As the government bunkers down around the fossil fuel industry and cries foul at last week’s decision by the Swedish central bank to dump Australian and Canadian bonds due to emissions footprints, the final of the big four banks’ annual reports hit the headlines.
Within hours of NAB’s annual reporting suite being released, Liberal MP Craig Kelly garnered coverage across the nation with his outrage that NAB appears to say it’s ending fossil fuel lending by 2035.
That, of course, is more than 15 years away, something financial market activists Market Forces has criticised as far too distant, given the urgency of the climate emergency.
Market Forces summed up the bank’s pledges around fossil fuel financing as “too little, too late”, noting that signatories to the Global Investor Statement on Climate Change are calling for a complete exit from thermal coal financing by 2030 in OECD countries.
“By signalling to coal power plant operators that they can rely on NAB’s support beyond 2030, and having no plan in place to manage down exposure to other fossil fuels such as oil and gas, this is far from a responsible approach to minimise climate risk,” Market Forces executive director Julien Vincent said.
Last week the European Investment Bank decided to act even more swiftly, announcing it would end almost all fossil fuel financing by 2021, little more than a year from now.
While the NAB report showed changes in investment between 2015 and June 2019, Market Forces looked at data specifically for FY 2019 and found its exposure to fossil fuels increased by 30 per cent during the period.
By contrast, ANZ’s exposure decreased nine per cent, Commonwealth Bank’s exposure decreased by 15 per cent and ANZ’s also decreased, by 15 per cent in the same period.
Mr Vincent said NAB has “failed to move on oil and gas and they now have a coal policy that is misaligned with the Paris climate goals.”
In something of a sad irony – or bad timing – its 2019 sustainability report identified risk of cyclones, drought and flood, but not bushfire, which is having the greatest impact on its housing and agricultural investments right now.
The bank has aligned its activities to the Sustainable Development Goals, with substantially more detail around social, governance and reputation-salvaging measures than specific environmental metrics. There are multiple programs aimed at educating and “empowering” executives and staff to deliver on bank visions, promises and goals for customers and its business.
Data in the sustainability report showed renewables are now 69 per cent of the bank’s power generation investment exposures, up from 43 per cent in 2015.
Of $7.3 billion energy sector exposures from project lending in 2019, less than $2.3 billion was to fossil fuel projects including coal, gas, oil and “mixed fuels” in the non-renewable category.
Broadly, it aims to increase its “environmental financing” commitment – which also includes infrastructure projects, water projects and agriculture projects – to $70 billion by 2025.
The pledge that so outraged Kelly around fossil fuel projects has some grey areas. The bank states it is “supporting current coal-fired power generation customers implementing transition pathways aligned with Paris Agreement goals of 45 [per cent] reduction in emissions by 2030 and net zero emissions by 2050.”
But 2050 is quite some time away.
The bank will not finance new or material expansions of coal-fired power generation facilities “unless there is technology in place to materially reduce emissions.”
Whether this technology includes the purchase of offsets elsewhere remains to be seen. The report did note NAB supports an effective price on carbon, and already factors carbon price estimates into its modelling.
Thermal coal mining exposures will be capped at current levels, and financing will be reduced by 50 per cent by 2028 and is “intended to be effectively zero” by 2035. This all applies to existing customers, however, as it says it won’t take on new-to-bank thermal coal mining customers.
Given the complex structure and multi-tentacled nature of coal mining entities in Australia, that does not appear to rule out financing new projects by existing or even previously existing customers.
So, Kelly is probably getting worked up for no genuine reason and is also repeating information that is not empirically accurate.
Another initiative outlined is a new “sustainability-linked loan” (SSL) to help companies in the “brown” space transition to green. The financing arrangement incorporates social and environmental behaviour-based incentives.
“Behaviour-based debt is an opportunity to incentivise faster and greater social impact in sectors not easily transitioned to more sustainable business models,” the report said.
“It is overtaking proceeds-based sustainable debt in terms of volumes raised. This approach can extend some of the benefits traditionally associated with green finance to ‘brown’ sectors.”
Two examples cited are SSLs to Sydney Airport and AGL.
The SLL requires the airport to have its sustainability performance assessed by ratings agency, Sustainalytics, with a target to increase its ESG risk rating over time.
The AGL SSL focuses on two key areas for improvement over the life of the loan – reducing emissions intensity and a target for renewable energy and storage capacity.
- Read NAB’s 2019 Annual Report and Sustainability Report