Major-bank sustainability focus: Westpac

Siobhan Toohill, group head of corporate sustainability at Westpac Banking Corporation (Westpac), and Mark Goddard, head of DCM and syndicate at Westpac Institutional Bank (WIB), both based in Sydney, discuss the bank’s approach to sustainability delivery and reporting.

VISION: To be one of the world's great service companies, helping our customers, communities and people to prosper and grow.

There is a global shift toward integrated reporting. What is Westpac’s position in this regard?

TOOHILL Organisations in Australia and globally have been talking about integrated reporting for a long time but we are all at different stages regarding how we think about it. Westpac’s key sustainability strategy, progress, and disclosures narrative and metrics are covered across its main reports, with additional detail for more specialised audiences available in a standalone report.

For example, Westpac’s 2018 annual report included Task Force for Climate-Related Disclosures (TCFD) reporting, a section on salient human-rights issues and expanded reporting on sustainability metrics reflecting progress on our 2020 sustainability strategy. You can also see expanded versions of these disclosures in our sustainability performance report, which has all the narrative and case studies that bring these issues and our progress to life.

We also have an annual review and sustainability report. This is largely designed for a retail shareholder audience. It is a combined document that brings together aspects of our annual report and our sustainability performance report, and has some attributes of integrated reporting.

We are now exploring how we streamline and reduce duplication across our reporting. The next step is thinking about how we take the concept or principle of integrated reporting and make it relevant as we take it forward.

Prior to joining Westpac, I attended the International Integrated Reporting Council (IIRC) kick-off conference in the Netherlands where the first workshops on integrated reporting were held. IIRC has developed a prescribed template for integrated reporting. However, some would prefer a more flexible approach that is better able to adapt to the requirements of different geographies and sectors.

Do you talk to investors specifically about impact?

TOOHILL I would say the investors that are really interested in what we’re doing around sustainability – by which I mean ethical, socially responsible investment (SRI) or environmental, social and governance-focused funds – know we produce a comprehensive sustainability report and they’re all over it.

While a few engage regularly most don’t ask many questions given our comprehensive approach to sustainability disclosure. Some of these investors prefer to engage throughout the year, especially around our position statements and where we stand with regard to different sensitive sectors.

We pride ourselves on doing a very thorough materiality assessment on the big issues the business sees itself facing and those which our stakeholders believe we should be addressing. We map this to determine the most material themes for reporting and action.

GODDARD Our funding team comments that in all their mainstream bond-investor meetings they are increasingly being asked about Westpac’s position on sustainability. This has clearly moved forward – I’d suggest that a few years ago these issues were cursory for traditional credit investors.

But the interest is not just from investors. When we talk to borrowers, the conversation is about what they are doing on sustainability and the potential for them to issue SRI bonds, as well as them asking what WIB stands for as a lead manager when it comes to sustainability.

Sustainability has become topical in every part of the market nowadays. Equity and bond investors are looking at it, and customers we want to deal for want to know our credentials in this space.

Some companies and borrowers are increasingly basing their reputation on being responsible corporate citizens. I expect these companies to form views that will determine whether or not they work with a bank based on whether the bank has a clear sustainability position.

All the major Australian banks have signed up to support the TCFD recommendations. Why is this important?

TOOHILL We commenced engagement with the TCFD not long after it was formed and we support the recommendations. It’s a useful framework for us to communicate our climate-change approach and performance. Our TCFD disclosures are in our annual report with fuller commentary available in the sustainability performance report.

The TCFD sets out four recommendations and we frame our climate disclosures accordingly around climate governance, strategy, risk management, and metrics and targets. In 2018, we also furthered our climate-scenario risk assessment in terms of transition risk and examined physical risk.

We have set out our current state and our priorities out to 2020 across all the TCFD recommendations. We have lined these up with our climate position statement and our broader sustainability strategy and noted how we’re tracking.

“I think it’s really important that, while we are all devising measures and metrics, we really need to listen to the market around the measures that will be valued and supported. It will take time to get there.”

