Australia's big banks slashed loans to fossil fuel companies by almost a fifth in 2017, including a 50 per cent drop in their coal mining exposure, new analysis shows, as investors and regulators ramp up pressure over climate change risks.
ANZ Bank, National Australia Bank, Westpac and Commonwealth Bank's combined loans to coal miners slumped by about $1.5 billion, or more than 50 per cent per cent, according to analysis of bank disclosures from environmental finance group Market Forces.
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| Banks are cutting their exposure to fossil fuels, especially coal. |
While banks have acknowledged the broad trend, the extent of the fall highlights the change that is occurring as companies face growing scrutiny on climate risks from big investors including superannuation funds.
"Given that this is the second year running that the banks' reported exposures to the fossil fuel sector have fallen by around 15 per cent, it represents a huge drop overall. But in the context of the bank's commitments on climate change, it is no less than what you would expect to see," said Market Forces executive director Julien Vincent.
The figures from Market Forces, an affiliate of Friends of the Earth Australia, show that as well as cutting fossil fuel financing, the lenders had boosted exposure to renewable energy by 20 per cent, or about $1.8 billion.
The analysis found Westpac fossil fuel exposure fell by a third to $5.5 billion, while Commonwealth Bank's total exposure was $9.5 billion, which it estimates as a fall of about a fifth. CBA does not publish like-for-like data from 2016, which prevented an exact comparison, but its chair Catherine Livingstone told shareholders last year coal exposure was falling and would continue to do so.
It found ANZ's exposure fell 15 per cent, though an ANZ spokesman pointed to different data that said total exposure to fossil fuels fell 12.2 per cent, to $12.9 billion. ANZ chairman David Gonski told shareholders last month that its exposure to coal had slumped by more than 50 per cent in the last two years, and it had not funded any new coal fired power stations in 2017.
The analysis shows National Australia Bank's exposure also fell in each sector except for oil and gas extraction, where it increased by $3.1 billion, to $7.4 billion. It is understood this occurred because of a short-term financial product, rather than a loan, and the exposure was flat on an "underlying" basis.
The industry-wide decline in fossil fuel financing comes as investors and regulators step up pressure on banks to consider the risk of holding assets that could become "stranded" as the world moves towards renewable energy.
Underlining this pressure, the world's largest investment manager, Blackrock, last week signalled that companies it invests in would be pushed to consider climate change risks.
Vice-chairman of the investment giant, Philipp Hildebrand, told a session in Davos that its asset owner clients were increasingly demanding products that took into account climate risks, and that trend was likely to take off.
“We’re going to have our licence to operate withdrawn if you’re a company that doesn’t pay attention to these things. This is I think is a new development,” Mr Hildebrand said on a panel session.
Tim Buckley, energy finance analyst at the Institute for Energy Economics an Financial Analysis, said Australian banks had been relative laggards on climate risks, but they were catching up to lenders overseas.
Pointing to Blackrock's comments and a recent move by Lloyds of London to stop investing in coal, Mr Buckley said there was clear global momentum for further cuts in banks' fossil fuel exposure.
"It does create a bit of a snowball, when you've got the major banks, you've got the insurers, and now you've got the biggest investor in the world moving," Mr Buckley said.
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