By Kyle Robertson, Senior Banks Analyst, Market Forces.
Macquarie Bank has sent shockwaves around the world quietly announcing it has quit the Net Zero Banking Alliance (NZBA) this week, taking the dubious honour of being the first major Australian financial institution to pull out of a global climate initiative.
This decision by Macquarie makes little sense, prioritising political expediency and short-term financial interests over longer term viability of their business and the economy.
Macquarie has followed the six biggest US banks, including Bank of America, Citigroup, and JP Morgan Chase, which jumped ship last month.
There’s no denying that Macquarie pulling out of the NZBA is a gamble and a hit to the company’s reputation. As global temperatures soar to new records and associated economic risks skyrocket, the goals of the Paris Agreement are in jeopardy. The imperative for major financial institutions to remain committed to global climate goals and initiatives is greater than ever.
It is hard to understand this sudden backslide after Macquarie spent years building up its reputation as a green bank. Macquarie CEO, Shemara Wikramanayake, has been a feature of global climate conferences for years, promoting the need for large-scale public and private sector investment into renewable energy and climate adaptation initiatives.
Wikramanayake’s efforts saw her recognised as one of Time’s 100 Most Influential Climate Leaders in Business for 2023, crediting Macquarie’s CEO for turning the bank into “a leading investor in renewable energy”. The Group has gone to great lengths to publicly promote itself as backing the critical shift to clean and renewable energy.
But this is a clear case of you can’t have your cake and eat it too.
Macquarie has been betting both ways, investing in renewable energy at scale while holding significant oil and gas interests. Macquarie’s Commodities and Global Markets business is its primary profit-driver and one of the top gas traders in the world’s biggest gas market, the United States. The Group claims it trades about 7.5 billion cubic feet of gas daily in North America, equivalent to almost half of Australia’s daily gas production in 2022.
The writing has been on the wall
Late last year, Macquarie pulled together a $65 million financing package for Empire Energy’s pilot project in Australia’s biggest proposed gas development, the Beetaloo Basin. At full scale, Market Forces estimates that Beetaloo would produce 1.1 billion tonnes of CO2 equivalent emissions over its lifetime. Beetaloo would wipe out 457 years of emissions savings from the 14 renewables projects Macquarie Bank provided green finance for in 2024.
Macquarie’s policies and targets have lagged behind the big four Australian banks, ANZ, Commonwealth Bank, NAB and Westpac, which have all reaffirmed their commitments to the NZBA despite Macquarie and the US banks’ exodus.
In recognition of the science on climate change, all big four banks have ruled out financing new and expanded oil and gas fields, which are incompatible with their commitments to the goals of the Paris Agreement.
ANZ and Westpac are still using corporate finance and bonds to finance companies expanding oil and gas. In contrast, the country’s largest bank, Commonwealth Bank, has ended finance for oil and gas producers without a credible Paris-aligned transition plan. At its 2024 AGM, NAB Chair Philip Chronican indicated that by October this year, the bank would end finance for companies pursuing oil and gas field expansion.
While Macquarie accepts that the energy transition requires a rapid build-out of renewable energy, the bank fails to accept that limiting global warming to anywhere near 1.5°C requires no investment in giant new gas projects.
Exiting the NZBA is convenient for a bank with no intention of ending finance for new fossil fuel projects. Yet Macquarie and all financial institutions must face the facts of climate science and the necessity to accelerate the energy transition. The costs of climate change are going to be a lot greater than the price of a rapid transition away from fossil fuels to a clean energy system.
Damage to farming, infrastructure, productivity and health from climate change will cost an estimated US$38 trillion per year by 2050 according to modelling by German government research body, the Postdam Institute. On the current global warming trajectory to 3°C, worldwide GDP losses could total US$178 trillion by 2070 according to modelling by Deloitte.
Wood Mackenzie’s modelling has found that the costs of limiting warming to 2°C will be substantially less than a 3°C scenario, when accounting for the ruinous costs of inaction.
Australia’s major banks must be commended for tightening the reins on their fossil fuel financing, necessary to manage the material risks to their businesses from climate change.
Companies pursuing oil and gas expansion projects will be increasingly refused finance in a decarbonising world. Macquarie’s decision to exit the NZBA risks its bottom line and leaves its carefully built reputation as a green bank in tatters.
First published in the Australian Financial Review.
Cover image credit: Piotr Swat / Shutterstock.com