We have got to the stage where sustainability is on the agenda across global economies, but the biggest challenge seems to be how to define and measure it – not just globally but also taking into account geographic diversity. What is your view on global taxonomy developments?

TOOHILL We are seeing different kinds of measures in the marketplace. For example, in New Zealand in mid-November 2018 – when Westpac and KangaNews arranged the first New Zealand Sustainable Finance Summit – we heard the message loud and clear from local market participants that they want quality. As they put it, they don’t want “fake green”. They are asking for substantive and thorough measures that demonstrate impact over time.

I think it’s really important that, while we are all devising measures and metrics, we really need to listen to the market around the measures that will be valued and supported. It will take time to get there.

With regard to taxonomy, I’m looking to the thinking that’s emerging out of Europe and tapping into global banking peers to form a view. It’s important to look beyond Australia and understand the evolving sustainable-finance marketplace.

GODDARD I believe a number of the participants asking for a standardised taxonomy probably relate it to how they would apply credit ratings within their portfolios.

The risk is that if you limit the taxonomy to a certain standardised approach you may also limit innovation. In our space we are constantly trying to innovate. For example, when borrowers were first trying to launch green bonds the aim was to establish an asset class that would provide superior funding outcomes in order to support further R&D and allow technology to catch up to deliver green development.

My fear is that if you lock down certain fixed definitions you also take away some of the innovation we clearly need as a means of supporting better financing of the things we all want to see develop into the future.

TOOHILL That’s a good point. I would add that what’s material to our bank may not be material to another. Some broad themes will line up but there will always be things that are specific, due to the nature of an institution’s geography, customer mix and strategy. We have to be careful that taxonomies don’t limit either innovation or responsiveness to the particular nature of the market in which we are operating.

Is Westpac involved in the UN Environment Programme finance initiative (UNEP FI)-backed sustainable finance roadmap for Australia and New Zealand? This roadmap is also working on a taxonomy for these countries.

TOOHILL We are part of UNEP FI and we look forward to engaging around the roadmap that is being developed. In addition, we were the first Australian bank to participate in the draft principles for responsible banking (PRB) recently launched for consultation by UNEP FI.

In fact, Westpac was a founding member of UNEP FI so it’s great to be part of this new initiative – creating the PRB. We were a founding signatory of the Equator Principles and had early involvement in the UN Global Compact (UNGC). We see lots of value in being there at the start, shaping new industry standards and opportunities to collaborate for better outcomes and wider impact.

At the heart of the PRB is aligning a bank’s strategy with the Paris Climate Agreement and the UN Sustainable Development Goals (SDGs). Our support for the PRBs was straightforward given our very public support for the Paris Climate Agreement and the SDGs. For us, seeing this come to life in a series of principles for banks globally makes good sense.

We joined the commencement meeting of the PRB early in 2018 and our Singapore team hosted the second in-person meeting of the 28 participating banks in September. It has been fascinating working with banks from all around the world on how to develop principles that will help integrate sustainability and benchmark performance. It’s about alignment of sustainability goals, transparency, reporting and governance – all the things you would expect to see around how to increase positive impact and reduce negative impact.

Working toward shared principles and commitments for banks globally, and to consider how this will shape the future of banking, is what I find particularly exciting. It’s also been fascinating to learn about the maturity of sustainable finance in Europe, how different banks approach developing sensitive-sector policies, and to hear that Australian banks are well-regarded for their sustainability reporting and growing focus on human rights.

Westpac and sustainability – a historical relationship

Westpac Banking Corporation (Westpac) can lay a claim to Australia’s longest-standing relationship between a financial institution and sustainable behaviour. It is seeking to build on the ties in the modern era.

Can you give a sense of the extent to which consciousness of impact is embedded in Westpac’s DNA?

TOOHILL Westpac is a 201-year-old company and the bank set up its first disaster-relief fund in its first year of existence. The Hawkesbury River flooded in 1817 and Westpac created a fund to support the affected communities. Sustainability has been there from the very start and through time.

