Responsible lending

Our lending policies incorporate consideration of ESG risk, regulatory requirements and voluntary commitments.

Responsible investment

We have Socially Responsible Investments (SRI) funds available.  

Carbon risk disclosure

We’re increasing our carbon risk disclosure and participating in industry initiatives to develop standardised disclosure methodologies.  

Why is this important?

Risk exists in every aspect of our business and throughout the environments in which we operate. Our capabilities in risk management help us to successfully implement our strategic priorities, and develop a resilient and sustainable business that can respond to a constantly changing environment. Read more about our approach to risk management.

What do we do?

We are continuously improving how we incorporate environmental, social and governance (ESG) risk into our risk management framework, policies and processes, at both a Group and business level.

This is supported by ongoing work to embed ESG risk considerations into our day-to-day decision making and to refine our processes and tools for managing ESG risk, guided by our Group-wide principles. Download a copy of our ESG Risk Principles (PDF, 444KB).

To help our employees better understand ESG risk, we include ESG risk content in our annual risk awareness training.

Managing ESG risk helps protect our business. It’s also consistent with our broader Corporate Responsibility strategy, which includes ensuring that spending and lending decisions consider environmental and social factors.

For information on how we manage ESG risk in spending (our purchasing decisions), read about our Supply Chain Management.

ESG risk in lending

Our lending policies and processes adhere to changing regulatory requirements, support our approach to risk management and reflect our commitment to meeting voluntary standards, such as the Equator Principles.

At a Group level, we have identified sensitive industries and activities that require a higher level of risk assessment. Read more about our voluntary commitments.

Each of our businesses has policies and processes to identify, assess and manage ESG risks when dealing with customers. Among other things, these policies require that each of our businesses is able to:

  • identify relevant legislation and regulatory requirements and assess a customer's compliance with these requirements
  • assess how our customers manage environmental and social risks
  • consider the impact of changes in legislation and regulations on a customer's business
  • consider the impact of changes in societal expectations on a customer's business and the reputation risk that may be associated with a customer, and
  • assess the risk of liability for environmental issues being transferred to the Group entity.

Our approach is to encourage customers to establish good environmental and social management practices, and to seek reliable advice in relation to these matters. Bankers discuss environmental and social risks with their customers as part of their business relationship. This enables them to better identify and assess any risks that may arise on a case-by-case basis.

Responsible investment

NAB Wealth offers hundreds of investment choices to clients because we know everyone has different ideas about how their money should be managed. Socially Responsible Investments (SRI) funds managed within NAB Wealth and externally, are included in these choices.

NAB Wealth believes that environmental, social and governance (ESG) factors are a source of potential risk in its investment portfolios and should be managed prudently. NAB Wealth’s investment managers – a number of whom are Principles for Responsible Investment (PRI) signatories – are in the best position to evaluate the extent to which good corporate governance and a sustainable business approach are conducive to delivering long-term investment performance and the management of risk in their funds. That includes important impacts such as ESG factors.

Further information on funds under management in SRI funds can be found in our Sustainability Report (PDF, 5.2MB).

Carbon risk disclosure

We recognise that environmental challenges such as climate change are major challenges affecting our economy and society.

The impacts of climate change and climate-related policy will have a growing impact on our business, our customers and the communities in which we operate, so we believe we have a key role to play in providing finance to assist the low carbon transition.

That’s why we continue to be the leading arranger by market share of project finance to the Australian renewable energy sector1. For more information read our Environmental agenda, objectives and strategy.

We’ve developed knowledge and understanding of carbon measurement and management through our commitment to carbon neutrality. We were the first Australian bank to achieve this goal.

A long-standing objective of our climate change strategy has been to learn by doing and then incorporate this knowledge into how we manage environmental, social and governance (ESG) risks, and develop environmental products and services to assist our customers.

We recognise the growing demand for disclosure of information by financial institutions, including banks, to assist investors and other stakeholders to understand carbon risk in lending and investment portfolios.

We believe that in order to meet this need it’s important to have reliable and standardised information on which to base carbon risk exposure reporting, and agreed industry standards to account for and report on such exposures. At the current time:

  • there is limited reliable or standardised information reported by clients on which we can base carbon risk exposure reporting; and
  • agreed industry standards for the accounting, reporting or disclosure of carbon risk exposure arising from finance, including financed emissions, are only now starting to be developed.

Consistent with our commitment to transparency and integrated reporting, we are committed to identifying, developing and implementing ways to improve disclosure on carbon risk exposure, through collaboration with other financial institutions in Australia and internationally.

Furthermore, we are committed to:

  • expanding disclosure of carbon risk exposure in NAB Group’s Full Year results reporting over time, taking stakeholder input into account;
  • continuing our participation in the Portfolio Carbon Initiative (PCI) – a joint initiative of United Nations Environment Program Finance Initiative (UNEP FI), the World Resources Institute and the 2 Degrees Investing Initiative – to assist the development of reliable and standardised reporting on carbon-related risk exposure for financial institutions; and
  • collaborating with our Australian banking peers to pilot disclosure methodologies and approaches that can feed into UNEP FI Greenhouse Gas Protocol Financed Emissions Initiative, and to advance these processes in a timely manner.

In 2017, we undertook the following activities to deliver on this commitment:

  • Commenced our participation in UNEP FI's pilot project to test recommendations made by the Financial Stability Board’s
    Taskforce on Climate-related Financial Disclosures.
  • Continued to expand our disclosures on lending to the agricultural, energy and natural resources sectors. See our Results Investor Presentations and our Sustainability Report. This includes:
    • exposure to the resources sector including coal mining and exposure to power generation;
    • financing for renewable energy generation, 6 Star GreenStar commercial buildings, climate adaptation, energy efficiency, low carbon assets and infrastructure and 6 Star residential properties; and
    • green bond issuing, advisory, underwriting and arranging.
  • Continued to respond to the CDP Climate Change request. This year NAB was awarded an A- for our 2017 CDP survey response2 (PDF, 647KB).
  • Continued to collaborate with our Australian banking peers on disclosing information on carbon-related risk exposure for financial institutions as part of the Australian Portfolio Carbon Working Group (PDF, 197KB).

At 30 September 2017, the power generation sector represented $5.2 billion, or ~0.5% of our total Group EAD, and of this, 58.2% was from renewable energy3. Resources exposure represents ~1.3% of our total Group EAD, with coal specifically accounting for <0.1% of total Group EAD4.

We continue to provide a breakdown by geography and sector of our project finance portfolio in our Equator Principles reporting.

Important information

1. Project Finance International 2006-2017 Asia Pacific Initial Mandated Lead Arrangers League Tables – MidYear 2017 US$ Project Allocation, NAB analysis ranking against four major Australian banks – cumulative volume as at 30 June 2017.

2. NAB Group’s current and prior year CDP responses are available on the CDP website.

3. Prepared in accordance with NABʼs methodology (based upon 1993 ANZSIC standard). Excludes exposures to counterparties predominantly involved in transmission and distribution. Vertically integrated retailers have been included and categorised as renewable where a large majority of their generation activities are sourced from renewable energy.

4. As at 30 September 2017, coal mining is composed of 83% thermal coal exposure and 16% metallurgical coal, with the remaining balance of 1% primarily for peat cutting.

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