bond facilitation, in the new year.

CBA has also engaged a third-party consultant to independently assess transition plans against the bank’s criteria.

At Westpac, 84 per cent of its 150 carbon intensive customers had a public climate transition plan. A shareholder resolution at Westpac’s annual general meeting on Friday asked for the bank to disclose whether all of its fossil fuel clients would be required to have a Paris-aligned transition plan to be eligible for finance. That resolution was supported by 34 per cent of investors, up from 22 per cent last year.

“Timing of plans to be in place differs with CBA requiring plans by January 2025 whereas the other banks are targeting later in 2025: ANZ (end 2025), NAB (October 1, 2025) and Westpac (September 30, 2025),” Macquarie analysts wrote in a note to clients on Thursday.

ANZ’s direct and indirect exposure to fossil fuels totalled $13.8 billion this year.Credit: Natalie Boog

“The challenge will be how a ‘credible’ transition plan is defined, with only ANZ and Westpac insisting that customer transition plans align with a 1.5°C pathway.”

NAB and ANZ will face similar shareholder resolutions at their AGMs on Wednesday and Thursday, respectively.

In the ANZ board’s recommendation to vote against the resolution, it said decarbonising the economy was complex, and the bank was already engaging with large carbon emitters.

“ANZ firmly believes that climate change is a risk that needs to be managed now. That’s why supporting our large business customers to reduce their emissions is a key feature of our climate and environment strategy,” the board noted.

NAB chief climate officer Jacqueline Fox said renewables now made up 80 per cent of the total finance the bank provided to energy generation, up 7 percentage points in a year.

“We’re working together with our customers to decarbonise, and we’ll be transparent in our progress via updates in our annual climate report,” Fox said.

KPMG financial services consulting practice partner Ben Kilpatrick said banks needed to “responsibly” transition away from lending to fossil fuel companies, while increasing the capital deployed to renewable projects.

“The nuance is in balancing the commercial outcomes with the need to achieve shareholder returns to meet fiduciary interests,” Kilpatrick said.

“As the cost of funding, and in general, the economy, has become more challenged since COVID, the decision banks have had to make on where they deploy capital is more challenging. Three years ago, we were in a very different global, geopolitical and economic situation – low interest rates, less geopolitical challenges and even … the energy market [was more secure].

“Realistically, it’s still going to be a challenge over the next two to three years.”

KPMG’s Banking on the Climate Transition report last year found less than 2 per cent of banks’ lending portfolios were in sustainable lending, compared to the United Kingdom and Germany (both 4 per cent) and in Scandinavian countries (7 per cent).

The report also said Australia would need to attract and invest $7 trillion of capital over the next decade to achieve a net zero economy by 2050.

ANZ’s direct and indirect exposure to fossil fuels was the highest of the big four banks at $13.8 billion, albeit down 15 per cent compared to the previous year. CBA’s lending was $9.4 billion, Westpac’s was $6.8 billion and NAB’s $4 billion, according to the Macquarie analysis.

However, the analysts noted a like-for-like comparison was challenging because of the differences in disclosure. For example, NAB does not disclose refining exposure, even though ANZ, CBA and Westpac do.

ANZ is also Australia’s largest institutional bank, meaning its exposure to some of the largest carbon emitters is far greater. CBA’s lending portfolio predominantly comprises residential loans, while NAB’s biggest clients are small and medium enterprises. Westpac, meanwhile, has a combination.

Kyle Robertson, an analyst at environment activist group Market Forces, said while the exposure in overall reduction was positive, the major banks were still lending to companies who were expanding their oil and gas productions.

“That is totally at odds with their climate commitment, and is an impediment to a safe, clear and just renewable transition,” Robertson said.

“Banks should absolutely put in place a clear policy that any fossil fuel client that approaches them for finance has a Paris-aligned transition plan, and [lends to] activities with a Paris-aligned transition plan.”

The activist group commended CBA, but called out the other three banks’ plans as “weak”.

A Westpac spokeswoman said the bank no longer financed new thermal coal projects, and in 2025, would stop lending to institutional clients if more than 15 per cent of their revenue came directly from thermal coal mining.

“We have a 1.5C-aligned target for upstream oil and gas, which is to reduce our financed emissions by 23 per cent by 2030. We are on track to meet that commitment,” the spokeswoman said.

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