Commonwealth Bank chairman Paul O’Malley says governments, businesses, unions and communities need to start planning to ensure a fair transition for parts of the country that depend on the coal industry.
The banking giant is seeking to start discussion about the major economic changes coming as Australia cuts fossil fuel use, and has estimated that about 800,000 people are living in regions with a “high dependency on the coal mining value chain”.
CBA chairman Paul O’Malley (left) and chief executive Matt Comyn.Credit:Peter Rae
As AGL Energy announced the early closure of its Victorian coal-fired power station Loy Yang A on Thursday, O’Malley and CBA chief executive Matt Comyn underlined the need to support regions that are economically at risk from such moves.
O’Malley said the bank wanted to be transparent about the financial risks facing these communities, and by extension, the bank’s lending portfolio. CBA has said it has about $14 billion in mortgages in communities economically reliant on coal.
As banks face pressure from investors to cut their exposure to climate risks, Comyn said there was a need for a “socially just transition”, which would involve a plan to support coal-reliant regions.
O’Malley, a former chief executive of BlueScope, highlighted the risk of employers cutting capacity in some areas, and said it was necessary that Australia’s decarbonisation push occur in a “caring” way.
“Ultimately, the most important thing is that a lot of the transition in Australia will result in customers having to make a transition,” O’Malley said.
“We’ve got to make sure that our customers who are spread across Australia understand the need for change, and are supported through change.”
O’Malley said the official plan from the Australian Energy Market Operator (AEMO) suggested coal-fired electricity would be “materially” cut by 2030, with potentially some coal power stations operating until 2043, before adding: “But when you get the announcements that are coming out, I suspect it’s earlier rather than later.”
O’Malley firmly backed Labor’s commitment to cut Australia’s greenhouse gas emissions by 43 per cent by 2030, and he signalled the bank’s major investors were also aligned with the goal.
“Having a federally legislated target of 43 per cent, my engagement with investors is we’ve now pivoted quite dramatically to how we deliver, as distinct to whether or not we should deliver, and I think that’s incredibly helpful to help Australia move forward on reducing CO2 emissions,” O’Malley said.
Amid pressure from investors and regulators for banks to assess climate risks, CBA is working on “glide paths” to support decarbonisation across its diverse portfolios.
It has so far developed these targets for thermal coal mining, oil and gas extraction and power generation, and it is looking at how carbon risk applies to its enormous mortgage book.
When asked how customers in coal-exposed areas could be supported, Comyn and O’Malley stressed the bank had a role in providing data about the risks.
“I think the transparency of where the risks are is actually really important to start the conversation about what support or transition plans are necessary,” O’Malley said.
CBA’s 2022 climate report last month also disclosed the bank had more than $31 billion in mortgages in areas exposed to increasing extreme weather events.
Homes at risk of flooding accounted for most of these mortgages and Comyn highlighted the flooding on Australia’s east coast this year, but he also stressed that the risks of more extreme weather were likely to materialise over a long timeframe.
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