Australian banks facilitated likely illegal deforestation, warns Australian Conservation Foundation

NAB, CBA and Rabobank are seen as the top three financiers of landowners linked to potentially illegal deforestation in Queensland, exposing them to nature-related risks, according to a new report.

Major Australian banks including National Australia Bank and Commonwealth Bank allegedly facilitated the likely illegal deforestation of more than 360,000 hectares of wildlife habitat in Queensland over two years to 2020, posing potential transitional risks for the lenders, according to a new report.

NAB, Rabobank and CBA have emerged as the primary funders for landowners engaging in potentially illegal deforestation of land in the state that mostly destroyed habitat for the now-endangered koala, but also bulldozed ecosystems with greater gliders, Northern Quoll’s, ornamental snakes and Australian painted snipes, claims the Australian Conservation Foundation’s report.

“This, largely unaccounted for, financed deforestation is likely exposing Australian banks, and their shareholders, to direct and indirect credit risk due to the potential economic impacts on producers engaging in deforestation, as well as other nature-related reputational, legal and transition risks, and systemic risks,” ACF’s report says.

Between 2018 and June 2020 over a million hectares of native vegetation was cleared, mostly for beef production, according to the report. About 67 per cent of the woodland was either more than 30 years old or remnant forest.

About 36 per cent of that deforestation “significantly” impacted “protected threatened species and ecological communities” and was likely done without federal approval, which is illegal, the report, published Monday, says.

The majority of this deforestation occurred on a small number of properties, with over 60 per cent of them linked to Australian banks through mortgages or other securities.

The report claims the banks do not properly monitor deforestation activities across the properties they finance, which likely also means they are under-reporting their financed emissions and raises doubts about the credibility of their net-zero commitments.

“While the UN says companies cannot claim to be on the path to net-zero while still funding deforestation, none of Australia’s big four banks have a ‘no deforestation’ target,” said ACF Business and Nature campaigner Nathaniel Pelle.

“By lending to agribusinesses without any conditions relating to deforestation, banks are effectively financing the destruction of habitat for threatened species like the koala, which had 200,000 hectares of habitat destroyed in this last reporting period.”

“Banks should do due diligence before lending, set ‘no deforestation’ targets and attach relevant conditions to their loans to agribusinesses and property developers.”

The report tracked the security of land titles and considers the banks holding them to be “linked to the observed deforestation, either by (potentially) financing the activity through the relevant loan or through exposure to the legal, social, economic and natural risks by holding equity in the relevant land.”

It notes, however, that the findings are only “indicative of a heightened risk that the loans are connected to deforestation and of the need for banks, who have access to more granular data, to do appropriate due diligence.”

Biodiversity loss is now recognised by the world’s central banks as a source of systemic risk alongside climate change.

NAB, a member of the UN’s Net Zero Banking Alliance, said sustainability risk, which included biodiversity and other nature-related risks, was one of its “material risk categories” and was overseen through its “risk management strategy and framework”.

The bank had set 2030 emission reduction targets in the four sectors representing the majority of its financed emissions and would “set sector-level targets for its remaining carbon-intensive sectors, which includes the agricultural sector, by May 2024, consistent with requirements of the NZBA,” a spokesman said in a statement.

“We recognise the important role we can play in supporting the protection of biodiversity and natural capital and we have numerous projects and partnerships under way to support this,” she said.

That included “piloting” the Taskforce on Nature-related Financial Disclosures (TNFD), a G7-endorsed body established last June that aims to set a reporting framework to track and act on nature risks and opportunities to help drive the halting and reversing of nature loss globally.

NAB “is developing a road map that will allow us to respond to the TNFD when it is launched at the end of 2023 … and is also funding projects on nature-related issues with a range of research organisations.”

ACF’s report suggests that banks failing to address deforestation are also likely underestimating their financed emissions and will struggle to meet the upcoming nature-related risk reporting requirements proposed by the TNFD.

A CBA spokesman said it was unable to comment on the report after seeing a copy only “late” on Friday afternoon. The bank is a member of the TNFD forum and in its last annual report said it would “aim to set our priorities related to natural capital, and explore metrics to measure our progress.”

Representatives from Rabobank – which is a TNFD taskforce member and does not finance any deforestation in tropical forests such as Brazil, even if legally allowed – said they were reviewing ACF’s report.

In a statement, Rabobank said it has an assessment process “with our clients to determine whether land clearing or land use change has taken place and whether the necessary legal permits were obtained.” a spokesman said.

“Rabobank’s biodiversity policy includes deforestation as part of our broader sustainability policy framework, and we will continue to develop our analysis to better understand the impact of our clients on biodiversity.”

ACF business and nature lead Nathaniel Pelle said that unlike the Australian banks, Rabobank did engage with customers in Australia “around land clearing issues, but none of the banks use any kind of geospatial data to check their exposures”.

“In order for the banks to comply with the TNFD, they first need to complete a thorough assessment of their lending portfolio to know where they have an impact on nature,” he said.

“The first step is to know geographically where they are financing activities that have an impact on nature, and that’s a process that none of the banks have started to grapple with.”