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World Benchmarking Alliance

Despite rising global political pressure — including from Trump’s anti-ESG movement — Australian banks are holding firm on net zero, but Scope 3 gaps remain.

Australia’s banks are sticking with their net zero commitments despite global political pushback, but remain well behind on disclosing financed emissions and planning for the full scope of their climate impact.

The country is among the leading nations in the transition to net zero carbon emissions when it comes to measuring Scope 1 and 2 emissions, but it lags significantly in Scope 3.

Despite political backlash in some jurisdictions — including under Donald Trump in the United States — Australian banks remain publicly committed to the energy transition and net zero. However, debate continues around the pace of progress and the transparency of their activities.

Gerbrand Haverkamp, executive director of the not-for-profit World Benchmarking Alliance (WBA), which focuses on corporate accountability and sustainability, said WBA data shows Australian companies are outperforming global averages in disclosing Scope 1 and 2 emissions.

“But they have neglected Scope 3 emission and when we look at impact on nature there remains a real need for companies and therefore for financial institutions to really understand the impacts and inter-dependencies with nature,” he told Capital Brief.

In sustainability and environmental, social and governance (ESG) reporting, Scope 1 emissions refer to direct emissions from a company’s own operations. Scope 2 emissions are indirect emissions from purchased energy. Scope 3 covers all other indirect emissions in a company’s value chain — including those generated by companies financed by banks.

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Rachel Alembakis, stewardship manager at ethical fund manager U Ethical, said the fund also wanted to see further progress in disclosing financed emissions, as banks prepare to report Scope 1, 2 and 3 emissions in line with the new Australian Sustainability Reporting Standards.

“We will be closely tracking progress on the implementation of plans to end lending to clients with insufficient transition plans, as well as verify how the banks are assessing those plans,” she told Capital Brief on the release of U Ethical’s latest Climate Risk Report.

Major bank annual meetings in recent years have become high-profile stages for climate activist investors and movements pushing boards to maintain their commitment to net zero and the energy transition.

Meanwhile, the Bank for International Settlements has published research challenging the argument that rapid action on climate change would destabilise the financial system.

“Our results challenge the notion that financial stability concerns justify delaying the net zero transition,” the BIS said, adding the downside impacts are at most “second order relative to the real costs and benefits of an accelerated transition” and “carbon taxes enhance long-run financial stability”.

However, the political environment for faster climate and ESG action has become more fraught — particularly in the US, where the Trump administration has been openly antagonistic towards such initiatives.

Following Trump’s election, several major US banks — and Australia’s Macquarie Group — withdrew from the UN’s Net-Zero Banking Alliance (NZBA). Large asset managers also exited the Net Zero Asset Managers initiative.

In February, Macquarie said its strategy on net zero was updated in 2023 and its climate strategy “evolves to meet the needs of our clients and the requirements of governments and regulators, which differ across markets”.

“The Net Zero Banking Alliance (NZBA) helped develop global frameworks and assisted member banks as they established their initial decarbonisation plans,” Macquarie said. “With those building blocks now in place, like many peers Macquarie will no longer be a member of NZBA, as we focus on updating and delivering our plans and reporting in line with regulatory requirements.”

Despite these shifts, WBA’s Haverkamp said the corporate world remains invested in the transition — even with the return of an anti-sustainability US administration.

“There’s no doubt it is a more difficult landscape with Trump because the intention of the administration is not just to impact American businesses but those operating in America,” he said.

Haverkamp is in Australia for discussions with clients including National Australia Bank, Commonwealth Bank, ANZ, AustralianSuper, Woodside, Coles and Woolworths.

“[Trump] does make it very difficult if you operate in one market where you’re expected to focus on climate and diversity or gender equality while you’re penalised for it in another market,” he said.

“A lot of leaders are shell-shocked, that means there’s also a retreat from public statements on sustainability and public commitments. But I think among the leaders I am speaking to there is the realisation that issues of climate change, social equality, biodiversity, nature will be a part of their reality, much longer than an administration.”

U Ethical’s Alembakis said the big four banks have set financed emissions reduction targets and so far remain committed to meeting them.

“ANZ, Commonwealth Bank, NAB, and Westpac have all committed to assessing clients’ transition plans and to stop lending to clients where the banks believe that there is no credible transition in line with the Paris Agreement goal of limiting climate change to 1.5ºC,” she said.

“They have also committed to stop financing new oil and gas projects. We view that as positive, as we believe climate change represents systemic risk and specific risks to the banking sector, and this is a critical step forward to banks managing risk.”

Spokespeople for the major banks told Capital Brief they remain members of the NZBA and that their climate commitments have not changed since Trump came to power.

Alembakis noted that pulling out of alliances like the NZBA may reflect political risk rather than a weakening of actual climate commitments.

“Participating in voluntary alliances is not a substitution for real action by banks, and we are conscious that banks are balancing many interests in the context of geopolitical uncertainty,” she said.

WBA’s research shows one in 10 financial institutions now assess their impact on nature — “a big increase” over the past two years. However, none of the Australian institutions assessed have transition plans in place, and only one has committed to not supporting new oil and gas projects.

However Haverkamp said he didn’t see divestment of existing assets as the starting point because that meant institutions were giving up their assets.

“Engagement is the start — but you do have to have divestment as an option otherwise you give up your leverage,” he said.

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This article appeared in Capital Brief 10.4.25