Australia’s Largest Bank Stops Funding New Oil and Gas Projects

A man enters a branch of the Commonwealth Bank of Australia (CBA) in Melbourne, Australia, on Aug. 11, 2021. William West/AFP via Getty Images

Australia’s largest bank will no longer fund new fossil fuel projects as it strengthens its climate change commitments.

The move is the latest blow to the oil and gas industry, which has been facing difficulties securing finance for their projects in recent years due to growing public concerns about climate change.

On Aug. 9, the Commonwealth Bank of Australia (CBA) announced an update to its environmental and social framework, which reflects the bank’s latest business direction toward climate change and environmental issues.

Among the changes announced, the CBA said it would not finance new or expanded oil and gas extraction projects.

Similarly, the bank would not provide funding for storage infrastructures or transmission pipelines linked to new oil or gas projects.

Power generation companies are also impacted by the CBA’s policy changes as the bank refuses to fund new or expanded thermal coal mines and new coal-fired power plants.

In addition, the bank plans to reduce its exposure to “financed emissions” by only offering corporate finance and bond facilitation to coal and gas clients that draw 15 percent or more of their revenue from the sale of oil, gas or metallurgical coal.

The same rules will also apply to power generation clients that generate 25 percent or more of their electricity from coal.

These fossil fuel clients will need to go through CBA’s assessment of environmental, social, and economic impacts, and the bank will require them to publish independently verified plans to cut emissions by 2025.

CBA’s Current Lending to Fossil Fuel Clients

While the updated environmental policy is a surprise move, it is not a secret that the CBA has significantly cut financing for fossil fuel clients in recent years.

According to the environmental activist group Market Forces, the CBA’s lending to the industry plummetted from over $4 billion (US$2.62 billion) in 2018 to just $267 million in 2022.

While there were fluctuations in the lending amount of other big four banks–ANZ, Westpac, and NAB–over the same period, those changes were not as dramatic as the CBA’s.

A climate report by the CBA showed that power generation clients accounted for only 0.5 percent of the bank’s lending portfolio, while the figure for coal and gas clients was 0.1 percent.

Origin Energy's Australia Pacific liquefied natural gas facility at Curtis Island in north Queensland, Australia, on Oct. 10, 2016. AAP Image/Origin Energy

Following the announcement, climate change and environmental groups have sung praise on the CBA’s policy changes.

Market Forces asset management campaigner Will van de Pol said the decision had placed CBA well above its banking peers.

“This policy sends a stark warning to the fossil fuel industry: funding for your climate-wrecking expansion plans is drying up faster than a puddle in a heatwave,” he said in comments obtained by AAP.

“ANZ, NAB, Westpac, and Macquarie have been left embarrassingly behind on climate action, with CommBank’s new policy reinforcing its significant drop in lending to fossil fuels over the last two years.”

While Climate Council economist Nicki Hutley welcomed the CBA’s decision, she said the bank could do much better, referring to the bank’s failure to ban financing new and expanded metallurgical coal mines that were in line with the Paris Agreement.

Meanwhile, the Australian Petroleum Production and Exploration Association (APPEA), a peak industry body, said it was reviewing the CBA’s announcement, noting that the oil and gas industry was a major investor in emissions reduction technologies.

“Australia needs new gas supply to be developed to enable the energy transformation to net zero and those projects will need to be financed,” APPEA CEO Samantha McCulloch told The Epoch Times.

“Gas is widely recognised as a critical part of a cleaner energy future, partnering with renewables and replacing coal in electricity generation, powering major sectors such as manufacturing, kickstarting low-carbon hydrogen production and enable net zero technologies such as carbon capture utilisation and storage (CCUS).”

Gas Shortages on the Horizon

The CBA’s decision comes as Australia is facing gas shortage risks due to a lack of supply.

According to the Australian Competition and Consumer Commission’s (ACCC) recent domestic gas outlook, while there should be enough gas to meet the east coast’s demand in 2024, southern states in the mainland could experience a shortfall.

The consumer watchdog said those states could use surplus gas from Queensland to deal with potential gas shortages.

However, it noted that significant transport and storage capacity would be required to deliver the surplus gas.

“While the overall east coast is projected to have surplus gas next year, it is imperative that gas flows from Queensland to the southern states, and that there is enough storage for it,” ACCC Commissioner Anna Brakey said.

The ACCC also predicted that there would be fewer supply offers and higher gas prices for 2024 than in previous years due to a combination of factors, including seasonal slowdown and the industry’s response to government’s interventions.

Meanwhile, energy companies have struggled to open up new oil and gas projects due to tightened government regulations and protests from community groups.