ANZ warns high-emitting customers and sets $100bn sustainable finance target

ANZ has threatened to reduce exposure to large emitting customers who have not improved carbon reduction plans, as it set anew $100bn sustainable finance target.

ANZ’s presentation said it expected the transition to a net-zero economy by 2050 would likely “be uneven”. Picture: David Geraghty

ANZ has threatened to reduce exposure to large emitting customers who have not improved carbon reduction plans by 2025, as the bank set a new $100bn target for funding and facilitating sustainable finance by 2030.

In a wide-ranging presentation on its climate change position, ANZ also set emission reduction benchmarks across the oil and gas, aluminium, cement and steel sectors. That follows the bank in 2021 setting emissions intensity pathways and targets for the power generation and large-scale commercial real estate industries.

The new targets – which attracted fierce criticism from climate groups – form part of ANZ’s commitments as a member of the Nations-convened Net-Zero Banking Alliance.

Earlier this month, ANZ’s environmental, social and governance report showed it was ahead on a target to fund and facilitate $50bn in sustainable finance for customers by the end of 2025. In the past three years, the bank has facilitated $40bn of that target, across areas including green loans, ESG bonds and funding company moves to cleaner energy sources and green buildings.

The higher $100bn target will provide more financing to high-emitting ANZ customers – with a transition plan in place – as they seek to fund moves to lower carbon emissions.

ANZ’s chief risk officer Kevin Corbally said he expected the transition to a net-zero economy by 2050 to “be uneven” with some sectors facing greater challenges than others.

Head of ANZ’s institutional unit Mark Whelan told investors the bank would pullback from customers not accelerating their transition plans.

ANZ Chairman Paul O'Sullivan.

“For the hopefully small number of customers that aren’t heading in the right direction by 2025, ultimately, we may not be the right bank for them,” he added. That applies to ANZ’s largest emitting customers who after “significant engagement” with the bank have not improved their transition plans by 2025.

ANZ flagged it would continue to engage with 100 of its largest emitting business customers to encourage them to bolster carbon transition plans, so that more meet a “well developed” or “advanced” rating. Some 61 customers in that group had well developed or advanced plans at as September 30 compared with 42 a year earlier.

In a report out this week McKinsey & Company said banks were starting to use net-zero emissions targets to “reorientate their strategy” as they sought to capitalise on the $US9 trillion required per year in capital expenditure.

The report also highlighted challenges for banks around sourcing reliable and consistent data on their customers’ emissions.

ANZ, which was the first among the big four banks to join the Net-Zero Banking Alliance, will develop a data strategy in 2023 and on Friday specified target sectors that are similar to those of its peers.

Westpac in July provided targets for thermal coal, upstream oil and gas, power generation and cement and more recently outlined targets for the commercial property sector.

Commonwealth Bank in August set sector-level targets across four priority industries for a reduction in financed emissions. Those sectors spanned power generation, upstream oil, upstream gas and thermal coal mining. CBA ruled out, however, an end date for financing new oil and gas projects.

National Australia Bank has set interim 2030 sector decarbonisation targets for its lending portfolio in four of its most emissions-intensive sectors spanning power generation, oil and gas, thermal coal mining and cement production.

ANZ’s new oil and gas target aims to achieve 26 per cent absolute emissions reduction by 2030, citing a priority for customers to “minimise methane leaks”.

For aluminium, the bank is targeting 30 per cent emissions intensity reduction by 2030 and wants to achieve a 28 per cent emissions intensity reduction in steel over that time frame.

In cement, ANZ outlined a target for 20 per cent emissions intensity reduction by 2030, noting customer efforts would rely on “substituting clinker for alternate cementitious materials”.

The Australian Conservation Foundation said while ANZ’s targets were a “small step forward” the bank’s plan had long timelines and its targets were undermined by the intention to keep lending to companies like Woodside and Santos.

“Leading banks like La Banque Postale and Commerzbank have adopted policies that make sure they do not support companies pursuing oil and gas expansions,” said Jonathan Moylan, ACF’s corporate campaigner.

Market Forces Executive Director Julien Vincent lambasted ANZ saying it’s new $100bn target would further back polluting companies.

“ANZ has long been the fossil fuel industry’s biggest backer, and these targets take it further in the wrong direction,” he said.

“We’ve yet to see any of the big four banks withhold finance from clients pursuing the expansion of the fossil fuel industry, but ANZ is the first to set up a fund that would back the polluters even further.”

The presentation noted ANZ’s direct exposure to thermal coal mining had reduced by about 83 per cent since 2015, representing less than 0.02 per cent of the bank’s exposure at default.

“We are on track to exit all direct lending to thermal coal mining well ahead of our 2030 target,” it said.

Mr Whelan said ANZ was “on track” to have 2030 targets across nine priority sectors, aimed at ensuring at least 75 per cent of the bank’s portfolio emissions were on a net-zero pathway, by the end of 2024.

ANZ wants to be sourcing all its electricity for its own operations from renewables by 2025, while lowering scope one and two greenhouse gas emissions by 85 per cent over that same time frame against a 2015 baseline.

In the bank’s ESG report earlier this month, chairman Paul O’Sullivan said: “We have high expectations, particularly for our customers in the energy sector. We expect our energy customers’ plans to be net-zero aligned, public and specific.”

But he shrugged off calls by some stakeholders for ANZ to stop lending to companies operating in carbon-intensive industries such as energy.

“This approach may reduce ANZ’s exposures or ‘financed emissions’. However, it does not reduce emissions in the real world if the company receives funding from an alternate source,” Mr O’Sullivan said.

Regulators are also taking an increased interest in how risks associated with climate change may impact the banking sector.

Earlier this year, ANZ and its peers participated in the prudential regulator’s climate vulnerability assessment which gauged the potential impact of transition risks on mortgage and business lending portfolios.

The Australian Prudential Regulation Authority intends to release the results before the year’s end.