Australia’s four largest banks have drawn criticism for their sustained financing of fossil fuels, which amounted to a loan value of AU$3.6 billion (US$2.43 billion) in 2023. Nearly 70 per cent of these funds were funnelled to companies that are expanding the coal, oil and gas industries.
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The findings were published by the environmental group Market Forces, which has called out the banks for “completely undermining their climate credentials” with these loans.
Over AU$61 billion (US$41.1 billion) has been loaned to fossil fuel companies since the Paris Agreement in 2015, though all four financial institutions have committed to limiting global warming to 1.5°C and reaching net zero emissions by 2050.
“The big four banks are engaged in a monumental façade, as long as they continue undermining a safe climate by funnelling billions to companies steaming ahead with more coal, oil and gas,” said Kyle Robertson, senior banks analyst at Market Forces and author of the report.
Some of the deals partially funded by Australia’s largest banks include the Japanese JERA Global Markets’ liquefied natural gas (LNG) business. In October 2023, ANZ loaned AU$125 million (US$84.2 million), while Westpac loaned AU$101 million (US$68 million) as part of a larger credit deal to the energy trader, which specialises in LNG, coal and freight.
JERA’s portfolio includes a 12.5 per cent stake in Santos’ Barossa gas project, a 15.1 per cent stake in Woodside’s Scarborough gas field off the coast of northwestern Australia, as well as over a quarter of Freeport’s LNG project in Texas, noted the report.
Additionally, JERA has been identified as a major player in the Japan-led fossil gas expansion in Asia and is involved in the massive fossil fuel buildout plans in Bangladesh’s Chattogram region, which is home to the country’s last rainforest.
These projects will release 1.3 billion tonnes of carbon dioxide equivalent (CO2e) if completed, cancelling out any gains made under Japan’s 2030 emissions reduction targets more than two times over, according to analysis by Fossil Free Chattogram, an initiative under Market Forces.
Fossil fuels continue to form the bulk of the energy mix in Asia Pacific, with thermal coal remaining one of the most profitable commodities to trade despite sub-optimal bank funding and increasingly reputational and stranded asset risk.
Backdoor financing
2023 marked the first year that none of the big four banks participated in a deal explicitly for a new or expanded fossil fuel project. However, all have continued to pump billions through “general corporate finance” deals to pollutive energy companies, the report found.
While project finance provides direct loans to fund the development of a distinct revenue-generating project, general debt financing can be used for various purposes, such as supporting budgetary needs or maintaining a level of liquidity for investments.
“The banks have admitted that when they provide general corporate finance to a company, they often don’t know what it’s spent on,” said Robertson.
This essentially provides “backdoor financing options” for companies pursuing new and expanded coal, oil and gas developments, the report highlighted.
Last year, 98 per cent of the banks’ fossil fuel lending was under corporate financing terms, with the remaining 2 per cent going to existing fossil fuel projects rather than new ones.
2023 saw a marked decline in project lending by Australia’s biggest four banks since the Paris Agreement, in favour of general-purpose corporate lending. Image: Market Forces
“It’s very concerning that general lending can support a company to pursue fossil fuel expansion plans which are harming the climate,” Robertson added.
For instance, in November 2023, all four banks participated in a AU$1.25 billion (US$0.84 billion) syndicated loan to APA Group, Australia’s leading energy infrastructure business with assets in gas, electricity, solar and wind.
Part of this loan will be used for “general corporate purposes” and does not need to be repaid in full for another decade.
The report has therefore raised concerns that these funds could feed massive climate pollution from the Beetaloo gas basin project in Australia’s Northern Territory, after the APA Group signed preliminary agreements with the leading developers of the shale gas extraction project last year.
The four banks have also raised AU$2.2 billion (US$1.49 billion) for the fossil fuel industry through the bond market in 2023, inclusive of AU$1.4 billion (US$0.95 billion) for companies with expansion plans.
The findings reflect broader global trends, where bond issuance has doubled as a source of funding for energy companies in the past decade to replace declining project finance, according to non-governmental research and campaign organisation Reclaim Finance.
“Corporate bonds are a critical and growing source of finance for coal, oil and gas companies. By arranging bonds for [these] companies with expansion plans, banks are playing an active role in funding activities which are elevating economic risks and are completely out of step with the global climate goals of the Paris Agreement,” Robertson said.
He added that while the big four banks have made certain exclusions on providing project finance for some fossil fuel expansion projects, it is “scandalous” that they continue to lend or arrange bonds for the same companies.
In a statement released by the World Climate Research Programme, scientists worldwide have called for a complete phase-out of coal by 2050, and halving the use of oil and gas every decade to limit global warming to 1.5°C this century.
However, the Australian government has recently expressed intent to explore new sources of gas even as the nation transitions to net zero emissions. This is to ensure that the population’s energy needs can be met, amid concerns that potential demand will outstrip supply by 2030, it said in its Future Gas Strategy report released in May.
Robertson highlighted that while the transition to a low-carbon economy has complex challenges, Australian banks can do their part to finance a rapid and just transition.
“But they can’t do that while they are still funding their coal, oil and gas clients which have no demonstrated intention of transitioning in line with global climate goals,” he said.
