Taking coal from Newcastle: NAB’s loan for Aussie port sparks accusations of greenwashing

IFR 2382 - 08 May 2021 - 14 May 2021
5 min read
Asia
Tessa Walsh

Attempts by Australia’s Port of Newcastle to distance itself from coal by using sustainable financing to highlight the diversification and decarbonisation of its operations have run into accusations of greenwashing.

PON, Australia’s biggest east coast seaport and the world’s largest thermal coal terminal, has raised a A$666m (US$517m) loan via National Australia Bank that offered lenders the option of joining sustainability-linked, green and conventional tranches.

While PON is a port operator and acts as a landlord to terminal operators, its close proximity to the coal business raises key questions about the ambition of its targets, as it currently derives around 60% of its revenues from coal.

Climate-focused think tank the Anthropocene Fixed Income Institute said that PON’s sustainability framework was not sufficiently robust to align with the Paris Agreement on global warming, and that labelling the loan as sustainable invalidates NAB’s own green bond frameworks.

“We believe this greenwashing should mean a removal of the green status of NAB’s green bonds,” said Ulf Erlandsson, executive chair of AFII.

NAB said that the deal is in line with its coal policies, which do not extend to ports that carry multiple types of freight. The bank is committed to delivering A$70bn in environmental financing by 2025.

“We’re working with customers to actually help them reduce their exposure to climate and that’s what our job should be,” said NAB's CEO Ross McEwan in a call with reporters announcing the bank's first-half results. “We shouldn’t be abandoning customers when people put a lot of pressure on. Our exposure to the Port hasn’t increased."

In contrast, ANZ decided not to provide any new financing to PON after adopting policies last year that prohibit it from financing customers with significant coal exposure.

Australia has not yet set targets to reach net-zero emissions and curbing fossil fuels is subject to intense political debate, particularly around employment. PON supports about 9,000 jobs nationally and the Hunter Valley coal mining region is heavily dependent on the port, which handles 164m tonnes of cargo annually.

“The emissions associated with coal are incredibly important and need to be addressed, but there’s also that social aspect,” said Jackie Spiteri, senior manager for ESG at PON.

Deal details

The A$666m package has maturities of 2.5 and five years and includes a A$515m sustainability-linked loan with five KPI targets, and up to A$50m of new green loans that will fund growth initiatives including green building projects and diversifying the port’s revenue base. The remainder is a conventional loan for banks that opted not to join the sustainable tranches.

PON will receive a margin reduction if it hits five KPI targets, which include Scope 1 and 2 CO2 emissions. Other targets such as mental health, first aid and diversity are also included.

“At this stage, the focus of this transaction and this sustainability-linked loan are things that are within our ability to have an influence on and impact on within the tenor of that loan in the next five years,” Spiteri said.

There are, however, serious questions about the ambition of the deal's targets. In particular, it only addresses PON's direct emissions (Scope 1 and 2) but not the many times larger indirect emissions that are a consequence of its activities, but that it doesn't own or control (Scope 3).

Anthropocene estimates that PON's Scope 1 and 2 emissions are equivalent to 0.0007% of its Scope 3 emissions.

Diversification strategy

Investors are increasingly calling on companies to provide assessments of Scope 3 emissions. PON says that it is addressing Scope 3 through diversifying away from coal.

“We're not shy of Scope 3. You could say that the burning of coal doesn’t fall in PON’s Scope 3, but we’re not saying that. We recognise that a large part of our cargo throughput is coal and the way we’re addressing that is to have a diversification strategy in place,” Spiteri said.

The deal is the first SLL for an Australian company to include a modern slavery metric among its KPIs, even though all big Australian businesses are now legally required to disclose modern slavery risks in their supply chains. PON has also pledged to establish an Aboriginal and Torres Strait Islander student internship programme with the University of Newcastle. The company spent A$30,000 last year on similar programmes.

NAB acted as sustainable finance structuring coordinator on the loan. Second party opinions were provided by ESG ratings agency DNV.

The facility is also the first SLL to align with the International Capital Market Association’s Climate Transition Finance Handbook, which sets tighter guidelines for the sustainability-linked bond market.