I started at Westpac almost six years ago. One of the first things I did was meet with leaders across the business to understand where the organisation was regarding sustainability. What became very apparent is that sustainability is part of who we are. People think about our brand and what this organisation stands for around issues relating to sustainability.

In my role, I am building on the work of many others over a long period of time. I’ve never had to advocate internally why sustainability is important. Rather, my role is about how we create long-term value and how we keep challenging ourselves to be better.

What other global networks has Westpac signed up to?

TOOHILL Key networks for us include the Australian network of the UNGC due to the link with the SDGs and their role in hosting the annual human rights dialogue. UNEP FI is important in bringing together the global finance community – specifically investors, insurers and banks – around sustainability.

Other frameworks of which we were a founding signatory include the Equator Principles, which is a framework for the assessment of project finance.

The UN guiding principles on business and human rights (UNGP) for business are also very important for us. The UNGP strongly informed our human-rights position statement and 2020 action plan, and our approach from 2018 to identifying, disclosing and taking action on our salient issues.

Saliency – or salient issues – is different from materiality. Materiality is around what matters most to the business and stakeholders. Salient issues are where, in the operations of the business – through the value, supply and lending chains – there is potential harm to people. It doesn’t matter who thinks it’s an issue. If there is potential for harm to people it’s a salient issue. We set out key salient issues and report against them in our UNGP reporting.

The key salient issues Westpac called out in 2018 relate to privacy, customer vulnerability, exclusion and discrimination in employment and conditions for workers through our value chain. This is quite different from the materiality issues that drive our sustainability strategy.

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has clearly had a very significant impact on the role of sustainability teams at Australian banks due to the social and governance issues it raised. What is your perspective?

TOOHILL The royal commission has brought to light confronting stories and examples of poor behaviour affecting customers that have understandably affected the public’s trust in the industry. These instances are not reflective of the level of service we would expect to provide our customers and we continue to listen, reflect and most importantly take action to ensure better outcomes for customers.

An example of this is how we are increasing the visibility of customer outcomes – and complaints in particular – at the highest levels of the organisation. We have appointed a new group executive who oversees complaints handling across the group and we are investing in people, policies and technology to make sure we resolve complaints in a fair, consistent and timely way.

In my team, we are placing an even greater focus on customer vulnerability. We’ve developed a customer-vulnerability action plan that sets out where we will focus between now and 2020 – taking action where we can best support customers and being tuned in to the particular requirements of people experiencing vulnerability.

It’s interesting to see how sustainability teams are seen to provide a valued policy and action planning role, helping the business get to the heart of concerns.

“My fear is that if you lock down certain fixed definitions you also take away some of the innovation we clearly need as a means of supporting better financing of the things we all want to see develop into the future.”

What are some of the governance issues you focused on in 2018?

TOOHILL We talk about governance in our annual report and sustainability performance report. For us, this is not only about how overarching strategy is governed but also how our action plans and applicable risk frameworks are governed. We have a greater number than ever of committees for dealing with issues. For example, around climate change there is the climate-change-solutions committee which is all about our funding activity, and the climate-change-risk committee which is focused on our scenario work and the TCFD.

We also have a human-rights working group which rolls up into our sustainability council. Ultimately, key concerns and issues get heard at executive level and at board level as well. We work continuously to strengthen and enhance our approach, including getting the right people around the right tables to discuss the key sustainability issues and determine the actions we need to take for our customers and other stakeholders.

We set out how these different themes are governed. This is occurring across the organisation – from what happens at the front line to where the board has oversight and everything in between.

Does this focus mean the role of the bank’s sustainability team keeps expanding?

TOOHILL We have a hub-and-spoke model – a central team, with smaller business and operations teams embedded into different business units across the organisation. Sustainability professionals have to be really skilled at forming virtual teams and building awareness and ownership with the right people across the business to drive action.

The last thing you want is sustainability as a bolt-on. Embedding sustainability leaders across the organisation enables us to integrate sustainability risk and opportunities into how the organisation does business. Put simply, it’s about head and heart – a compelling sustainability strategy with clear metrics, brought to life through human stories.