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.
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, 314KB).
To help our employees better understand ESG risk, we include ESG risk content in our annual Risk Awareness training. In 2021, this content maintained a focus on climate risk and modern slavery.
For information on how we manage ESG risk in spending (our purchasing decisions), read about our Supply Chain Management.
We maintain a High Risk ESG Sectors and Sensitive Areas list to help our bankers and procurement professionals know which sectors and activities may have a higher inherent exposure to ESG-related risks. It also sets out sectors and activities where we have restricted or no appetite; this includes the nuclear industry, arms-dealing and predatory financing. This list is reviewed and updated to incorporate emerging and changing ESG risks.
Additionally, NAB has disclosed the following risk policy settings:
A phased review of carbon intensive, climate sensitive and low-carbon sectors commenced in 2017 and is ongoing. This review process has led to implementation of ESG-related credit policy and risk settings for fossil fuels. Although the Group continues to support existing customers across the mining and energy sectors to facilitate an orderly transition to a low-carbon economy, the following risk settings are in place.
We have capped oil and gas exposure at default at USD2.4bn and will reduce our exposure from 30 September 2026 through to 30 September 2050, aligned to IEA NZE 2050. This provides for measured re-orientation of client activity ensuring NAB can continue to support clients committed to transition1
We have capped thermal coal mining exposures at 30 September 2019 levels, and updated our plans to reduce thermal coal mining exposures by 50% by 30 September 2026 and to be effectively zero by 30 September 2030, apart from residual performance guarantees to rehabilitate existing thermal coal mining assets
For more detail regarding actions NAB is taking to help meet the goals of the Paris Agreement on climate change, while supporting security of energy supply in Australia and New Zealand refer to our Annual Financial Report, our Annual Review and here.
NAB's approach to Improper Land Acquisition is incorporated within our Human Rights approach and within our Human Rights Policy.
NAB will not knowingly finance or provide advice to companies that have a prevailing conviction for improper land acquisition or against which NAB considers there is credible evidence of material violations of applicable laws and regulations. NAB will review customer relationships where there is a risk of a customer operating outside the law or not meeting NAB requirements. If this risk is not addressed to NAB’s satisfaction, NAB may exit the banking relationship.
For more information refer to our Human Rights approach.
In 2019, NAB developed a set of Animal Welfare Principles (PDF, 312KB) to guide bankers in assessing customers’ animal welfare practices, and to clarify the Group’s role in supporting customers engaged in any form of business involving animals. The Principles define good animal welfare practices and outline our expectations that customers will meet required animal welfare regulations, standards and conventions. As outlined in the Principles, NAB will not finance the following animal-related activities:
In 2020, NAB signed the Tobacco-Free Portfolio’s Finance Pledge (the Pledge), a global initiative to accelerate progress towards a tobacco-free future. As a signatory to the Pledge, NAB will not provide finance for the purposes of growing tobacco or manufacturing tobacco-based products.
Our credit policies and processes support our approach to risk management. They incorporate legal and regulatory requirements, and reflect our commitment to meeting voluntary standards, such as the Equator Principles.
We have policies and processes to identify, assess and manage ESG risks associated with our customers. Among other things, these policies require our bankers to be able to:
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.
We recognise that mining, agriculture (particularly soft commodities) and forestry conducted in jurisdictions where land rights and land tenure are unclear, have the potential to give rise to improper land acquisition issues. These sectors are included in our sensitive sector and activity list.
We consider exposure to risk, including ESG risk, at both a lending portfolio and an individual customer level. At the customer level, ESG risk is assessed on a case-by-case basis as part of the credit risk assessment and due diligence process. We assess ESG risks associated with the activities that we are directly funding, as well as the indirect risks that we may be exposed to, through other activities a client may undertake. Our policy requirements in relation to land rights now form part of our Human Rights Policy and guide our dealings with customers involved in relevant sectors, including the soft commodities sector. This has included Wilmar International Limited (Wilmar).
As part of credit risk management, we annually review large clients like Wilmar, and assess potential ESG risks associated with their business and supply chain. In December 2013, Wilmar announced its ‘No Deforestation, No Peat, No Exploitation Policy (“Policy”). Wilmar operates an integrated multi-national agribusiness, with business activities including oil palm cultivation, oilseed crushing, edible oil refining, sugar milling and refining, specialty fat, oleochemical, biodiesel and fertiliser manufacturing and grain processing.
Wilmar recognises that while plantation development has contributed significantly to economic development, deforestation and other business-as-usual practices have an impact on people and the environment. For this reason, they are working closely with other growers, traders, processors, NGOs, end-user companies, financial institutions and other industry stakeholders to protect forests, peatlands, and human and community rights.
Wilmar started its supply chain mapping exercise in early 2014 to improve transparency and better manage risks in its supply chain. To help stakeholders understand the implementation progress of its Policy, Wilmar provides details of actions it is taking to manage sustainability risks in its supply chain in the Sustainability section of its website. This includes disclosure of suppliers and a grievance procedure mechanism that enables any stakeholders to raise concerns about Wilmar’s own operations and/or those of its third-party suppliers. Findings and progress on actions taken to address those concerns are reported on that platform. Wilmar has held a series of meetings to socialise its grievance process with both international and local NGOs.
We find it useful to be able to refer to the site, and Wilmar's quarterly update report on its No Deforestation, No Peat, No Exploitation Policy, to see how Wilmar is progressing on the certification and supply chain compliance fronts.
