Super fund Australian Ethical Investment has co-filed shareholder resolutions with Aussie banking giants NAB and Westpac related to concerns with the banks’ climate transition plan requirements for its customers.
The A$9.2 billion ($6.0 billion; €5.6 billion) super fund has been engaging with both banks on aligning their lending with the Paris Agreement for several years, but this is the first time the super fund has focused on transition plans.
Australian Ethical has filed the disclosure-based resolutions, together with environmental NGO Market Forces, to ask the banks to clarify whether all fossil fuel companies will be required to have climate change transition plans in place for NAB to provide new lending and renewals, and for Westpac to provide new financing.
It has also asked NAB to clarify whether the restriction on new lending and renewals applies to all “new financing”, and how it will assess transition plans for credible alignment with the 1.5C target, while asking Westpac how it will assess transition plans for alignment with the bank’s definition of a credible transition plan, which “should not include an unreasonable reliance on emissions offsets or negative emissions technology”.
NAB has also been asked to bring its requirement for transition plans forward to January 2025, instead of October 2025. Westpac has pushed its deadline back to September 2025, having previously said transition plans would be required prior to 2025.
Amanda Richman, ethical stewardship lead, Australian Ethical, told Responsible Investor that the investor wants to use the time between now and 2025 to make sure the banks’ transition plan requirements are “as robust as possible”.
Credibility and lobbying
She added that Australian Ethical has filed the resolutions because the banks have been “vague” on some of the key details of their transition plan requirements, despite private meetings with directors and senior leaders.
“The banks have commitments to restrict project finance to certain fossil fuel sector projects, as well as sector-level targets. But, from our perspective, neither of those address the crux of the issue, which is the banks providing new finance to companies engaging in activities which are not aligned with maintaining a stable financial system,” Richman said.
She added that NAB and Westpac’s existing 2025 targets for transition plan requirements is the “cornerstone” of their climate plans, as well as a test of whether those plans are “genuinely in line with their overarching commitments to align their lending with a 1.5C world”.
For Australian Ethical, NAB has not been explicit on whether or not it will expect transition plans to be science-based, aligned with the Paris agreement, or whether Scope 3 emissions reporting will be required.
“Instead, NAB has set out that these are issues they will consider, but they have not made it clear that these will be requirements,” Richman said.
While Westpac has stated it will require science-based transition plans aligned with limiting global warming to 1.5C and to include Scope 3 reporting, Richman said neither of the two have made it clear whether they will assess the authenticity of their customer transition plans by looking at whether a customer is aligning its capital expenditure with the transition, or whether the customer is overtly engaging in direct or indirect lobbying to slow down the transition.
“We want to see the banks taking this into account when they’re assessing the credibility of a customer’s transition plan, but they have both silent on that lobbying issue,” she said.
The second issue Australian Ethical has raised is the fact that the banks have sought to be “equivocal” in the application of their commitments. Both banks have said they will give customers leeway if they fail to produce a transition plan within the stipulated framework, Richman said.
She said the banks should be supporting customers that are on a transition pathway, but if companies are still making capital allocation decisions today that are not aligned with a credible transition plan, “we think banks should be leveraging their influence to say any new finance is conditional on a company aligning”.
Australian Ethical provided a briefing on its proposal to Investor Group on Climate Change and Australian Council of Superannuation Investors members to explain the rationale for filing.
“It’s not something we have been so deliberate in doing before, so it will be interesting to see whether this affects the vote,” said Richman.
She added that the super fund “thought carefully” about the wording of the resolution, and engaged with some of the larger super funds before drafting the resolutions to hear their concerns, and what they would be more likely to support.
“We understood that investors are more likely to support disclosure-based resolutions, and that some of the other super funds also have questions on transition plan requirements.”
NAB and Westpac had not responded to a request for comment at the time of publication.
Both banks are founding members of the Australian Sustainable Finance Institute, which declined to comment on the shareholder proposal.
Westpac’s AGM will take place on Thursday and NAB’s is scheduled for Friday.