Tue, Apr 23 2024 23 April, 2024

Macquarie Group slammed over oil and gas investments

One of Australia’s largest banks, the Macquarie Group, has been criticised for its investments in oil and gas producing assets.

One of Australia’s largest banks, the Macquarie Group, has been criticised for its investments in oil and gas producing assets.

Australia’s fifth largest bank, the Macquarie Group, has been under intense pressure lately – not for missing earnings estimates or analyst projections, but for its investments in oil and gas producing assets.

Environmental groups are accusing the bank of violating its own net zero goals by investing in more fossil fuel producing companies, while purporting to be reining in both Scope 1 and Scope 2 emissions.

The latest round came in June when an Institute for Energy Economics and Financial Analysis (IEEFA) report found that Macquarie disclosed only A$1.2 billion of financing exposure to the full oil and gas value chain.

The report added that the bank also holds off-balance sheet investments in oil and gas companies worth around A$5 billion. These include large volumes of shares and bonds worth A$3.5 billion in 11 of the largest global oil and gas majors that are planning major short-term expansions.

The Macquarie Group also owns considerable stakes in at least nine smaller oil and gas companies with ambitious growth plans totaling nearly A$1.5 billion.

These findings seemingly contradict Macquarie’s own narrative of driving the energy transition as a cleaner, more environmentally responsible company, while spearheading what it calls “advance solutions to climate challenges.”

Clashing views

However, the validity of these allegations depend on which view you take.

Macquarie signed up to the Net Zero Banking Alliance (NZBA) in October 2021. The NZBA was founded in April the same year. It brings together a global group of banks, representing about 40% of global banking assets, which have committed to lowering emissions from their lending and investment portfolios to net zero by 2050.

Since becoming part of the NZBA, however, Macquarie has acquired a 5% stake in ASX-listed Beach Energy, a company targeting aggressive new developments across five different Australian and New Zealand basins over the next two years.

The Macquarie Group also provided some A$15 million in financing to Empire Energy to support the development of the Beetaloo Basin gas project. This includes a shale gas deposit that is considered Australia’s largest undeveloped gas resource.

The bank additionally made an undisclosed contribution to the issuance of a A$3 billion loan for U.S.-based Southwestern Energy, whose expansion plans would reportedly create more CO2 than Australia’s total emissions in 2021.

“Our analysis finds that Macquarie Group’s actions directly contradict its climate commitments,” IEEFA Australia CEO Amandine Denis-Ryan and energy finance analyst Saurabh Trivedi, said in the report.

Kirsty Ruddock, Managing Lawyer of Safe Climate at the Sydney-based Environmental Defenders Office, told Gas Outlook that significant campaigns against banks are ongoing from several environmental groups in Australia on the basis of alignment of their investment and climate claims.

“Using the information in the IEEFA report, we would say that Macquarie may also be involved in misleading or deceptive conduct in relation to its Climate Commitments on this basis,” she said.

She was referring to claims that Macquarie’s disclosure on financed emissions appears to be exploiting a loophole in NZBA guidelines.

These guidelines, however, don’t mandate member banks to establish targets for their fossil fuel exposure through off-balance sheet activities.

As such, Macquarie hasn’t tried to circumvent NZBA guidelines. It appears that those guidelines just aren’t tough enough and should also include off-balance sheet investments.

In its Net Zero and Climate Risk report released in December, the bank lists various action areas to help it reach net zero, categorically stating that in line with the NZBA guidelines, financed emissions are limited to “on‑balance sheet lending and equity investment activities.”

Simon Molyneux, Managing Director at Perth-based Molyneux Advisors, offers a more nuanced take. He told Gas Outlook that funders need to “get real” on sustainability goals, because the energy transition is real.

“However, it will take much longer than any of the targets suggested,” he said. “A fair energy transition needs funders to lend to all forms of energy, outright bans just make price spikes more likely. That’s bad for society at large and the poor in particular.”

Macquarie isn’t the only Australian bank being brought to task over its oil and gas sector investments.

Top four Aussie banks also slammed

Australia’s four largest banks (ANZ, NAB, Westpac and Commonwealth Bank) have loaned more than A$13 billion for fossil fuel projects over the past two years. This also comes as they publicly tout their emissions reductions, a Market Forces report said earlier this year.

Australia’s major banks largely avoid providing direct project finance to new coal, oil and gas projects, but they do fund corporate entities that develop them, it said.

The report added that financing arrangements represented a loophole that allowed these lenders to finance fossil fuel production. However, the four banks also claimed to not directly support new fossil fuel projects.

Litigious environment

These reports come as new gas and LNG development in Australia become increasingly difficult to get approved due to climate change litigation. It’s a quagmire of dueling interests.

This has created one of the most litigious oil and gas sectors in the world, with forecasts for that opposition to only intensify.

On the one hand, Australian oil and gas companies argue that fossil fuels are still needed to drive economic growth, albeit while renewables are developed and brought into play.

These companies along with the Australian government also claim that carbon, capture, utilization and storage (CCUS) technology can adequately address sector emissions.

However, there’s growing evidence that CCUS has significant problems, including difficulty to prove on a large scale, along with high development costs compared to renewables. Finally, reports also indicate that these carbon capture projects are susceptible to CO2 leakage.

Environmental groups, for their part, counter Aussie oil and gas sector claims, arguing that the day of fossil fuel development should be over, and that large scale fossil fuel projects not only create economic catastrophe but could even be in violation of Australian human rights.