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ANZ withdrawal from Newcastle port financing prompts calls for ESG collaboration

SNL Image
The Port of Newcastle in New South Wales, Australia, the world's largest coal export port. The port appears to be the latest victim
of financiers withdrawing from involvement in high-emitting assets, despite its plan to diversify into more sustainable operations.
Source: Port of Newcastle

Australia and New Zealand Banking Group Ltd. reportedly withdrawing as a major lender to the world's largest coal export port has prompted mining, shareholder advocacy and bank groups to urge financiers to work with large emitters rather than abandon them to achieve Paris Agreement goals.

The Australian reported that ANZ had refused to keep funding New South Wales' Port of Newcastle, which mainly exports thermal coal, though S&P Global Market Intelligence has learned that the bank merely left alone an expired loan facility.

A Port of Newcastle spokesman said the port is "working with responsible lenders who are interested in helping businesses like the Port of Newcastle become more sustainable and diversify."

An ANZ spokesman told Market Intelligence that it does not publicly discuss specific details of its customers.

The Australian also reported that National Australia Bank Ltd. stepped in to help underwrite the port in a refinancing that is part of a long-term program to support the transition into non-coal operations, including an automated multipurpose deepwater container terminal.

Regarding the decision, Minerals Council of Australia CEO Tania Constable told Market Intelligence that "the negative impact of denying a strong and productive sector access to competitive finance could be profound for the Australian economy as well as for many regional communities."

"Miners, innovators, financiers and manufacturers should be working together to deliver real emissions reductions while supporting regional communities," she said.

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Great expectations

Shareholder advocacy group Australasian Centre for Corporate Responsibility's Climate and Environment Director Dan Gocher said that while it was not clear from the report whether ANZ walked away from the refinancing or simply priced itself out of the running, "either way ANZ must consider the return not worth the risk."

The decision does appear to be at odds with ANZ's commitment in November 2020 to work with its 100 largest customers to decarbonize, Gocher said, though the bank also said at the time that there would be customers whose values simply did not align with ANZ's.

Gocher sees the port being almost exclusively dependent on thermal coal exports as its key challenge.

"Unlike other businesses in the supply chain, the options available to the port seem limited. There's little it can do to influence what the Hunter Valley produces and exports, for example," he said.

Constable said investment in mining innovation can also benefit other Australian commodities and industries, like advances in electric vehicles in the Hunter Valley's coal mines.

An ACCR report this month criticized Australian superannuation funds for withdrawing from high-emitting companies without prior public warning, proper climate risk tools, or "exhaustive consultation," which could be doing more harm than good. It also said funds should work with companies to become more sustainable.

NAB CEO Ross McEwan told Melbourne's 3AW radio Feb. 9 that the Newcastle port is in the midst of a "major transition" to more sustainable operations, which needs investment. He said such customers are "taking every effort to become far more conscious of their emissions, and we should be in there supporting, rather than just walking away from them."

NAB has committed to capping thermal coal mining exposures at 2019 levels, reducing by 50% by 2028 on the way to being effectively zero by 2035 apart from residual performance guarantees to rehabilitate existing coal assets. NAB expects its thermal coal mining exposure to be effectively zero by 2030.

ANZ's November pledge said "many communities, particularly those in regional areas, are reliant on the coal industry for employment." The bank pledged to engage with existing customers who have more than 50% thermal coal exposure to support existing diversification plans; and where these are not already in place, ANZ will expect "specific, time bound and public diversification strategies by 2025."

Existential threat

The Australian Institute of Company Directors quoted Port of Newcastle Chair Roy Green as saying in June 2019 that coal's long-term outlook is an "existential threat" to the port and the Hunter Valley region.

"We have to prepare for the further decline of coal as an energy source, but we see this as a huge opportunity," he said. "While world demand for our coal is beyond our control, our ability to invest in new sources of growth and innovation is not."

Though the port also exports other things like alumina, wheat, cement, steel and fertilizer, its 13.9 billion tonnes of coal exports in January alone, worth A$1.44 billion, dominated its commodity exports that totaled A$1.7 billion that month.

In 2020, the port exported 158.43 billion tonnes of coal worth A$18.5 billion, out of a total of A$20.6 billion for commodity exports.