Analysis: NAB’s 2017 climate change plan
After a year of positive rhetoric on climate change NAB's 2017 Sustainability Report has been a disappointment, failing to solidify any of the bank's language into clear plans for exiting fossil fuels or restricting lending to the sector.
The key positive is that NAB has cemented its place as the leading funder of renewable energy among its competitors. But with exposures to fossil fuels rapidly on the rise, NAB's renewable energy work is undermined by its ongoing support for fossil fuels.
This page breaks down what we know about NAB's sustainability report.
Lending to coal mining and power
There is no commitment from NAB about restricting lending to coal mining and power in their 2017 Sustainability Report.
ANZ's climate change policy restricts lending to new coal power stations to those that emit less than 0.8t/MWh of CO2 (0.8 tonnes of carbon dioxide per Megawatt-hour). This is not a very strong policy, but has at least been effective in preventing ANZ from lending to new coal power plants in Vietnam that exceed this threshold.
Westpac's climate policy aims to reduce the carbon intensity of its power generation exposure to 0.3 tCO2e/MWh by 2020. Westpac has also restricted lending to new thermal coal basins and mines that fall below an energy content for coal of 6,300 kCal/kg (that’s kilocalorie per kilogram).
Fossil fuel exposure
The report reiterates the NAB's 2016 acknowledgement that addressing climate change requires a material decrease in the use of fossil fuel based energy and a corresponding increase in renewable energy but contains no direction on how this would be achieved.
At the bank's 2016 AGM, Chair Dr Ken Henry confirmed that this is a transition that NAB expects its loan book to reflect. The 2017 Sustainabiltiy Report uses similar language, stating:
We anticipate the global low carbon transition will see structural changes in energy markets, with fossil fuel-based energy use materially declining over time, and increased use of renewable energy. This will be reflected in the make-up of our loan book and investment portfolio over time.
However, NAB's full year results released on 2 November (see page 69) show a $3 billion increase in exposure to oil and gas. Some slight decreases are observed on coal mining and power, but are largely offset through increases to gas power.
The report points out that NAB's risk appetite on a range of sectors, including coal mining, oil & gas, transport and electricity utilities are to be reviewed, but no indication is given as to whether or not the bank intends to restrain its lending and exposure to these high-carbon emitting sectors.
Renewable energy lending
On renewable energy lending, there is more to celebrate.
NAB has increased its green infrastructure, capital markets and asset finance commitment to $20 billion between 2015 and 2025.
This clearly outstrips NAB's competitors in terms of future commitments, with the other "big four banks" adopting the following:
- In 2015, ANZ committed to finance and facilitate $10 billion to 2020 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.
- Commonwealth Bank's Climate Change Policy Position Paper from August 2017 makes $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”.
- 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.
The one sour note for NAB's green
infrastructure, capital markets and asset finance commitment is that, having already provided $5 billion over the past two years, the average rate of financial support for the renewable energy and clean tech sector would be lower for the remainder of the commitment period, falling to $2.14 billion per year.
Climate risk management and disclosure
NAB has joined with ANZ as a participant in the United Nations Environment Programme Finance Initiative pilot project for implementing the Financial Stability Board's recommendations on climate risk disclosure.
Implementing the Financial Stability Board's climate risk disclosure recommendations is fairly standard among the big four banks. Aside from NAB and ANZ, Westpac has stated that it would work with the UNEP FI and Financial Stability Board's Task Force on Climate-Related Financial Disclosures to seek clear, comparable and material climate disclosures - we note this does fall short of a commitment to implement the recommendations. Commonwealth Bank's Climate Change Policy Position Statement is clearer, committing the bank to adopting the TCFD recommendations.
Consistent with 2ºC or less?
The trends in the bank's own lending and exposure to fossil fuels over the past year utterly contradict the intent purported in NAB's 2016 Sustainability Report, and certainly the confirmation from Dr Ken Henry that the bank's loan book would reflect the material decrease in fossil fuels that is required to deal with climate change.
The Sustainability Report was an opportunity to set the bank on a different course but, beyond the positive news on future renewable energy investment, fails to limit NAB's fossil fuel exposure to the sectors most responsible for driving climate change.
While a comprehensive response to climate change is an extensive and complex piece of work, especially for a major financial institution, there are a few fundamental ingredients that it should contain. These include commitments to not finance the expansion of the fossil fuel industry beyond its current size and to reduce exposure to fossil fuels as quickly as possible.
Major financial institutions such as NAB should also be exerting their influence on the public debate on climate change and energy, advocating publicly and strongly for polices that accelerate the transition to a low-carbon economy, while steering the companies they are invested in to disclose and manage their own climate risks.
This Sustainability Report has restored the doubt that previously existed in NAB's capacity to act in accordance with its commitments to hold global warming below two degrees.
After a year where seemingly positive trends on clean energy lending and rhetoric over climate change action had seemed to set the bank apart, an abject lack of commitment in the Sustainability Report to manage the fundamentals of a climate change response and worrying trends emerging in the banks' own exposure to fossil fuels indicate stagnation at best.
The fact that NAB is undertaking a review of its risk appetite statements on a number of carbon intensive sectors and those heavily exposed to climate risk is encouraging, but would need to reflect an intent to drive NAB's investments rapidly away from fossil fuels if the bank it to again be taken seriously on climate change.