Commbank Follows Super Funds in Curbing Investment in Fossil Fuels – CleanTechnica

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I was incredibly pleased and excited to read this headline in my newsfeed this morning from the Australian Broadcasting Commission (ABC): “Commonwealth Bank stops lending to fossil fuel companies without genuine emissions plan.” It’s about time. Add that to the withdrawal of support from some of Australia’s very well-funded superannuation providers and we are looking at a significant impact on the expansion plans of the Australian fossil fuel industry. 

Australia’s financial landscape is dominated by four large banks, the Commonwealth (Commbank), NAB, ANZ, and Westpac. Of the four big banks, the Commonwealth is by far the largest. In fact, it is the largest company listed on the Australian stock exchange. Originally government owned, it was privatised in 1996. Yes, I did buy some shares, but I sold them 20 years ago to pay for solar to be installed on the roof of my current house.

According to their website: “Commonwealth Bank was founded under the Commonwealth Bank Act in 1911 and commenced operations in 1912, empowered to conduct both savings and general banking business. Today, we’ve grown to a business that serves 15.9 million customers, employs 48,900 people and has more than 800,000 shareholders.”

The CBA reports that they have AU$63 billion invested in renewable energy and are committed to “supporting Australia’s transition to a net zero economy by 2050, by continuing to manage the risks and opportunities of climate change and supporting our customers in an inclusive transition. Decarbonising Australia’s electricity grid remains the priority step for Australia’s net zero future.” Until today’s announcement, I would have considered these as “just words.” But it appears that the bank is prepared to put its money where its mouth is. Or rather to not put its money into the mouths of those accelerating climate chaos.

Never forget, however, that we are dealing with a bank. It is all about making money for shareholders by managing the risk. It appears that Commbank has worked out that the risk is no longer worth it. Again, it’s about time. The bank recently announced a AU$10 billion full year profit. So, it has a bit of latitude to move more quickly. Commbank had announced it would no longer support businesses not aligned with the Paris agreement from January 1 next year.

The bank has been making significant progress over the past 6 years, with loans to fossil fuel companies decreasing by 92% from 2018 to 2022, from $4 billion to $267 million. “The bank also halved its exposure to oil and gas companies in the past two years from $3.3 billion in 2022 down to $1.7 billion. Exposure represents the money the bank is set to lose if the investment fails,” Market Forces tells us.

Analysts at Market Forces are still a little dubious about whether Commbank will be able to follow through and cite concerns about policy loopholes. They credit “pressure from customers, shareholders and the wider community” for the improvement in CBA’s position. This article was published in July, prior to today’s announcement.

Market Forces continues: “CommBank has committed to not providing project finance for any new or expanded thermal coal mines, coal-fired power generation facilities, new and expanded oil and gas fields, and pipelines that service those field expansions. On corporate finance, CommBank has committed to not funding any company expanding coal-fired power generation. CommBank has also said it will not fund any oil and gas producing (>15% of revenue), metallurgical coal mining (>15% of revenue), or coal-fired power generation (>25% of electricity from coal) company from 2025 that does not have an independently verified plan to cut all emissions — in line with the Paris Agreement’s ‘well-below 2°C’ upper warming limit.” Metallurgic coal was a surprise inclusion for me. Moving early may make the sceptics more willing to believe.

Morgan Pickett, a bank analyst at Market Forces, commented after the announcement: “This announcement is massive for the domestic banking sector. For them to say we’re not banking companies that aren’t compatible with a safe climate, this will be a really big signal to the rest of the market, not just the banks. The science is clear. There’s enough fossil fuel infrastructure already in existence.”

“Making sure that transition plans are credible will be critical in this piece, and particularly from a ‘greenwashing’ and a ‘greenhushing’ perspective,” Cassandra Williams from the Climateworks research group said. “This ups the ante for banks, but also for companies … because otherwise your funding, your capital lifeline might be cut off.” 

Commbank intends to use independent assessors to evaluate a company’s transition plans. Now, there’s a business opportunity!

Another factor influencing the bank’s decision includes exposure to climate-related risks in its insurance business. “To help us effectively manage our climate risks, we monitor the impact of weather events and natural disasters on our business and customers, including in our home lending portfolio,” CBA’s climate report states. Commbank has about $30 billion in home loans exposed to cyclones, floods, and fires. Some areas in Australia (Lismore for example) have been flooded multiple times in the last couple of years.

In recent years, Commbank has found itself facing litigation from shareholders. According to Cassandra Williams, “Climate [change] brings with it both risks from a stranded asset point of view, but also tremendous opportunities. … The writing’s on the wall. Companies that move the quickest and approach climate [change] as an opportunity, future-proof themselves for a net zero economy, and will stand to gain. This just makes good commercial sense.”

The “writings on the wall” analogy comes from Daniel’s apocalyptic vision of the destruction of the Babylonian empire (Daniel chapter 5 in the Old Testament). A very apt comparison with the current transition from fossil fuels to renewables.

A financing deal is currently being negotiated with gas company Santos. Commbank is not party to this deal, but despite making the right noises, Australia’s other big banks — Westpac, NAB, and ANZ — are sitting at the table. Interestingly enough, Santos’ transition plan has been rejected by its own shareholders.

What will Australia’s other big three banks do moving forward? Will they reduce exposure to risk, or see this as an opportunity to expand their market share in a dangerous investment environment? Will Santos get the AU$750 million it is asking for? Did someone whisper “stranded assets?” Perhaps the loan might need to come with a higher interest rate?