Commbank Follows Super Funds in Curbing Investment in Fossil Fuels

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I used to be extremely happy and excited to learn this headline in my newsfeed this morning from the Australian Broadcasting Fee (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’re a major affect on the enlargement plans of the Australian fossil gas business.

Australia’s monetary panorama is dominated by 4 massive banks, the Commonwealth (Commbank), NAB, ANZ, and Westpac. Of the 4 massive banks, the Commonwealth is by far the biggest. The truth is, it’s the largest firm listed on the Australian inventory alternate. Initially authorities owned, it was privatised in 1996. Sure, I did purchase some shares, however I offered them 20 years in the past to pay for photo voltaic to be put in on the roof of my present home.

In line with their web site: “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 experiences that they’ve AU$63 billion invested in renewable power and are dedicated 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.” Till as we speak’s announcement, I’d have thought of these as “just words.” However it seems that the financial institution is ready to place its cash the place its mouth is. Or slightly to not put its cash into the mouths of these accelerating local weather chaos.

Always remember, nonetheless, that we’re coping with a financial institution. It’s all about being profitable for shareholders by managing the chance. It seems that Commbank has labored out that the chance is now not value it. Once more, it’s about time. The financial institution not too long ago introduced a AU$10 billion full yr revenue. So, it has a little bit of latitude to maneuver extra rapidly. Commbank had introduced it could now not help companies not aligned with the Paris settlement from January 1 subsequent yr.

The financial institution has been making important progress over the previous 6 years, with loans to fossil gas corporations reducing 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 nonetheless somewhat doubtful about whether or not Commbank will be capable of comply with via and cite issues about coverage loopholes. They credit score “pressure from customers, shareholders and the wider community” for the advance in CBA’s place. This text was printed in July, previous to as we speak’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 shock inclusion for me. Shifting early could make the sceptics extra prepared to imagine.

Morgan Pickett, a financial institution 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 analysis group mentioned. “This ups the ante for banks, but also for companies … because otherwise your funding, your capital lifeline might be cut off.”

Commbank intends to make use of impartial assessors to guage an organization’s transition plans. Now, there’s a enterprise alternative!

One other issue influencing the financial institution’s choice contains publicity to climate-related dangers in its insurance coverage enterprise. “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 local weather report states. Commbank has about $30 billion in residence loans uncovered to cyclones, floods, and fires. Some areas in Australia (Lismore for instance) have been flooded a number of occasions within the final couple of years.

Lately, Commbank has discovered itself going through litigation from shareholders. In line with 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 imaginative and prescient of the destruction of the Babylonian empire (Daniel chapter 5 within the Previous Testomony). A really apt comparability with the present transition from fossil fuels to renewables.

A financing deal is at present being negotiated with fuel firm Santos. Commbank is just not celebration to this deal, however regardless of making the appropriate noises, Australia’s different massive banks — Westpac, NAB, and ANZ — are sitting on the desk. Apparently sufficient, Santos’ transition plan has been rejected by its personal shareholders.

What’s going to Australia’s different massive three banks do shifting ahead? Will they scale back publicity to threat, or see this as a chance to develop their market share in a harmful funding atmosphere? Will Santos get the AU$750 million it’s asking for? Did somebody whisper “stranded assets?” Maybe the mortgage would possibly want to return with the next rate of interest?