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2022-08-13 02:43:05 By : Mr. xbm china

Westpac chief executive Peter King says the bank will balance national energy security against its stricter lending standards for oil and gas, giving itself an out to finance new projects if the government declares they are needed to supply Australian households.

Westpac’s move to cut financed emissions by nearly a quarter by 2030, and to stop financing new oil and gas follows similar commitments from National Australia Bank, potentially putting more pressure on the Labor government to agree to Greens’ demands for a moratorium on new export-oriented projects.

Westpac chief executive Peter King, right, and Anthony Miller, the head of institutional banking.  Dominic Lorrimer

But given the cashed-up, energy sector is unlikely to struggle to secure funding from other sources, analysts questioned whether NAB and Westpac withdrawing from funding greenfields projects would only push the emissions to new financiers.

Mr King acknowledged the need to ensure emissions are not simply hand-balled on to others to finance by putting in place stricter lending criteria, saying Westpac would work with customers.

“If you move the problem, it doesn’t solve the problem - we get that,” the CEO told analysts and reporters in Sydney on Wednesday. “We acknowledge it’s not about moving the problem it’s actually about solving the problem.”

It is understood that Westpac’s new measures affect only a handful of clients and the bank’s total exposure to oil and gas is about $2.4 billion. Anthony Miller, Westpac’s head of institutional banking, said all the bank’s clients are working through how they will get to net-zero emissions, pledging to work with them to achieve the transition.

”Every client is on to this, is thinking about what their transition plan and their targets should be. It will only get deeper and more substantive as we go forward,” he said.

“Just like if a client doesn’t meet their financial commitments we don’t abandon them, we don’t walk away, we stay with them and help them. This is about just a partnership, we’ve set our targets, we’ve shared them with the clients, and we’ve set our own targets.”

Announcing changes to the bank’s lending policies in power generation, cement and oil and gas, including a commitment to slash oil and gas emissions by 23 per cent on 2021 levels by 2030, Mr King said Westpac would reassess if asked by the government.

“Oil and gas is the main change today, and we’ve thought that through but importantly if energy security is at risk for the country we’ll look at financing new fields,” Mr King said.

“If we require investment for security of domestic power, then we will look at it. If the government requires it, if a regulator requires it, we’ll look at it.”

Last November, NAB boss Ross McEwan said the bank had not been requested to consider new projects and would apply a strict definition around what is in the national interest.

Westpac’s decision to curb lending to greenfield oil and gas expansions follows NAB’s move last year to impose a $US2.4 billion limit on new project financing. Both banks said they would reassess if the government or regulators deem new projects essential for domestic energy security.

With this agreement, two of Australia’s biggest banks have fallen in line with the International Energy Agency, which said no new fossil fuel projects should be built to limit global warming to 1.5 degrees by 2100.

On Wednesday, Westpac became the last big Australian bank to join the international Net Zero Banking Alliance (NZBA), which covers about 40 per cent of global banking assets.

ANZ, the first bank to join the NZBA and which leads the big four as a local provider of capital for the resources sector, earlier said its emissions may go up in the next few years as new oil and gas projects come on stream.

Last year, it set sectoral policies for commercial property and power generation, but it hasn’t yet clarified and oil and gas policies. Mark Whelan, NZ’s head of institutional banking, recently said the conversation was evolving because of Moscow’s war on Ukraine, with less pressure on banks to quickly exit fossil fuels.

“Two years ago, we heard a lot of [the argument that] you must get out of all fossil fuels immediately. What we’re hearing now is a much more balanced discussion around these things from regulators and investors particularly, to say this is complex. It’s going to take some time,” said Mr Whelan.

Westpac’s transition plan would help it mobilise capital, with investors demanding not only commitments but also credible and robust plans to make the transition, Mr King said.

“We need a target, and we need a plan and the plan’s got to mobilise capital. We do need this plan for security,” the CEO said.

The NZBA is an industry-led coalition of banks representing about 40 per cent of global banking assets that have pledged to reach net-zero emissions by 2050. ANZ, Commonwealth Bank of Australia, National Australia Bank and Macquarie Group are already members.

The Investor Group on Climate Change (IGCC) welcomed Westpac’s commitment, noting that companies should align to credible projections such as the IEA’s net-zero scenario, hinting any move to use national security interests as an “out” for its commitments would need to be well justified.

“Investors will be looking closely at how robustly those benchmarks are being applied, the metrics, and what exceptions apply,” said Laura Hillis, IGCC’s director of corporate engagement.

“Expanding and extending the oil and gas sectors is not consistent with 1.5 degrees pathways, so investors will welcome banks’ plans to move away from lending to those projects.”

Mr King said releasing “clear markers” for what the bank would finance would help customers make the transition.

“Across Australia, we now have stronger alignment and momentum on climate action in all states, and I am optimistic that great progress will be achieved with governments, industry, business and the community all working together,” Mr King said.

Westpac will give its existing oil and gas customers until 2025 to put in place “credible” transition plans, agreeing to continue corporate lending and work with customers to put these plans in place.

The bank also defined the emissions intensity for power generation, saying 79 per cent of its lending to the sector was directed at renewable energy. Westpac included the cement production industry in its first round of targets because of the emissions intensity of the manufacturing process.

“Our target is designed to allow financing for the sector to continue while the sector transitions to new technologies to reduce the release of carbon dioxide in the manufacturing process,” Westpac said.

Westpac said it would publish its full net-zero transition plan within 12 months of setting targets. Mr Miller said the steel value chain was the next consideration.

“Our intention is to release targets progressively as we do the work that needs to be done,” Mr Miller said, listing property, agriculture, transport and other components within the manufacturing supply chain as the next in line.

“The whole approach is to make sure we’ve done that work. The priority under the NZBA is you must focus on the most emissions-intensive industries first,” Mr Miller said.

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