Great unravelling is under way

The great unravelling of the net-zero stranglehold on financial and investment markets has begun. The latest evidence is the push by Coalition MPs and a New Zealand minister for Australia’s large banks to abandon an international net-zero pact. Another clue is moves by Australia’s most powerful super funds to walk back their climate targets amid a growing political and corporate backlash against ESG.

It is part of a global trend that recognises the disruptive impact Donald Trump will have on the climate and diversity agenda. But it predates the new US President. In September 2023, 22 US Republican state attorneys-general told members of the Net Zero Financial Services Providers Alliance their actions could represent antitrust and consumer protection law violations.

Their message stated voluntary grouping of major banks and accounting firms around the world wielded enough combined power to potentially pressure other companies to comply with the organisation’s “policy preferences”. The international coalition receives accreditation from the UN’s Race to Zero project.

This month six major banks from the US announced they were leaving the Net-Zero Banking Alliance. They included JP Morgan, Goldman Sachs, Wells Fargo, Citi, Bank of America and Morgan Stanley. Pressure is now on Australian banks to follow suit. The big four banks, along with Bank of Queensland and Macquarie Bank, are all signatories of the NZBA.

The issue gained a new significance after Peter Dutton put banks on notice over the financing of timber operations in Tasmania. Climate and environment lobby groups routinely pressure financial institutions not to lend to fossil fuel projects. As we reported on Wednesday, Australia’s big banks said they would not immediately follow North American lenders in quitting the NZBA but believed climate targets must be made more realistic. They are under increasing pressure over concerns that climate-linked lending rules will undermine the economy and cost jobs across the mining, farming and manufacturing sectors.

The arrival of Mr Trump back in the White House has sharpened the politics of the issue, given his decision to withdraw the US from the Paris Agreement. European banks remain committed to the NZBA and are on a different trajectory to the US in terms of energy policy.

Australia has a choice. Mr Dutton is right to argue banks have a moral and social responsibility to consumers and they have a social licence, which they need to honour. That social licence includes not discriminating against people who are involved in an absolutely essential and critical industry.

The private sector has shown itself to be much more flexible than government when it come to responding to world events and new facts. This is apparent with investment in areas including hydrogen and offshore wind, where the technological and financial results have failed to match the hype.

The changed view of superannuation funds is also significant. Association of Superannuation Funds Australia chief executive Mary Delahunty said funds’ climate goals could be hampered by the anti-ESG movement, with engagement potentially less effective as companies backtrack on the green agenda.

This is something big private equity investors have seen coming as they switched their focus back to investments in fossil fuels. The great unravelling has begun and is likely to quicken.