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The Commonwealth Bank of Australia (CBA), the country's largest mortgage lender, is the first major Australian bank to start walking away from funding fossil fuel companies without genuine emissions plans.
In its latest climate report, released on the same day it posted close to $10 billion in full-year net profit, the bank stated that it had already been ditching clients not aligned with the Paris Agreement.
The real-world effects of the bank's new policy could be put to the test as soon as next week, with a major gas loan reportedly being signed off without CBA at the table.
Last year, the bank announced from 2025 it would not provide loans to any coal, oil, or gas companies that did not have a transition plan in line with the Paris goals to avoid dangerous warming. This week's report shows that it is applying that policy early.
CBA's loans to fossil fuels decreased by 92 per cent from 2018 to 2022, from $4 billion to $267 million, according to analysis from Market Forces, a group that campaigns against investments in environmentally destructive projects.
The bank also halved its exposure to oil and gas companies in the past two years from $3.3 billion in 2022 down to $1.7 billion.
Exposure represents the money the bank is set to lose if the investment fails.
The bank's new lending rules are a major win for the climate movement and groups such as Market Forces, which have targeted the bankrollers of fossil fuels for years.
"This announcement is massive for the domestic banking sector," Morgan Pickett, a bank analyst at Market Forces, said.
"CommBank is the biggest bank in Australia.
"They're the biggest company on the ASX [Australian Stock Exchange].
"For them to say we're not banking companies that aren't compatible with a safe climate, this will be a really big signal to the rest of the market, not just the banks."
Court cases, policies, protests, and shareholder climate activism have been ratcheting up the pressure on banks for years.
If a bank commits to the Paris Agreement, but keeps investing in fossil fuels, it exposes itself to legal action.
Climate change also presents a major risk for banks. As climate-related disasters increase, they are exposed through the homes covered by their mortgages.
"To help us effectively manage our climate risks, we monitor the impact of weather events and natural disasters on our business and customers, including in our home lending portfolio," CBA's climate report stated.
It calculated that it has about $30 billion in home loans exposed to high physical risks like cyclones, floods, and fires.
And, as Cassandra Williams from the not-for-profit research group Climateworks points out, the world is moving away from fossil fuels, so they are increasingly uncertain investments.
"Climate brings with it both risks from a stranded asset point of view, but also tremendous opportunities that can have a bottom line effect on both your company and your investment returns," she said.
"The writing's on the wall. Companies that move the quickest and approach climate as an opportunity, future-proof themselves for a net zero economy, and will stand to gain.
"This just makes good commercial sense," she said.
"What we've seen now is one of the big four making the move. CBA is leading the charge, and we're really excited to see the other banks, ANZ, Westpac, NAB and Macquarie, what they'll do next."
Transition plans under scrutiny
At the core of CBA's climate strategy are what are known in the corporate world as transition plans.
These comprehensive documents outline exactly how a business is going to bring down its emissions in line with what science says is needed to avert the worst effects of climate change.
According to the International Energy Agency's analysis, the world must not approve any new oil, coal and gas projects to keep within those goals.
"The science is clear. There's enough fossil fuel infrastructure already in existence," Market Forces' Mr Pickett said.
Commonwealth Bank uses independent assessors to check the transition plans of its fossil fuel clients, and if they do not meet the bank's criteria, it will not loan to them.
Ms Williams says working out what's considered a robust transition plan is becoming a global issue and is turning the heat up on companies.
"Making sure that transition plans are credible will be critical in this piece, and particularly from a 'greenwashing' and a 'greenhushing' perspective," she said.
"This ups the ante for banks, but also for companies … because otherwise your funding, your capital lifeline might be cut off."
Another part of a company's transition plan that will come under scrutiny is the emissions that it covers.
CBA required scope three emissions to be included in the reports. These are the emissions that come from the products the company produces, such as the emissions from gas that is exported and burnt offshore.
Gas giant Woodside's transition plan was rejected by its own shareholders earlier this year, highlighting the increased scrutiny that companies are under.
CBA has put itself ahead of the other major banks in Australia but there is movement in this space.
Westpac has asked clients to have a credible transition plan in place by September 2025.
ANZ told the ABC it is "supporting the energy sector to transition to net zero".
It said its financed emissions for "oil and gas and thermal coal sectors, have reduced by 25 per cent, 30 per cent and 96 per cent respectively, between 2020 and 2023."
The bank also said it wasn't surprised to be included in the analysis by Market Forces as the largest domestic lender to Australia's energy sector.
The National Australia Bank (NAB) released a statement this week saying it capped its oil and gas exposure at US$2.28 billion ($3.48 billion) and no longer loans money to thermal coal, the kind used for electricity.
Its climate report, however, only says that NAB "intends to require a transition plan" from fossil fuel clients by October 2025 and makes no commitment about what will happen if the transition plan doesn't hold up to scrutiny.
"Every dollar that goes into the fossil fuel industry and enables expansion is one dollar that could be going towards a green energy transition," Picket said
"If you're providing a fossil fuel expander with money, even if it's not clearly outlined that it's for [an] expansion project, it still frees up capital within that business to deploy on new and expanded projects which aren't compatible with the safe climate."
Santos deal in the spotlight
Next week gas giant Santos is expected to finalise a deal for about $750 million for its operations, according to Market Forces.
CBA will not be providing financing, however, Market Forces claims NAB, Westpac, and ANZ are in negotiations.
"While CommBank hasn't been explicit that they've dropped Santos as a client, they're not on this deal, from what we can see, the arrangers are ANZ, NAB and Westpac," Mr Pickett told the ABC.
In response to questions about the loan, ANZ and NAB told the ABC it would not comment on any of their customers.
The ABC has also contacted Santos, CBA and Westpac regarding the loan.