16 October 2019
In August, Commonwealth Bank took a major step forward when it committed to get out of thermal coal by 2030, a commitment that no other major bank has so far made.
Today, shareholders showed their appreciation for this commitment, but quickly moved to hold the bank to account for its ongoing role in financing new fossil fuel projects and companies whose business strategies depend on the failure of the Paris Agreement.
A recurrent theme of the meeting was Chairman Catherine Livingstone’s failure to properly address most questions, instead opting to speak to topics and points irrelevant to the matter at hand, resulting in shareholders needing to reiterate questions and ultimately walking away disappointed.
Julien Vincent from Market Forces took the bank to task over its decision in September to finance a new gas pipeline in the United States that will enable enough gas to match 8% of Australia’s greenhouse gas emissions. This is despite CommBank committing in August to “only providing Banking and Financing activity to new oil, gas or metallurgical coal projects if supported by an assessment of the environmental, social and economic impacts of such activity, and if in line with the goals of the Paris Agreement“.
Livingstone failed to acknowledge whether the Permian Highway Pipeline was inconsistent with the Paris goals and therefore whether it breached CommBank’s recently published Environmental and Social Framework. Market Forces believes a breach has likely occurred given recent findings, including those published in the world’s foremost scientific journal Nature, “that little or no new CO2-emitting infrastructure can be commissioned, and that existing infrastructure may need to be retired early (or be retrofitted with carbon capture and storage technology) in order to meet the Paris Agreement climate goals”.
Livingstone failed to agree to provide the assessment required under the Environmental and Social Framework to approve finance for the gas pipeline. Critically, Livingstone also failed to commit to review whether proper process was followed in CommBank’s financing of the pipeline and failed to comment on whether any disciplinary action would be taken over the potential breach.
“Breach of our [Environmental and Social] Policy may be regarded as misconduct, which can lead to disciplinary action (including termination of employment or engagement).”
CBA Environmental and Social Framework, August 2019
Instead, Livingstone told shareholders that CommBank “regard[s] gas as a transition fuel when it’s being used as a substitute for coal-fired power”, pointing to “a very significant move to decommission coal-fired power and to bring in gas as a substitute fuel” in the United States. This is despite the significant declines in gas use required to hold global warming to 1.5°C, findings that gas should not be considered a transition fuel and a recent study questioning the economic justification for new gas-fired power plants and gas pipelines in the US.
Because clean energy already out-competes gas power plants and will soon lead to their early retirement, the underlying economic justification for new pipelines is now in question. The report finds that over 95% of gas use in proposed gas-fired power plants across much of the eastern United States could be economically offset by clean energy by 2035, reducing the utilization of proposed new gas pipelines by between 20-60%.
This reduction in gas flowing through new pipelines would, in turn, dramatically increase the costs that customers or shareholders will face in continuing to operate these pipelines. The report identifies the risk of a “death spiral,” where declining sales volume leads to higher prices, which in turn lead to further declines in sales. This reinforcing feedback loop would only end when pipeline projects go bankrupt and/or cease operations altogether.
Rocky Mountain Institute, September 2019
Further, given Livingstone’s stated support for gas “when it’s being used as a substitute for coal-fired power”, Livingstone failed to provide assurances that gas transported through the new pipeline would only displace coal and not low-carbon energy such as wind and solar.
In response to another shareholder, Chairman Catherine Livingstone said the bank supports the goal of reaching net-zero emissions by 2050, but was cagey about CommBank’s ongoing support for companies that are actively seeking to expand the fossil fuel industry, such as APA Group, Beach Energy, Oil Search, Origin Energy and Santos.
In her response, Livingstone acknowledged that CommBank was “committed to the ultimate objective of the Paris Agreement, which is the net zero emissions by 2050”. However the Chairman failed to explain why CommBank continued to support fossil fuel companies that actively undermine that agreement.
When asked if its exposure to fossil fuels will continue to decline into the future, Livingstone pointed to past declines in exposure rather than addressing the question.
Another shareholder questioned the bank on the carbon intensity of its superannuation products and why it continues to invest in companies actively undermining the Paris climate goals.
Regarding its investments and superannuation business Colonial First State, the board was asked why CommBank’s annual report only disclosed the carbon intensity of a select few of its superannuation product offerings, rather than for every product.
Livingstone ignored this question, instead focusing only on the second part of the shareholder’s question; whether there are targets in place to reduce the carbon intensity of CommBank’s superannuation share portfolios over time. The answer was “yes”, though Livingstone failed to articulate what these targets were.
Asked if Colonial was still invested in companies whose stated business intentions are contradictory to the Paris goals and whether there was anything preventing such investment, Livingstone refused to say if super fund members’ money was invested in such companies and then spoke about a subject irrelevant to the question.
Livingstone concluded by offering to “perhaps look at further disclosures when we come to next year’s annual report”, though it’s unclear what exactly this referred to or would involve and, notably, was not an offer to set carbon intensity targets consistent with the Paris Agreement for its superannuation offerings.