Our bankers screen general credit applications to determine if NAB's environmental credit risk policy should be applied. This is applied if the lending has the potential to involve environmental risks due to:
Where screening criteria triggers the need for environmental credit risk assessment to occur, bankers are required to undertake an environmental risk assessment as part of due diligence for a transaction. These assessments are reviewed regularly where material environmental risks are identified.
Key elements of our environmental risk assessment include understanding the:
Footnotes:
*Sensitive industries or activities include those that: (1) have capacity to contaminate land, water, air or other natural resources; (2) require a licence or permit to use natural resources, without which they cannot operate; (3) require a licence for emissions and discharges, without which they cannot operate; (4) may incur penalties for environmental reasons; (5) may need to remediate contaminated land or install equipment to treat waste.
We became a signatory to the Equator Principles in 2007. This committed the Group to a voluntary set of standards for determining, assessing and managing environmental and social risk in project finance, project finance advisory and project-related corporate loans and bridge loans.
A revised Equator Principles version (EP4) came into effect on 1 October 2020. This included strengthened requirements in relation to human rights, revision of the approach to ‘Free Prior Informed Consent’, recognition of the Paris Agreement and introduction of a climate change risk assessment and a broadened scope in relation to project-related corporate loans.
NAB has been an active participant in the EP4 development process.
Project-related finance assessment
When we assess opportunities for project-related finance within designated countries, we evaluate them for compliance with the relevant domestic regulatory requirements. Designated countries are those deemed to have robust environmental social and governance regulatory systems and institutional capacity designed to protect their people and the natural environment.
In addition, for Projects located in Designated Countries, the specific risks of the Project are evaluated to determine whether one or more of the International Finance Corporation (IFC) Performance Standards could be used as guidance to address those risks, in addition to host country laws.
For projects in all other countries (non-designated countries), we apply IFC and World Bank Environmental, Health and Safety Guidelines.
We apply these policies, regardless of the monetary value of the project, if there are concerns that the project may present a risk to areas such as environmental habitats, indigenous peoples or community rights. Our internal standards require an environmental impact assessment for all projects we finance. As at 30 September 2021, of the deals in our project finance portfolio to which Equator Principles applied, 98.4% were in designated countries.
Assessing project-related finance risk
We apply our Equator Principles credit risk policy requirements to all relevant transactions. Our assessment and management of risk in project-related financing is based on independent expert due diligence, active risk management and the continual review of policies that are specifically applicable to project-related finance.
Each year, we review the performance of our project finance portfolios' assets, assessing actual environmental and social performance of the financed asset against the contractually required baseline performance.
We also require customers who receive project finance to consider environmental and social compliance risks and, where applicable, encourage them to consider broader environmental and social risks, and to seek and follow relevant expert advice.
You can also find our key Equator Principles statistics on the Equator Principles website.
Within the Group two key businesses (JBWere and BNZ) conduct wealth-related activities.
JBWere recognises it has an important and privileged role to play in Responsible Investment (RI) and helping interested clients to invest responsibly. In July 2021, JBWere launched its new Responsible Investment Policy and Responsible Investing Framework aimed at providing clients with a comprehensive approach to investing for a dual goal: performance and purpose. The RI framework represents the full scope of RI as defined by JBWere, spanning Environmental, Social and Governance (ESG) integration, stewardship of client capital, impact investing, and ethical filters and alignment. Collectively, these pillars align to globally recognised definitions of RI by the Global Sustainable Investment Alliance (GSIA) and reflect global best practice in private wealth.
BNZ’s approach to RI and its Responsible Investment Policy incorporates Environmental, Social and Governance (ESG) factors taken into account in developing and managing investment options.
Sustainable business is good business. It is our responsibility to make good long-term decisions and help support a strong economy into the future. As part of this long-term approach, sustainability is specifically embedded in our strategy, and includes priorities to tackle some of societies biggest challenges where we are best-placed to make a positive impact, such as climate action.
As a founding signatory of the Principles for Responsible Banking (PRB) and the first Australian bank to join the UN Collective Commitment to Climate Action (CCCA) – which commits NAB Group to aligning our lending portfolio to net zero carbon emissions by 2050 – we want to show industry leadership in making a positive impact on 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.
Highlights from delivering on opportunities within the Group’s climate change strategy in 2021 included:
For more information read our environmental agenda, objectives and strategy (PDF, 300KB).
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 and in 2021 we celebrated our 11th anniversary of maintaining carbon neutrality.
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 are committed to:
Further information about actions we are taking to deliver on our climate change commitments can be found elsewhere on our website (Climate Change and our Environmental Approach) and in our annual report suite.
We have continued to respond to the CDP Climate Change request.2
We previously participated 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. Reports are available here.
At 30 September 2021, the power generation sector represented $7.2 billion, or ~0.71% of our total Group net EaD, and of this, 71.4% was from renewable energy.3
Resources exposure represents ~0.9% of our total Group net EaD, with coal specifically accounting for <0.1% of total Group net EaD.
We continue to provide a breakdown by geography and sector of our project finance portfolio in our Equator Principles reporting.
Important information
1 The cap of USD2.4 billion was determined giving consideration to the three-year average exposure up to 30 September 2021 due to COVID impacts. Use of USD for the purposes of this cap is to account for currency movement because the majority of the portfolio is USD denominated. From 2022, oil and gas Exposure at Default will be reported in USD.
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.
We're committed to understanding and managing the impacts and dependencies of our business on the environment.
The impacts of climate change and climate-related policy are having a growing effect on our business, our customers and the communities in which we operate. That's why we're taking action.
We’re working towards minimising waste and reducing consumption.
Our environmental targets, assurance and certifications help us operate more efficiently while addressing key environmental challenges.
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