ASFI co-chair Simon O’Connor

Major banks, insurers and super funds have come together in an unprecedented coalition, releasing an ambitious plan that could see the fossil fuel industry struggle to attract future capital. 

The roadmap – consisting of 37 recommendations – to reshape Australia’s financial system and accelerate the transition to a net zero emissions economy by 2050 has been released this week by the Australian Sustainable Finance Initiative. 

Backed by over 80 organisations, the roadmap calls on the sector to put sustainability at the core of decision-making, reduce the “poverty premium”, invest in long-term job creation and provide capital that supports the delivery of the Paris Agreement. 

Late in 2019, the Banking on Climate Change report unveiled 33 of the world’s largest banks had financed fossil fuels to the tune of $1.9 trillion since the Paris Agreement was adopted three years earlier in 2016. 

In Australia, the big four banks were found to have invested $70 billion in fossil fuel projects since 2008.

But ASFI co-chair Simon O’Connor says a preference for cleaner investments is fast emerging as the world distances itself from the fossil fuel industry. 

Today, Mr O’Connor says the big four Australian banks all have commitments in place. 

“This sends a loud signal to businesses, including the fossil fuel industry, that they need to be in line with the Paris targets or it will be difficult for them to attract capital,” he said. 

“What we are seeing globally and what will be elevated here in Australia is capital en masse will go towards cleaner industries and assets – it will be a necessity for businesses to be able to demonstrate they are part of the transition, or they’ll be in trouble.” 

Yet commitments are not new in the banking world. In 2015, both Commonwealth Bank and NAB issued public statements supporting the goal to limit global warming to less than 2°C above pre-industrial levels. 

At the time, Commonwealth Bank was Australia’s second largest lender to coal and gas and the smallest lender to renewables out of the big four banks.

“As a financial institution, we play a role in supporting the transition to a low carbon economy and will continue to actively seek opportunities to lend to, invest in and support innovative technologies and businesses that decrease dependence on fossil fuels and mitigate the effects of climate change,” a Commonwealth Bank spokesperson said. 

The turbulent year that was 2020, serving up catastrophic bushfires, floods and drought in Australia, was the major catalyst for the roadmap, Mr O’Connor said. 

“As governments across Australia – federal, state and local – set a direction for a stronger and more sustainable nation, this roadmap is the financial services sector’s contribution to ensuring our sector is aligned with this future. As an industry, we are ready to lead and play our part.

“The financial services sector recognises the critical role it needs to play for Australia to recover from the pandemic and to prepare for our future challenges. We need to mobilise now to enable a prosperous and thriving economy, which can only be delivered while investing in a sustainable and resilient society, and healthy environment.”

The roadmap’s 37 recommendations are focused on four key items:

1. Embedding sustainability into leadership
2. Integrating sustainability into practice
3. Enabling resilience for all Australians
4. Building sustainable finance markets

“The roadmap signifies a step change in how the finance sector does business,” ASFI co-chair Jacki Johnson said, adding that the plan provides a path towards a sector better prepared to face future risks. 

“We are seeking to re-orient capital – where capital is lent, what it insures and where it is invested – to supporting and building value today while strengthening the economic, natural and social assets that underpin our long term prosperity,” she said. 

Emma Herd, chief executive of the Investor Group on Climate Change, argues the roadmap sets the finance sector up “for what will be one of the biggest investment opportunities in history.” 

She says Australia is witnessing an “unprecedented global capital shift” from the old economy to the new net zero emissions version of the 21st century. 

“The recommendations of the Australian Sustainable Finance Initiative provide a clear pathway for the finance industry to ensure it is keeping pace.” 

Beyond Zero Emissions board director Phil Vernon shares the sentiment, adding, “the financial services sector plays a critical and fundamental role in shaping and impacting our society, our economy and the planet.” 

Dr John Hewson, chairman of the Business Council for Sustainable Development, went a step further, stating the sector had a “responsibility” to drive the transition to at least a net zero and sustainable society by mid-century. 

“It is better able to identify, assess, and manage the risks; better able to measure the full economic, social, and environmental costs and benefits of alternative pathways, actions and inaction; while providing the most innovative and affordable finance and insurance cover essential to the various sectoral transitions,” he said. 

Holding the title of Australia and New Zealand’s largest general insurer, IAG has claimed carbon neutrality since 2012. 

Managing director and CEO of the company, Nick Hawkins, said he sees first-hand the impacts a changing climate has on customers and communities during major weather events. 

“It is imperative that the Australian finance sector, government and communities continue to work together to find solutions that ensure a prosperous economy while also delivering a sustainable future for our communities and the environment. 

“The roadmap provides practical recommendations to help guide how all Australian financial institutions can contribute to a more sustainable economy and future for everyone.”