Policies adopted by major Australian banks to restrict the financing of coal, oil and gas projects are ineffective and do not stop them from supporting fossil fuels through general purposes financing and capital market underwriting, a new report has claimed.
The findings are based on a climate review of the country’s five largest lenders – billed as the first of its kind – by the Australian Conservation Foundation (ACF).
The NGO has warned that the climate policies commonly used by the banks are out of step with the fossil fuel industry’s growing tendency to fund new projects via a combination of general corporate purpose loans and bonds, which are not ringfenced for any particular use.
The lenders reviewed are Commonwealth Bank of Australia (Commbank), ANZ, NAB, Westpac and Macquarie. They have all committed to decarbonise by 2050 as signatories of the Net-Zero Banking Alliance (NZBA), a GFANZ group.
While nearly all have policies in place prohibiting the direct financing of coal projects, only Macquarie has blacklisted corporate-level financing that could be ultimately used to fund such projects.
The banks have a more spotty record for oil and gas projects. Only Commbank has a policy to prevent direct lending. NAB and Westpac continue to finance new projects in some instances, while ANZ and Macquarie do not have an oil and gas policy at all.
None of the five banks restricts general corporate financing to expanding oil and gas companies.
In addition, none has set limits on other activities performed when arranging financing for fossil fuel-related projects, such as underwriting, securitisation and advisory services – despite some having corresponding targets for green projects.
“When banks set targets relating to their exposure to coal, oil and gas, their goals tend to mention lending only,” said Jonathan Moylan, ACF’s corporate campaigner and a co-author of the report. “But when they report on their support for climate solutions, some include all the other financial services they provide, in addition to lending.
“While banks have made bold headline commitments, we have found too many gaps in policies, performance and disclosure when it comes to progress towards the targets.”
Capital markets activities are widely seen as a key gap within the banking sector’s climate governance due to the reliance of fossil fuel companies on these services and a lack of global standards that can be used to determine which emissions a bank is responsible for.
Underwriting bonds and equities accounted for at least 36 percent of all fossil fuel financing in 2022.
A so-called “facilitated emissions” framework has been under development for some time by climate disclosure coalition the Partnership for Carbon Accounting Financials (PCAF) but has been delayed by infighting among banks, some of which have argued for a less stringent measure.
In addition to lending and capital market activities, the five Australian banks were also assessed on their governance and disclosure of climate-related topics.
ANZ fared worst overall and was the only one to have failed to disclose physical and transition risks to its operations or any other climate scenario modelling. The bank was also found to lack sufficient climate change expertise on its board, with only one director listed as having career experience in sustainability.
A spokesperson for the bank said it was the first from Australia to sign up to the NZBA and has had its disclosures and commitments rated favourably “on several external indices or benchmarks”, including by CDP.
They also noted that ANZ is already engaging with its top 100 most polluting clients and has told energy sector companies to establish transition plans by 2025.
“ANZ wants to be the leading Australia and New Zealand-based bank in supporting customers’ transition to net zero emissions by 2050.”
The NZBA, ACF and remaining four banks in the study have been approached for comment.
A separate climate scenario analysis of the five banks conducted by the Reserve Bank of Australia (RBA) earlier this year found that climate risks “would increase losses on bank lending in the medium to long term but were unlikely to cause severe stress to banks”.
“This should not be read as saying that climate change could not cause significant losses,” the central bank said at the time.
The RBA and other central banks have acknowledged that climate scenarios continue to be hampered by data limitations and the inability to capture second-round effects and other interactions between climate shocks and the economy.
Shorter-term climate scenarios, which aim to better model the adverse impacts of a disorderly transition and severe natural disasters in the near future, are currently under development by green central supervisory body the NGFS.