By Morgan Pickett, Senior Policy Analyst, Market Forces, a clean energy finance advocacy organisation.
Macquarie Group began life in Sydney in 1969 with just three employees. Today, Macquarie is one of Australia’s most powerful financial institutions, operating across 30 markets globally, and boasting more than A$700 billion in assets under management and A$4.8 billion in annual profit.
Expanding beyond traditional banking into almost every corner of global finance, Macquarie’s rise has been driven by a particularly cutthroat form of capitalism with an appetite for high risk in pursuit of higher returns.
But its approach to climate change is pushing that high risk-reward identity to a disturbing extreme – treating the prospect of catastrophic levels of global warming as a business opportunity for fossil fuel expansion.
At its annual general meeting (AGM) last month, Macquarie Chair Glenn Stevens even remarked that the impacts of a 3°C hotter world, while uncertain, could even prove favourable to Macquarie.
Climate experts and emergency leaders including former NSW fire chief Greg Mullins are warning about what a possible “super El Niño” event would mean for the Australian summer ahead. Yet Macquarie’s cavalier approach to fossil fuel expansion should be setting off more alarm bells.
Ahead of the AGM, Macquarie weakened its climate position, replacing its previous commitment to align all financing with net-zero by 2050 with a more generic “ambition to support the goals of the Paris Agreement”.
Macquarie cited International Energy Agency (IEA) scenarios in which governments fail to make further progress on the Paris goals as justification for the Group’s position that “new, yet-to-approve conventional oil and gas projects are needed”.
Many took Macquarie to task over this change in direction, including almost one-fifth of shareholders, with some of the world’s biggest pension funds, who backed a resolution at the company’s AGM, calling on the Group to explain how its support for fossil fuel expansion is consistent with its climate commitments.
Among those challenging Macquarie at its shareholder meeting were climate scientist and Intergovernmental Panel on Climate Change lead author Professor John Church, and former Royal Dutch Shell executive and Australian Coal Association chair Ian Dunlop.
Mr Dunlop outlined that the IEA models Macquarie is using to justify its aggressive increase in fossil fuel expansion, lead to temperature increases of 3°C that would be “absolutely catastrophic and … not liveable worlds.”
Macquarie’s Chair Glenn Stevens defended the Group’s approach and stated that its climate modelling had found no material impact on its business over the next five years, while longer-term modelling was “too uncertain to be decision-useful”.
Remarkably, Mr Stevens then added: “I would note that that uncertainty could cut the other way, not just the way that you set out.”
The reality is, uncertainty surrounding climate change does not ‘cut both ways’ in any meaningful sense.
We know the economic, social and environmental risks are real and will become more severe in a hotter world. The entire purpose of the Paris Agreement is to recognise that we are on a dangerous trajectory, that greater warming brings greater risks, and that we must change course to avert them.
We also know, as the world’s leading climate and energy bodies, the IPCC and IEA, state, that to achieve the goals of Paris and limit warming to well below 2°C, no new fossil fuel projects can go ahead and coal, oil and gas use must be rapidly reduced and phased out.
The fact that modelling cannot predict the full extent of the economic damage from climate change is also known.
Last year, Australia’s first National Climate Risk Assessment identified 63 nationally significant climate risks with significant economic and human costs that are all projected to rapidly escalate between 2°C and 3°C of warming.
Critically, the Risk Assessment also highlighted that current modelling methodologies – including those used by Macquarie, Governments and Reserve Banks around the world – are likely to “significantly underestimate the economic impacts”.
The uncertainty is not whether climate change will cause harm – it is how severe that harm will become. It certainly will not ‘cut the other way’.
In finance, uncertainty about the scale and timing of a downside is not normally treated as evidence that the downside might prove beneficial, it is a reason for greater caution.
What’s concerning is that Macquarie’s assessment of climate-related risks and opportunities: “have not resulted in any current or anticipated effects to Macquarie’s business model, resource allocation, strategy or related decision-making processes.”
Macquarie’s confidence in transcending climate impacts is especially alarming because the Group is making financing decisions today that will increase emissions and worsen those impacts for decades. These consequences extend far beyond the company and its investors.
Over the past three years, Macquarie has emerged as Australia’s most aggressive fossil fuel financier, tripling its financing for oil and gas while Australia’s big four banks have cut lending by nearly $8 billion.
Macquarie has recently backed several new, enormous, LNG export projects including Amigo LNG, Texas LNG and Alaska LNG. The investment bank has also increased its catalytic financial support for fracking in Australia’s Beetaloo Basin – potentially one of the world’s largest gas developments – intended primarily for exports.
These gas projects are commercially incentivised to operate for decades and would, displace renewable energy investment at a critical juncture, committing the world to catastrophic warming of 2.5-3°C.
Macquarie is treating a scenario where the world reaches severe levels of warming as a business opportunity for fossil fuel expansion, rather than a catastrophe that can and must be avoided.
Big investors are beginning to recognise the problem. Australian superannuation fund, and Macquarie investor, Vision Super is one of the many shareholders calling for the Group to outline how funding big gas projects is aligned with global climate goals.
In its voting rationale, Vision Super stated: “Macquarie has ‘an ambition to support the goals of the Paris Agreement’. It is not clear what this means. It is not clear how financing long-term fracking projects in the Beetaloo Basin or Sandow in Texas supports this ambition, whatever it is.”
Vision Super has nailed the contradiction. More of Macquarie’s shareholders and stakeholders should be pointing this out and asking these questions – and as a new chief executive prepares to take the reins this November, now is the optimal moment.
Incoming chief executive Greg Ward will have an opportunity to resolve Macquarie’s climate contradiction as he writes the next chapter of the Group’s history.
Macquarie does not need another carefully worded statement of climate ambition. If the millionaire’s factory genuinely supports the goals of the Paris Agreement, it needs to stop providing further financial support to major new fossil fuel projects, including the Beetaloo Basin.
The next chapter of Macquarie’s history must not be written around the assumption that worsening climate change is a profitable business case. It needs to be about using the Group’s significant financial power to avert it – not only for Macquarie and its investors, but for all of us.—-