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Australian bank Macquarie moves to quit coal by 2024

10 May 2021 William Fleeson

The Australian investment bank Macquarie will exit the coal sector within the next three years.

Macquarie on 7 May released its quarterly and fiscal-year earnings results, with a twist: equity and lending exposure to coal projects will "run off" by 2024, it said.

The bank emphasized a strategic shift to lower carbon energy forms -- and the finance needed to bring them to life -- in a separate statement, called "Supporting the transition to a net-zero economy," released in parallel with the earnings.

In a sign of a measured approach to fossil fuel investing, the bank said it would not exit all types of carbon-intensive industries. The firm intends to keep funding oil and natural gas projects in what it termed a "managed transition to net zero."

"We recognize that much of the world will depend on oil and gas to power economies," the statement said. "Until new, commercially viable technologies become available, these fuels will have a continued role in the provision of essential energy."

Macquarie reported a fiscal-year 2021 profit of $2.7 billion, up 10% from the previous fiscal year. The company's fiscal year runs 1 April through 31 March.

Shemara Wikramanayake, the bank's managing director and CEO, applauded its performance while recognizing "challenging market conditions" over the previous 12 months due to the COVID-19 pandemic.

The bank's decision to move away from coal extends a longer series of the firm's pro-climate decisions. Last December, it pledged to achieve net-zero emissions as a company by 2050. Macquarie joined the Net Zero Asset Managers Initiative in March. The bank intends to reach net-zero emissions for its operations by 2025 at the scope 1 and scope 2 levels, while its asset management business is planning to hit net zero by 2040.

The bank's principal investment unit has more than 30 GW of renewables currently under development across four continents, it said.

James Stevenson, executive director at IHS Markit Coal, Metals and Mining, took a sanguine view of Macquarie's change in direction—and noted that such changes do not always translate to a clean break from coal activity.

"This is not a first," Stevenson said about the bank's announcement. "But coal producer clients have in the past referenced how banks will say that [they are leaving coal], but will still buy bonds that producers issue."

Stevenson acknowledged the shift from coal as problematic for the industry in general.

"Individually it doesn't mean much," he said. "But it is part of a broader trend from lending to coal companies. And ultimately it creates a shortage of coal… if investment in new projects stagnates but demand continues rising."

Nowhere is the split between rising demand and static investment more apparent than in the Asia-Pacific region—Macquarie's backyard. IHS Markit estimates that 192 GW of Asia-Pacific coal-fired power generation capacity is currently under construction.

Vectors of change

Macquarie's net-zero strategy centers on four vectors of change. The "managed transition" plan focuses on clients and portfolio companies. Second, the bank is upping investment in climate mitigation and adaptation, especially in renewables like wind and solar. The third vector aims to match the activities of its financed emissions with the "world's pathway to net zero" by mid-century. Finally, the bank will draw down emissions from its own operations, such as in the emissions generated by the business travel of bank employees.

The climate-related strategy changes at Macquarie mirror those in Australia, where it is headquartered. Australian prime minister Scott Morrison has come under growing pressure to commit the country to a national net-zero benchmark. Many of Australia's neighbors in the broader Asia-Pacific region have already pledged make their economies carbon-neutral, including China, Japan, and South Korea.

Australia is a party to the Paris climate agreement. Under that framework, the country has adopted a plan to cut GHG emissions by 26-28% by 2030, using a 2005 baseline. Australia in December submitted an updated plan to the Paris agreement organizers that marked no change in absolute emissions cuts, a decision criticized by environmental groups.

Climate Action Tracker, one such group, called Australia's new plan "insufficient" for reaching overall Paris agreement goals.

Macquarie plans to publish a comprehensive net-zero plan by the end of 2022, it said.

Posted 10 May 2021 by William Fleeson, Senior research analyst for Executive Briefings, IHS Markit

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