We were therefore very pleased to see in their reporting season update that CBA released updated commitments and targets on their oil and gas lending, including:
• Ruling out project finance for new oil and gas extraction and for expansion of existing oil and gas extraction.
• Requiring fossil fuel clients to commit to verifiable transition plans by 2025 encompassing Scope 1,2, and 3 emissions and aligned to a Paris Agreement “well below 3 Degrees “pathway.
• These Transition Plans will include criteria such as Net Zero Ambition, targets, strategy, governance, and disclosures. CBA also notes that Climate Action 100+ (of which Ethical Partners are active members) is a widely recognised pathway.
• CBA also note that they have engaged an external party to help assess clients transition plans. These assessments will commence in 2024 and complete by the beginning of 2025.
• Where clients transition plans do not meet CBA’s expectations, the bank may end the relationship.
Whilst not perfect, these updated commitments are a very welcome development, placing CBA well ahead of their peers and sending a powerful message to fossil fuel companies.
We particularly note the inclusion of Scope 3 in the customer transition plan requirements and note that this would rule out loans to customers who do not have a Scope 3 alignment, as well as companies who have repeatedly failed to provide credible transition plans. We are also pleased to note how this new policy aligns with comments from CBA’s Chair at the 2022 AGM, who indicated that companies without transition plans by 2025 would be unbankable.
A detailed and thoughtful independent analysis of these new commitments by Climate Energy Finance, who state that CBA has “meaningfully stepped up’, is also available upon request.
These new commitments have been widely welcomed, including by the Climate Council, Market Forces (who brought the above-mentioned shareholder resolutions over recent years), and Equity Generation lawyers, who have been involved in litigation regarding decarbonisation progress with CBA.
Ethical Partners has continued to engage strongly on these new commitments during two subsequent engagements with the CBA executive this week, and will continue to ask for further detail on how these new commitments will be enacted – particularly regarding:
- how customer transition plans will externally be verified, including whom the external party engaged by CBA will be?
- what exact frameworks will be used to verify credibility of transition plans?
- what clear and timely disclosure will be given to investors on the client assessments and their outcomes?
Additionally, Ethical Partners will continue to engage with CBA regarding remaining concerns, as per the Climate Energy Finance analysis:
- A wider definition of the restriction of finance to oil and gas infrastructure to include all oil and gas infrastructure (greenfield and brownfield) in line with ING and HSBC policies.
- the need for a more vigorous 1.5-degree alignment of Transition plans as per the IEA and the IPCC scientific research.
- its stance on providing corporate debt that subsidises the balance sheet of companies that are misaligned to the transition.
- formal measures for ending facilitation of capital markets where those activities expand the supply of fossil fuel.
We also look forward to continuing our engagements with the other Australian Banks to follow CBA’s leadership and set strong oil and gas exposure targets as soon as possible.
We were also very pleased to see that CBA has also progressed on their consideration of natural capital, another area of deep engagement over the past year.
CBA provided disclosure in their results information that they have assessed their nature related impacts and dependencies using the ENCORE tool (as recommended by the TNFD, and which Ethical Partners has also used to assess impacts and dependencies across our portfolio). They have also nominated agriculture and mining as their natural capital priority sectors.
This builds on their membership of the TNFD Forum, and our previous engagements with the CEO on Natural Capital risk and opportunity, and we are therefore very pleased to see this progress.
We were also pleased to see a range of biodiversity and natural capital commitments in their new E & S framework, including that they consider biodiversity loss and water scarcity in their assessment of large transactions, as well as numerous other commitments regarding World Heritage sites, wetlands, adverse land use, biodiversity loss, water scarcity and special provisions for loans to logging, palm, soybean, timber, beef, cacao, coffee, cotton, rubber, and fishing, for example.
Ethical Partners look forward to continuing our engagements on the detail of these commitments, and in particular:
- what due diligence is conducted, and what are the frameworks to ensure credibility, as well as the consequences for non-compliant customers.
- portfolio wide financed deforestation, water and circularity targets with CBA and the other Australian Banks over the coming year.
(We note that at the time of writing, Ethical Partners maintains an overweight position in CBA and continues to rate CBA as the ESG leader in the Australian listed banking sector).
Note: The original published article made reference to Clean Energy Finance. This has been subsequently corrected to say, Climate Energy Finance
