Commonwealth Bank eyes opportunities in global carbon credits

Australia has the opportunity to become a ‘significant supplier’ of carbon credits globally, and Commonwealth Bank wants a slice of the action.

CBA’s head of institutional banking and markets Andrew Hinchliff says Australia has the opportunity to become a significant supplier of carbon credits.

Australia’s natural resources provide the nation an opportunity to become a “significant supplier” of carbon credits globally, and Commonwealth Bank wants a slice of the action.

CBA’s head of institutional banking and markets Andrew Hinchliff said after the pandemic and related supply chain disruption, environmental, social and governance issues were the next biggest priority for institutional bank customers.

“We are definitely seeing clients embed within their procurement processes, within their cost of capital the cost of the negative externalities associated with consumption, which is the price of carbon,” he added.

“We think Australia‘s got a unique opportunity – just based on our natural resources being land, soil, sea, wind and solar – to be a significant supplier of carbon credits not only to Australia but also into the world which is a big opportunity for our clients.”

The bank’s views on carbon trading and its future growth prospects saw it this month emerge as the newest big name investor in the latest $US100m ($136.8m) capital raising for commodities marketplace Xpansiv.

CBA made a $15m investment in Xpansiv as part of a strategic agreement, while the raising was also backed by Wilson Asset Management and the federal government’s Clean Energy Finance Corporation.

Mr Hinchliff noted CBA’s involvement was part of a broader green banking push and focused on building out trading infrastructure and boosting liquidity, market making and transparency in carbon markets.

“We’re thinking about the broader ecosystem,” he said. “You can see retail (customers) being a key source of demand as they try to offset the carbon footprint that they measure, agri clients being a key source of supply as they think about reforestation and soil and other things, you can see large industry being a key source of demand … it’s really important to bring that supply and demand together.”

Last week, CBA started a pilot to give personal banking customers direct insight into their carbon footprint and how to offset it, marking its fifth recent initiative in the green sector. CBA is partnering with fintech CoGo on that initiative, which will also roll out to business customers next year.

Xpansiv – which is targeting an ASX listing in the first half of 2022- is a marketplace for environmental, social and governance (ESG) commodities such as carbon offsets, renewable energy certificates and differentiated fuels. The company also counts Macquarie Group, oil giant BP’s venture arm, US billionaire Thomas Lee and Caledonia Investments’ co-chief investment officer Will Vicars, among its backers.

As well as the Xpansiv partnership, CBA is in talks with other parties across all divisions of the bank on the

topic of greener banking, climate targets and emissions reduction.

“We are open to many conversations to ensure that we get it right,” Mr Hinchliff said.

When asked about the energy crisis gripping parts of Europe due to rising demand following the depths of Covid-19, supply restrictions by oil producers and supply chain issues, he added:

“To solve the energy crisis they’re going to have to turn on maybe some of the older technologies, be it sort of coal or gas fired power.

“In Europe, as per regulation to do that, you need to be able to pay for your emissions and if you have to pay for your emissions you’ve got to go and buy carbon credits and carbon credits will drive up the demand and obviously the price.”

Xpansiv’s chief commercial officer Ben Stuart highlighted that in markets such as Australia companies were moving ahead of governments on targets to cut emissions.

“We see corporates absolutely not waiting for a signal from governments and just getting on with it and I think that’s being driven by the capital markets,” he said, noting that was being driven by a “social licence to operate” and competitive considerations.

“This not a flash in the pan or something that’s isolated to Australia it’s definitely a global trend.”

Mr Stuart said Xpansiv had seen a three-fold increase in the third quarter 2021, versus last year, in active participants on its markets in the carbon space.

CBA and its major bank rivals have got climate activist group Market Forces off-side, with the activists calling on the large lenders to stop funding new or growth fossil fuel projects.

As the federal government seeks to set up the Australian Carbon Exchange, Xpansiv was not one of 13 parties short-listed to participate across two streams in a request for proposal round. Final decisions on who the government will move forward with are expected in the second quarter 2022, with a likely launch in 2023.

The ASX and its rival Chi-X Australia are among the shortlist of potential operators for the exchange which will focus on the purchase, clearing and settlement of Australian carbon credit units (ACCUs) and potentially other units and certificates.

The carbon exchange will operate in a similar way to an online stock exchange.

Mr Stuart said Xpansiv was targeting its own launch of ACCU trading in the first half of 2022.

“We are fairly confident we can hit that target,” he said, noting the project was not dependent on plans for the company to publicly list.

Last week, Macquarie Group’s chief executive Shemara Wikramanayake urged governments and business to rapidly accelerate the execution of energy transition strategies.

The topic will be heavily debated as many world leaders attend the United Nations climate conference in Glasgow, starting October 31.

Originally published as Commonwealth Bank eyes opportunities in global carbon credits