Westpac’s new measures are understood to affect just a handful of customers and the bank’s total exposure to oil and gas is about $2.4 billion. Anthony Miller, Westpac’s head of institutional banking, said all of the bank’s customers are working on how they will get to net zero emissions, and pledged to work with them to achieve the transition.
We set our own goals
“Every client is in this, they’re thinking about what their transition plan should be and their goals. It’s only going to get deeper and more substantive as we go forward,” he said.
“Just like if a client doesn’t meet his financial commitments, we don’t abandon him, we don’t leave, we stay with him and help him. It’s just a partnership, we’ve set our goals, we’ve shared them with customers and we’ve set our own goals.”
Announcing changes to the bank’s lending policies in power generation, cement and oil and gas, including a commitment to reduce oil and gas emissions by 23% from 2021 levels by 2030, King said Westpac would reassess if requested by the government.
“Oil and gas is the main change today, and we thought, but it’s important, if energy security is at risk for the country, we’re going to look at funding new fields,” King said.
“If we need investments for domestic energy security, we’ll look at it. If the government requires it, if a regulator requires it, we’ll look at it.”
Last November, NAB chief Ross McEwan said he had not been asked for the bank to consider new projects and would apply a strict definition of what is in the national interest.
Westpac’s decision to curb lending for greenfield oil and gas expansions follows NAB’s decision last year to impose a $2.4 billion cap on new project financing. Both banks said they would reassess whether the government or regulators consider the new projects essential to national energy security.
With the deal, two of Australia’s biggest banks have fallen in line with the International Energy Agency, which said no new fossil fuel projects should be built to limit global warming to 1, 5 degrees by 2100.
On Wednesday, Westpac became the latest major Australian bank to join the Net Zero Banking Alliance (NZBA), which covers about 40 percent of global banking assets.
ANZ, the first bank to join the NZBA and which leads the big four as a local provider of capital to the resources sector, previously said its issuance could increase in the coming years as new oil and gas projects.
Credible and solid plans
It established sectoral policies for commercial property and power generation last year, but has yet to clarify oil and gas policies. Mark Whelan, New Zealand’s head of institutional banking, recently said the conversation was evolving because of Moscow’s war on Ukraine, with less pressure on banks to quickly divest from fossil fuels.
“Two years ago, we heard a lot [the argument that] you must get off all fossil fuels immediately. What we’re hearing now is a much more balanced discussion of these things from regulators and investors in particular, to say that this is complex. It’s going to take some time,” Whelan said.
Westpac’s transition plan would help it raise capital, and investors are not just asking for commitments, but credible and robust plans to make the transition, King said.
“We need a goal, and we need a plan, and the plan has to mobilize capital. We need that plan for security,” the CEO said.
The NZBA is an industry-led coalition of banks representing around 40% of global banking assets committed to achieving net zero emissions by 2050. ANZ, Commonwealth Bank of Australia, National Australia Bank and Macquarie Group are already members.
The Investors Group on Climate Change (IGCC) welcomed Westpac’s commitment, noting that companies should align to credible projections such as the IEA’s net-zero scenario, suggesting that any move to use national security interests as an “outside” of their commitments should be well justified.
“Investors will be looking closely at how robustly these benchmarks are enforced, the metrics and what exceptions apply,” said Laura Hillis, director of corporate engagement at IGCC.
“Expanding and expanding the oil and gas sectors is not consistent with the 1.5 degree pathways, so investors will welcome the banks’ plans to move away from lending for these projects.”
King said the release of “clear markers” of what the bank would finance would help customers make the transition.
“Across Australia, we now have stronger alignment and momentum on climate action in every state, and I’m optimistic that great progress will be made with governments, industry, business and the community working together.” King said.
The next steel value chain
Westpac will give its oil and gas customers until 2025 to put in place “credible” transition plans, agreeing to continue corporate lending and work with customers to put those plans in place.
The bank also defined the emissions intensity for power generation, saying that 79 percent of its loans to the sector went to renewable energy. Westpac included the cement production industry in its first round of targets because of the emissions intensity of the manufacturing process.
“Our target is designed to enable funding for the sector to continue as the sector moves to new technologies to reduce the release of carbon dioxide in the manufacturing process,” Westpac said.
Westpac said it would publish its net zero transition plan within 12 months of setting targets. Miller said the steel value chain was the next consideration.
“Our intent is to release targets incrementally as we do the work that needs to be done,” said Miller, who listed property, agriculture, transportation and other components of the manufacturing supply chain as next in line .
“The whole focus is to make sure we’ve done that job. The NZBA’s priority is that you have to focus on the most emissions-intensive industries first,” Miller said.