Australia’s big four banks' fossil fuel exposure remain in billions

They are exposed to methane emissions, which they do not measure separately.

Although Australia’s big four banks have reduced their project finance to fossil fuel companies, their overall exposure remains in the billions, according to the Institute for Energy Economics and Financial Analysis (IEEFA).

The major banks— Australia and New Zealand Banking Group (ANZ), Commonwealth Bank of Australia (CBA), National Australia Bank (NAB), and Westpac— are largely overlooking risks associated with methane emissions during fossil fuel production, IEEFA said.

“Although banks recognise the methane risks in other sectors, they tend to ignore the methane emissions from their coal or oil & gas clients,” says Anne-Louise Knight, IEEFA’s lead coal analyst for Australia.

None of the major banks report methane emission estimates separately from the carbon dioxide emissions for these companies, Knight said.

Some of the banks base their plans on outdated versions of the Inetrnational Energy Agency (IEA)’s net zero emissions scenario.  

None of the banks has set a date for phasing out financing for metallurgical coal mining.

“This poses climate exposure risks, as met coal is more methane-intensive to mine than thermal coal on average. The problem is compounded by problems in the way banks classify whether a client is a thermal or met coal miner,” IEEFA warned.

Methane is responsible for about 30% of the post-industrial increase in global temperatures, Knight said.

IEEFA advised that banks should make submission of climate transition plans for all fossil fuel clients mandatory, and that they should integrate methane into emissions accounting and customer transition plans.

Banks should also make it mandatory for clients in methane-intensive sectors to provide independent verification of self-reported methane emissions, IEEFA said. Banks should also consider setting phase-out targets for metallurgical coal financing, it said.

“Australia’s major banks have taken significant strides in addressing their climate-related financial risks and setting decarbonisation targets,” Knight said.

“However, the credibility and effectiveness of these efforts are undermined by various critical shortcomings – most notably the inconsistent, often inadequate treatment of methane emissions,” she added.