Billions in liabilities could be set to hit CBA and other ASX banks: expert

Why could the major ASX banks be hit with billions in liabilities soon?

Key points
  • CBA could be on the hook for $6bn of liabilities linked to its scope 3 carbon emissions, according to a climate expert 
  • The other 3 big ASX banks could also be facing a bill in the tens of billions should regulators decide to make the banks wear the cost of their scope 3 emissions 
  • If scope 3 emissions are included, the big four banks will be among the 15 worst carbon emitters on the ASX 

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.

A man smashes open a piggy bank with a hammer representing an ASIC fine received by Westpac

Image source: Getty Images

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.

Motley Fool contributor Brendon Lau has positions in Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, National Australia Bank Limited, and Westpac Banking Corporation. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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