Australia faces a daunting challenge to achieve net zero by 2050.
Key Takeaways
- Industry is starting to focus on the opportunities arising from the planned transition to net zero emissions by 2050
- CBA and its major-bank rivals see themselves as key enablers in a historic shift to a low-carbon economy
- Priority sectors include thermal coal mining, upstream oil extraction, upstream gas extraction and power generation
Mainstream finance is backing rapid decarbonisation strategies that were dismissed only months ago as radical and disruptive to the once-sacred tenets of energy security and stability.
In late September, the nation’s biggest electricity supplier, 185 year-old AGL, capitulated to pressure from its activist billionaire shareholder Mike Cannon-Brookes, announcing it would shutter its coal-fired Loy Yang A power station in Victoria in 2035, a decade earlier than scheduled.
Only days before, Queensland said it would exit its fleet of coal generators over a similar time frame, again 10 years ahead of plan.
Instead of hyperventilating about transition risks, Commonwealth Bank institutional boss Andrew Hinchliff commends AGL for its bold strategy, formulated by a new board after a humiliating backdown on a demerger plan in May.
Hinchliff says the revised blueprint, which features a $20bn investment in renewable and firming capacity by 2036 from the AGL balance sheet, offtakes and partnerships, is “doable”.
“I can’t comment on the specifics of individual clients but the sooner they get off coal-fired power the better; Queensland too,” he says.
“We want to be financing many of these ambitions from companies. But there’s a lot to do.”
CBA provides 23% of all bank lending in Australia and plays a role in 40% of the country’s financial transactions.
As the industry starts to focus on the opportunities arising from the planned transition to net zero emissions by 2050, CBA and its major-bank rivals see themselves as key enablers in a historic shift to a low-carbon economy.
The numbers are stupendously large.
CBA analysis says $2.5-$3 trillion of investment will be required through to 2050, similar in scale to the mining boom from 2005-2015.
Hinchliff has no doubt that the financial system can fund the task, mainly because it will be economic and profitable to do so.
“There’s a lot of capital in the world, irrespective of what’s happening,” he says.
“It’s like water; it will flow to the most efficient places with the highest returns, and to the extent your business is going to be part of the future economy, your risk-adjusted return should be higher and more capital will flow to it.”
– Commonwealth Bank institutional boss Andrew Hinchliff
In its first standalone Climate Report released in August, CBA said it had cut its “financed” or Scope 3 emissions – those derived from a company’s value chain – by 18% since 2020.
Progress against the new Labor administration’s more aggressive legislated target of a 43% emissions reduction target from 2005 levels, and net zero by 2050, is difficult to determine, because standardisation of data across the portfolio remains a work in progress..
In 2022, however, the bank has implemented transition paths and set 2030 targets for a number of priority sectors including thermal coal mining, upstream oil extraction, upstream gas extraction and power generation.
The four sectors were chosen because they are emissions-intensive, representing 27 per cent of CBA’s financed emissions in 2020, and the data conundrum has been resolved for each of them.
By 2025, CBA will have sector targets accounting for more than three-quarters of its financed emissions.
Hinchliff says the “glide path” to achieve net zero for the entire lending portfolio will only be known once CBA and the CSIRO complete transition maps for each industry.
“So the fact we’re down 18% over two years may well be quick enough – the four sectors we’re tracking are well below the glide paths for those industries,” Hinchliff says.
“(But) if you can’t measure it you can’t do anything about it.”
As an economy heavily reliant on fossil fuels, Australia faces a daunting challenge to achieve net zero by 2050.
But at the same time, the country is fortunate to have an array of decarbonisation options through increased investment in solar, wind, storage, hydro and hydrogen in the electricity grid.
On top of that, there’s electrification and conversion to renewables in transport and heavy equipment, development of a national network of electric vehicle charging stations, sustainable agricultural practices and development of a high-quality, globally recognised carbon market.
This year, CBA reviewed its top-100 emitting customers and directly engaged with 82 of them, of which only 22 had a detailed transition plan they were ready to share.
Hinchliff cautions against impatience, saying the plans are detailed and complex, covering the full gamut of issues from measurement, tracking and lowering of emissions, capital allocation and targets.
“It can get quite complicated quite quickly,” he says.
“But we’re not going to sit there and ask: ‘Are you tracking over or under?’
“I can’t see that happening at the micro level; you’d want to see reasonable steps but we’re going to track our (emissions) exposure at the portfolio level.”
Hinchliff remains “hopeful” that the overarching goal of net zero by 2050 will be achieved, despite the International Energy Agency’s assessment that it’s a narrow and challenging pathway.
The world, he says, has about a decade to slash emissions before exceeding the carbon budget to limit global warming to a liveable 1.5C.
“So yes, I’m hopeful, but I’m not saying it’s not going to be a lot of work,” he says.
Ramsay Health Care commits to carbon neutral by 2040
The healthcare sector rarely features in discussions about Australia’s carbon reduction challenge, yet it contributes about 7% of our emissions.
Last June, as pressure intensified on the sector to adopt more sustainable business practices, the country’s largest operator of private hospitals, Ramsay Health Care, unveiled a commitment to become carbon neutral across its value chain by 2040.
One of the key elements of the plan was a $1.5 billion sustainability-linked loan (SLL) completed in June 2021 for its wholly-owned operations in Australia and Britain.
HSBC was coordinator, with Commonwealth Bank, National Australia Bank and Japanese lender MUFG acting as arrangers of the facility.
One of the key features of the SLL is a lower interest rate if Ramsay achieves “stretch” targets for emissions reduction and intensity, mainly through the installation of rooftop solar at its facilities.
By 2026, the group must achieve a 12% reduction in greenhouse gas emissions intensity and a 10% reduction in energy intensity by installing 6.3 megawatts of renewable energy.
While Ramsay has installed 5000 panels at 17 of its 72 sites across Australia, the company is working on a faster rollout because of the energy savings.
“You don’t link your financing to sustainability unless you’re taking it seriously,” group sustainability officer Siobhan Leach says.
“There’s a lot of rigour and attention by our board and executive team on it.”
Further reading
How Net Zero Became Our Global Climate Goal And Why We Need It
A Fifth Of World’s Largest Companies Committed To Net Zero Target