CBA to cut back financing for new oil and gas projects from 2025, miners to receive continued support
Australia’s largest bank, the Commonwealth Bank of Australia (ASX: CBA), has revealed plans to introduce restrictions on project finance for new oil and gas projects.
Releasing its “2023 Climate Report”, the CBA said it plans to cut back direct financing for new and expanded oil and gas extraction projects from 2025 and will require fossil fuel clients to publish independently verified plans to cut emissions.
Financing key infrastructure, such as pipelines to new oil fields, are also likely to be hit.
Coal funding to be affected
Coal funding is also in line to receive further restrictions as part of the bank’s policy focused on its role in transitioning Australia’s energy sector.
The Climate Report noted that Australia’s electricity grid still remains reliant on coal-fired electricity generation.
“Rapidly replacing this generation with renewables is one of our nation’s greatest medium-term transition challenges and opportunities. Reducing the emissions intensity of the electricity grid is also a key driver to lower emissions in other sectors, including the largest sector in our portfolio – Australian housing,” the report noted.
According to the CBA, transitioning Australia’s electricity grid is the key to achieving the nation’s emission reduction ambitions.
“We acknowledge the continued interest from broader stakeholders and community groups in our exposures to fossil fuel extraction. Our current exposures are approximately half of what we reported in our 2019 Energy Value Chain.
“As Australia’s largest bank, we have an important role in lending to sectors and businesses that will be integral to Australia’s energy transition.”
Environmental and social review
The bank revealed it held a major review of its Environmental and Social (E&S) Framework in the lead-up to publishing the Climate Report.
As an outcome of the completion of the review, the bank elected to expand its commitments in relation to fossil fuels extraction and introduced restrictions on project finance for certain infrastructure dedicated to oil and gas developments.
“We have clarified our expectations for certain customers to have published Paris-aligned Transition Plans by 2025, requiring that the plans include their Scope 1, 2 and 3 emissions, and engaged a third party to assess.”
“We remain committed to not providing project finance to new or expanded thermal coal mines. These commitments remain subject to Australia having a secure energy platform.”
We also remain committed to reducing our financed emissions in thermal coal mining to zero by 2030.”
New transmission investment
The review also found a link to scenario modelling undertaken by national agencies such as the Australian Energy Market Operator (AEMO) which identified a need for investment in new transmission infrastructure and firming technology, including batteries, as critical for Australia’s energy transition.
“AEMO also notes an ongoing need for gas-fired electricity generation, to support the security and stability of Australia’s electricity grid. In supporting Australia’s transition to a net zero economy by 2050, we acknowledge that our lending portfolio will continue to be influenced by the production and energy mix of Australia’s grid as it changes over time.”
Mining sector support needs to be balanced
The CBA said that while it is planning to reduce the bank’s exposures to fossil fuel extraction, it has to be mindful of the future of its remaining largest emitting customers.
It noted that these customers are operating in harder-to-abate sectors such as mining, transport and heavy industry.
“As a country, stakeholders, including lenders, need to balance reducing emissions without unintentionally harming industries that play an important role in the economy, and need long-term support to transition. We intend to continue lending to customers in harder-to-abate sectors, subject to meeting our credit policies and in line with our E&S Framework.
“In harder-to-abate sectors, our customer engagement is focused on understanding our customers’ approach to reaching net zero by 2050, and requesting and considering data on how they can manage their climate-related risks and opportunities. One of our roles is to help ensure we have affordable lending products to support the adoption of new transition technologies.”