Analysis: Commbank’s 2017 climate policy update
Commonwealth Bank’s first ever climate change position statement was released today, the bank’s first major policy clarification since the release of its Group Environment Policy in November 2015.
The Group Environment Policy committed the bank to support the goal of holding global warming below 2ºC, acknowledging the bank would have a role to play in a global effort that would require “a transition from traditional economic models”.
However, in the 20 months following this policy, Commonwealth Bank loaned another $6 billion to coal, oil and gas, more than four times its renewable energy lending. Among the projects financed were new projects that, over their lifetimes, would add another 2.8 billion tonnes of CO2 to the atmosphere, enough to cancel out the gains made from Australia’s 2005-2030 greenhouse gas reduction target.
Commonwealth Bank was recently ranked equal last in a study of 37 global banks on their coal, extreme oil and LNG lending policies.
This policy update is Commonwealth Bank’s first real attempt at aligning its policies and lending with its commitment to help hold global warming below 2ºC. Here, we analyse the key points of what is a dismal follow up to the group environment policy of nearly two years ago.
Coal mining and coal power lending
Commonwealth Bank’s position statement contains no commitments whatsoever for limiting lending to coal projects, leaving it in stark contrast to its peers in Australia.
ANZ’s 2015 Climate Change Statement said the banks would no longer finance “conventional” coal power plants, and only those with a carbon intensity of 0.8 tonnes CO2 per Megawatt-hour. Despite this being a weak threshold, it has at least been effective in preventing ANZ from lending to the Long Phu 1 coal power station in Vietnam, where it had to withdraw from the bank syndicate.
Westpac’s Climate Change Action plan, launched in April 2017, restricts future coal power lending only to projects that would lower the overall carbon intensity of the grid. Whether or not this rules out coal power depends therefore on the context of the country or grid. In Australia’s East Coast grid, it would still be possible for Westpac to lend to new coal, but not in Western Australia or New Zealand.
Westpac’e policy also restricts lending to new coal mines to only those that have an energy quaity in the top 15%, ruling out mines in the Galilee Basin but still keeping the door open for mines int he Hunter Valley.
Globally, more than a dozen banks have introduced policies that restrict lending to coal mining or power.
Fossil fuel exposure
The position statement says the bank will “target an average emissions intensity decrease of our business lending portfolio consistent with our commitment to a net zero emissions economy by 2050”.
The wording of this statement is very concerning as it is aspirational but no hard targets are being set. It also covers the bank’s entire business lending, leaving room for some sectors to increase while others decrease. It is also a target that could conceivably be met by adding more renewable energy to energy portfolios (which is of course positive) but not necessarily requiring reductions on exposure to fossil fuels. This offers no confidence whatsoever that Commonwealth will reduce it’s fossil fuel exposure.
Of all the big four banks, only NAB has put in writing its clear intent to reduce fossil fuel exposure in its loan book with a corresponding increase in renewable energy exposure, informed by carbon budgets for holding global warming below 2ºC.
Westpac’s climate policy from April 2017 aims to reduce the emissions intensity of its power generation portfolio to 0.30 tCO2e/MWh by 2020. While this is also an aspirational goal, it at least puts a firm figure and timeframe on the progress the bank intends to make.
Renewable energy lending
The position statement commits Commonwealth Bank to make $15 billion available to 2025 to finance “low-carbon” projects, which it broadly describes as “renewable energy projects (like wind, solar, and hydro projects), low carbon transport and development of energy efficient buildings”.
In terms of the amount, this is a slightly lower commitment prorata than those of the other major banks:
- In 2015, ANZ committed to finance and facilitate $10 billion towards products and activities that supported a low carbon economy, such as energy efficiency, low emissions transport,
green buildings, reforestation, renewable energy and battery storage, emerging technologies and climate change adaptation measures.
- In 2015 NAB made a similar commitment of $18 billion over seven years, but the bank’s 2016 reporting showed this commitment included a large carve out for mortgages to homes with such measures applied.
- Westpac’s updated climate change policy from April 2017 committed them to $10 billion for lending to climate change solutions by 2020 and $25 billion by 2030.
Climate risk management and disclosure
The position statement contains a commitment to adopt the recommendations of the Taskforce on Climate-related Financial Disclosures, which recommends companies report in their mainstream financial reporting their exposure to physical and transition risks of climate change.
Commonwealth Bank is currently facing a legal challenge over its failure to manage and disclose climate risk. Shareholder Guy Abrahams is claiming a breach of Directors’ duties after the bank failed to take climate change into account as a material business risk in 2016.
In October 2016, Noel Hutley SC issued a legal opinion that company directors should obliged to consider climate change as a financial risk. At the time, Mr Hutley said: “it is likely to be only a matter of time before we see litigation against a director who has failed to perceive, disclose or take steps in relation to a foreseeable climate-related risk that can be demonstrated to have caused harm to a company.”
Commonwealth Bank has rejected the claim despite their auditors, PriceWaterhouse Coopers, confirming at the 2016 AGM that climate change was not considered as a material business risk when preparing the FY 2016 financial statements.
Colonial First State and Commbank Group Super
Commonwealth Bank’s climate change position statement fails to even ecknowledge the existence of Colonial First State or Commbank Group Super, winch collectively manage $100 billion in assets, let alone commit these entities to take any action to manage climate risk in these managed funds.
A legal opinion issued in July from Noel Hutley SC and James Mack clarified that Trustee directors of superannuation funds were required, as part of their fiduciary obligations, to consider climate risk and record those considerations.
Market Forces recently found that both Colonial First State and Commbank Group Super offered no evidence that climate risk was being considered by trustees. Colonial First State has since highlighted that climate change appears in newer product disclosure statements for MySuper products, thus moving into the category of “inadequate” disclosure of climate risk consideration.
Consistent with 2ºC or less?
The first and simplest test of whether a bank’s policy is compatible with holding global warming below 2°C is whether it prohibits lending to projects that expand the scale of the fossil fuel industry.
This position statement contains no commitments to even curb lending to fossil fuels, let alone driving down its own exposure.
The need to end new greenhouse gas emitting power plants has been identified by the IEA in 2011, Oxford University in 2016 and the IEA again in 2017, now saying that in order to keep global warming to well below 2°C, the world must reach net zero emissions by 2060. New fossil fuel infrastructure projects often have planned lifetimes well beyond that date.
There is not enough of a carbon budget to allow for even the existing capital stock of fossil fuels to see out their economic lives, let alone expansionary projects.
The bottom line
Had this position statement been in place in 2015, when Commonwealth Bank released its group environment policy, it would not have prevented any of the lending that the bank has made since then. It is a policy that amounts to no change from the bank, and would allow Commonwealth Bank to continue its active expansion of the fosisl fuelindustry at the expense of a safe climate future.
This is one more fail grade to add to those it received in June on it’s (lack of) coal mining, coal power, extreme oil and LNG lending policies.