The Commonwealth Bank of Australia (ASX: CBA) and its peers could be hit with billions in liabilities that are on top of the threat of the falling housing market.
This new risk to ASX banks is linked to their scope 3 emissions, reported the Australian Financial Review.
Scope 3 quantifies the emissions of bank customers that receive loans from the bank. CBA revealed its scope 3 number for the first time in its climate report and it was several times larger than expected.
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CBA's potential $6bn emission headache
As a result, CBA could be facing more than $6 billion in costs by 2030, according to climate data specialist Emmi.
The estimate on the bank's scope 3 liabilities are based on the expected price of carbon allocated to lenders.
Emmi also noted that CBA's scope 3 figure of 24.4 million tonnes of carbon dioxide was 2,300 times higher than its scope 1 direct emissions.
Other ASX banks also on the hook for multi-billion liability
But CBA isn't the only ASX bank that could be on the hook. Using CBA's baseline data, Emmi believes the other three big banks' scope 3 figures won't be far behind.
The Australia and New Zeal Bank Group Ltd (ASX: ANZ), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) scope 3 number could come in between 18 million and 24 million tonnes of carbon dioxide.
This leaves the big four ASX banks at risk of coughing up tens of billions by the end of the century. That is if the regulators decide to lay the cost on them.
The banks' scope 3 calculations include emissions from households that have a mortgage with the banks. CBA is the largest home lender in the country.
CBA and friends among worst emitters
If scope 3 emissions are counted, Emmi noted that CBA and the big ASX banks could be in the top 15 worst emitters on the ASX. The banks would be rubbing shoulders with Ampol Ltd (ASX: ALD), BlueScope Steel Limited (ASX: BSL) and Qantas Airways Limited (ASX: QAN).
ASX companies are not required by law to disclose scope 3 figures. But some have started to do so in anticipation of regulatory changes ahead. In this respect, CBA should be applauded for being an early mover by becoming more transparent.
CBA share price snapshot
It isn't clear at this stage if ASX banks will be forced to wear the cost of their scope 3 emissions. But this risk comes at a time when the sector is under threat from a falling residential market and the slowing economy.
The CBA share price has fallen 6.8% since the start of this calendar year when the S&P/ASX 200 Index (ASX: XJO) has declined 7.1%.
In contrast, the ANZ Bank share price has tumbled 17.1%, the Westpac share price has dipped 1.9% and the NAB share price has gained 1.5% over the period.
