“We are embracing this, and believe we are well-placed to shape and support the required transition.”
To hit the Paris goals, ANZ “may end up increasing exposure, it may mean the direct emissions we count from our customers could actually go up”, he added.
ANZ provides more funding for big projects than any of the other major banks, and has been the key domestic financier of the Australian resource industry for decades. Environmental groups labelled its new policy as inadequate to help prevent the world from overheating.
They want banks to commit to funding no new lending to gas, oil or coal projects, in line with the International Energy Agency, which has said there is no room for new fossil fuel supply projects if the world is to achieve net-zero emissions by 2050.
Market Forces, an activist group that has filed a protest resolution at ANZ’s annual general meeting in December, criticised the new ANZ policy for failing to rule out lending to new fossil fuel projects, which it considers should be the standard for all the major banks.
ANZ’s interest in energy customer transition plans had been cast as an expectation rather than requirement and Market Forces said, “it is entirely unclear what ANZ expects of these plans and strategies in order to justify continued or restricted funding”.
Another environmental activist group, 350.org, said the new policy “fails to adequately meet their own commitment to net zero emissions by 2050”.
The Australian Conservation Foundation said it would continue to lobby for ANZ to fully divest from oil and gas by 2030.
“All the banks will face sustained pressure to demonstrate they are aligning with the goals of Paris Agreement and that pressure to demonstrate action and responsiveness – from civil society and their investor base – is going continue to grow,” said EY partner Emma Herd.
“We are not quite hitting goals we need to be, and the banking sector will continue to accelerate the actions they are taking particularly after COP26. We are seeing momentum in the finance sector accelerating and the Australian finance sector is moving in step with its global peers.”
ANZ’s new policy was announced an hour after the Australian Prudential Regulation Authority on Friday said bank boards need to be closely involved setting risk limits around climate change, and urged banks to use the Financial Stability Board’s Taskforce for Climate-related Financial Disclosures (TCFD) as a template for communication with the market.
“Most APRA-regulated entities recognise the potential challenges of climate change, such as future changes in consumer and investor demand, emerging technologies, new laws or adjustments in asset values, but they don’t always have a good understanding of how to respond,” said APRA chairman Wayne Byres.
ANZ cut lending to expansionary fossil fuel projects by 37 per cent to $225 million in 2020 compared to 2019.
Unlike National Australia Bank, ANZ has not introduced a cap on overall lending to the oil and gas sector, which Mr Elliott said could result in the “wrong outcomes”.
NAB said earlier this month it had capped oil and gas loans at $US2.4 billion ($3.2 billion), just above the current level, which will allow it to keep lending as existing financing rolls off. NAB also said it would support greenfield gas extraction in Australia which “plays a role in underpinning national energy security”.
Mr Elliott said caps are a simple solution and said ANZ had considered them but had asked, “are we just trying to look good or are we actually trying to have an impact? We are trying to have an impact on lower emissions and our view is we should give more finance to those companies that are actually driving global lower emissions for the planet, not moving them around.”
ANZ will push customers to reduce the intensity of emissions to guide the economy towards net zero by 2050, via new “intensity reduction pathways”, and the briefing on Friday has provided detail on these for the commercial property and electricity generation sectors, with oil and gas to follow.
For all energy customers, ANZ said it wanted to see customers develop “specific, time bound, public transition plans and diversification strategies”.
New customers would need to satisfy the bank of their Paris aligned plans before funding is provided, while existing customers have until 2025.
ANZ said energy customers should report “transparently” on climate risk and alignment to Paris goals, and customers in the oil and gas sector should be planning on capturing and storing methane in line with the ‘methane guiding principles’.
It wants to see oil and gas customers measure and disclose Scope 3 emissions from supply and value chains, and Mr Elliott said carbon capture and storage technology could play a role, over the medium and long term, to support industries that are not easily decarbonised.
Sector glide paths
Setting new intensity reduction targets for commercial property, ANZ said it would push customers to a 60 per cent intensity reduction by 2030; for power generation, the new target is for a 50 per cent emission intensity by 2030.
Mr Elliott said targets for the oil and gas sector would follow, and similar glide paths will be developed for other carbon intensive sectors in future, in line with ANZ’s commitment to the Net-Zero Banking Alliance chaired by Mark Carney.
Mark Whelan, group executive of ANZ’s institutional bank, said for new customers – and existing customers who are considering new projects, like Woodside –“we have not ruled them out, but we have set the bar higher” than existing projects requiring additional funding.
“Their starting point would have to be significantly better than existing customers and our benchmarks for them will be really high. We don’t rule it out, if we think it is in the best interests of getting to a better outcome to 2050, but these will be the exceptions not the rule,” Mr Whelan said.
If new customers are being “aggressive to manage reductions in this space, we would consider them,” he said.
“I think they will be exceptions rather than rules, given the level of hurdle rate we will put in with regard to them. We think that is an appropriate, pragmatic way to support transitions to the outcomes we want to see by 2050.”
ANZ provided an update on work with its largest 100 emitting customers, which produce 150 million tonnes of direct CO2 emissions, around 30 per cent of Australia’s total. Around 20 per cent of them do not have a public plan regarding the transition.
“Many customers have clearly demonstrated their intention to develop Paris-aligned or science-based targets,” ANZ said. “As part of our engagement we expect more customers to make substantive progress towards their targets and improve their plans.”
EY’s Ms Herd, formerly CEO of the Investor Group on Climate Change, said, “we are seeing all financial institutions dealing with the challenges of transition: how quickly it will happen, how will it play out across different industry sectors, export and domestic, and what companies should do about it.
“It is a challenging to get the balance to get risk, from a credit risk perspective,” she said. “But all of them are integrating carbon risk considerations into credit risk and looking at how they work with customers, while growing sustainable finance operations to meet demand for new investment opportunities.”
Read More: ANZ will keep lending to oil and gas