Commonwealth Bank paves the way for sustainability lending
The Commonwealth Bank will no longer be offering lending options to fossil fuels who do not have genuine emission plans, and who do not make a genuine attempt to align their sustainability plans with that of the Paris Agreement.
Leading the way
With the Commonwealth Bank leading the way, Australia is looking at the other banks to follow in the footsteps of the Commonwealth Bank, particularly given the finance deal of approximately $750 million for Santas, an oil and gas magnate.
Australia’s largest mortgage lender, the Commonwealth Bank is turning its back on fossil fuels who refuse to implement sustainability plans. This new initiative was announced in the latest climate report, where record profits of $10 billion full-year net profit.
The real-life implementation of this policy is unfolding this week, as a large-scale gas loan is being signed off without the Commonwealth Bank present.
The Bank has announced that from 2025, it would stop lending to “coal, oil, or gas companies” that did have a plan to align with the Paris Agreement objectives to avoid climate change and global warming.
In the years spanning 2018 to 2022, the Commonwealth Bank’s lending to fossil fuel companies decreased by 92%, with a shift from $4 billion to $267 million in lending for fossil fuels. In respect of oil and gas companies that the bank had lending partnerships with this changed from $3.3 billion to $1.7 billion.
Market Force, an innovative group that campaigns against environmentally destructive projects have stated, that this new type of lending which focuses more on environmentally conscious lending is a huge win for climate action. Bank Analyst, Morgan Pickett of Market Forces has highlighted, "CommBank is the biggest bank in Australia… 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."
Climate action activists, court cases and policies have ramped up the pressure on banks to lend responsibly and sustainably for years, however now with the Commonwealth Bank committing to the Paris Agreement it may also expose itself to legal action if it does lend to fossil fuels.
A new direction for lending
The world is shifting away from the use of fossil fuels, and the Commonwealth Bank has highlighted this movement. The Bank’s climate report has emphasised "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."
Cassandra Williams from the Climateworks Centre at Monash University has commented, "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 the new necessity
Sustainability plans that emphasise responsible lending are referred to as transition plans. Such transition plans break down exactly how a business will tackle the challenge of reducing emissions in line with the Paris Agreement.
In terms of its new lending policies, the Commonwealth Bank will use independent assessors in order to determine ensure that fossil fuel client are align with their transition plans, or it will not loan to them.
The Bank will also include scope 3 emissions in the transition plans and requires its client to ensure that they can adequately reduce these emissions. The Commonwealth Bank has put itself at the forefront of initiative in this area and we can only hope other banks follow the new standard set by the Commonwealth Bank.
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