Australia’s banks have defended their decision to exit the thermal coal sector and pushed back against suggestions from government lawmakers that they be forced to extend financing to fossil fuels.
Senior executives from Australia’s big four banks and the head of the country’s banking association told a parliamentary hearing on July 27 that current sky-high coal prices are masking “significant” medium-term uncertainty and risks posed by the sector.
Australia is the world’s largest coal exporter by value, and coal miners are expected to post bumper profits during the full-year reporting season for listed companies in August.
But the country’s top four banks – ANZ, Commonwealth Bank, National Australia Bank (NAB) and Westpac – have all vowed to exit the sector by 2030 in expectation of ever-tighter regulation of the emissions-intensive power source.
The decision has angered lawmakers in the ruling conservative coalition, many of whom represent communities where coal mines and their supply chains are major employers.
Submissions to an inquiry on financing for Australian export industries, launched earlier this year by a parliamentary committee on trade and investment and focusing almost exclusively on thermal coal, included suggestions that the government force banks to lend to any business that is operating legally.
Anna Bligh, the head of the Australian Banking Association, says local lenders are coming under intense pressure to cut exposure to thermal coal as international investors seek to “shift away” from the energy source in favour of lower-emissions power.
After weighing up the prospects of coal clients and the “movements” in global investment markets and climate policy, banks “have taken the view that this industry presents a growing risk on their books; it faces [an] increasingly uncertain regulatory future”, she told the hearing.
“In that light, yes, Australian banks are seeking to be diligent and prudent and meet the expectations [of] their shareholders, their investors, the public and their regulators.”
Bligh says banks are also eyeing a push in the European Union for a so-called carbon border tax, which if implemented would slap tariffs on exports from countries that do not take certain measures to curb emissions. The US government is mulling a similar system.
While Australia exports little coal to Europe, Bligh says products manufactured elsewhere that use Australian metallurgical coal, such as Japanese steel, may attract tariffs when exported to the EU.
“It would be quite foolhardy of banks not to be at least considering things like that, in their contemplation of a five or 10-year loan to a company in those sectors. Not that they wouldn’t make the loan, but they would be taking that into account.”
Banks are continuing to support metallurgical coal, an essential ingredient in steelmaking, of which Australia is by far the world’s biggest exporter.
But coal miners and industry groups have complained that Australian banks are gradually scaling back their involvement in syndicated loans and other forms of financing, which in turn is spooking international lenders, chiefly in Asia.
A representative of Adani, the Indian conglomerate that is developing a giant coal mine in the state of Queensland, claimed in its submission to the committee that banks were giving in to “the pressure they receive from foreign funded, anti-fossil-fuel activist groups”.
Bankers say coal’s future is dim
Coal futures have soared from just over US$50 per tonne in late July last year to just over US$150 earlier this month. But in their evidence to the committee, bankers said that despite its current highs, the global thermal coal market has “significant volatility”.
“The outlook medium term, we think, has significant uncertainty,” says Mark Whelan, the group head of institutional banking for ANZ. Most banks’ decision to retreat from thermal coal pre-dates the spike in coal prices.
Last year the International Energy Agency’s authoritative coal outlook forecast global demand to “flatten” in 2025, although demand in Southeast Asia is forecast to drop much more slowly than in Europe and North America. China, the world’s biggest coal consumer, has vowed to reach net zero greenhouse gas emissions by 2060 but has not yet detailed how it plans to meet the target.
David Gall, NAB’s chief customer officer for corporate and institutional banking, told the committee that investor pressure on banks over climate change has escalated sharply in recent years.
“Particularly with offshore investors, and particularly European investors, it is one of the first questions that they’re raising with our investor team or any senior executive that’s speaking with those investors,” he says.
“It’s now one of the first questions they raise. That is different to what it was 18 months ago … it has changed significantly over the last 12 to 18 months.”
Australian banks are not alone globally in edging away from coal, but have faced a fierce backlash due to the economic importance of coal exports.
A flurry of exits from thermal coal businesses that began mainly among European banks and export credit agencies has since spread to Asia. Economies such as South Korea and Japan, which are major buyers of Australian coal and natural gas, have now set ambitious carbon reduction targets ahead of the COP26 summit in Glasgow in November.
NAB told the committee its total thermal coal mining exposure was A$630mn for the last reporting date, ANZ says its current exposure is A$540mn, Westpac’s is A$250mn and the Commonwealth Bank says it has A$295mn of exposure to the thermal coal mining value chain and an additional A$800mn exposure to supporting infrastructure such as export terminals.
In previous evidence to the committee and in written submissions, coal miners called for the federal government to take action to help thermal coal businesses to secure financing.
Several submissions suggested the government enact a measure that would require banks to service any customer operating a legal business. Adani executives suggested that banks should be required to finance industries considered to be in the “national interest”.
Bligh, of the banking association, rubbished the recommendation that banks be legally required to take on certain customers.
“If we were to move to a situation where banks were somehow required to provide credit to any business merely because it was legal, then I think we would very quickly find ourselves in a very difficult position,” she told the committee.
Such a move would make Australia “a very serious global outlier and the consequences of it, I think, should not be underestimated”, she says.