The S&P/ASX 200 Index (ASX: XJO) bank shares are facing increasing public scrutiny about funding fossil fuel projects.
There are a number of ASX 200 bank shares like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB).
Of course, there are a number of other banks in the ASX 200 including Macquarie Group Ltd (ASX: MQG), Suncorp Group Ltd (ASX: SUN), Bank of Queensland Limited (ASX: BOQ) and Bendigo and Adelaide Bank Ltd (ASX: BEN).
In an article in The Age, the big four banks have been put under the spotlight as they continue to be open to funding fossil fuel operations.
Why Westpac is in the news
Earlier this week, Westpac outlined a market update on progress of "important business priorities".
The ASX 200 bank share outlined the principles underpinning its current thoughts.
It set "1.5C aligned targets" where underpinning data and methodologies were sufficient. It referenced science-based scenarios from credible sources. The ASX 200 bank share referenced industry guidelines and sector approaches. It also said that targets will continue to evolve with new or changing science, methodologies and technology.
Westpac said that there will be zero lending to companies where more than 5% of their revenue comes directly from thermal coal mining by 2030. It's going to manage its portfolio to reduce its lending exposures to zero by 2030.
With companies involved in oil and gas exploration, extraction and drilling, Westpac said it's aiming for a 23% reduction in scope 1, 2 and 3 absolute financed emissions by 2030, relative to a 2021 baseline. It will only consider directly financing greenfield oil and gas projects that are in accordance with the International Energy Agency's net zero by 2050 scenario, or circumstances, where the Australia and New Zealand government and regulations determine, or take a formal public position, that supply from the asset being financed is necessary for national energy security.
Westpac also wants to see a reduction in emissions from cement production and power generation.
With these reduction targets, Westpac can encourage borrowers to reduce emissions.
However, not everyone thinks this goes far enough.
For example, The Age quoted the head of ethics research at Australian Ethical Investment Ltd (ASX: AEF), Dr Stuart Palmer. The ethics-focused fund manager does own Westpac shares. Palmer said that the bank's policy was based on credible climate scenarios, but continuing with corporate lending to oil and gas clients until 2025 was a big gap. He said:
That's too long. What the requirements will be for those plans raises a whole lot of issues.
NAB and others
The Age also noted that it has just announced a new chief climate officer role. NAB is reportedly the only ASX 200 bank share to place a cap of US$2.6 billion on oil and gas lending. NAB's policy has directly banned financing greenfield gas extraction projects unless the government declares a new project "crucial" to national energy security. This was seen by some environmental campaigners as "massive loopholes" for expansion, according to the newspaper.
NAB CEO Ross McEwan said:
Gas is a transitioning fuel. We haven't, to date, put any money in because we've been asked to from a security source. We remain of the position that we have got a cap on our portfolio and we're putting the vast majority of our money into renewables.
It was also noted that ANZ and CBA are both open to new oil and gas projects.
