Major-bank sustainability focus: NAB
Sasha Courville, head of social innovation at National Australia Bank (NAB) in Melbourne, and David Jenkins, head of sustainable finance at NAB in Sydney, share an update on impact reporting and where their bank’s approach aligns with global developments.
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There is a global shift toward integrated reporting. What is NAB’s position in this regard?
Since we first became involved in integrated reporting, we have had many interesting discussions about what it actually means and how it can be incorporated into our mainstream disclosures. While it’s still a journey, there’s no doubt we have been very committed to thinking about the financial and nonfinancial considerations of our business and business performance, and how we should communicate these to stakeholders.
We’ve had a few runs at this now, including in our current reporting suite with our integrated annual review as the centrepiece. This is the result of close collaboration between the finance and corporate-responsibility teams, with key contributions from teams across the entire organisation.
Why is integrated reporting so important?
The power of integrated thinking is really important – in fact it has never been more so for the financial sector in Australia. Put simply, it’s a lens through which we can look at social, environmental and financial performance and see things we might not otherwise see.
Does NAB do any impact reporting at corporate level at the moment?
This initiative involves 28 global UN Environment Programme finance initiative (UNEP FI) member banks. The goal is to accelerate the banking industry’s contribution to the UN Sustainable Development Goals (SDGs) and the Paris Climate Agreement. It will include working towards mainstreaming positive-impact reporting. The intention is to lift the bar, discuss, engage and move toward a common understanding of how we achieve this.
We have also participated in the UNEP FI-World Resources Institute portfolio carbon initiative, which was focused on development of standardised green and brown performance metrics for use by banks and other financial institutions. We use some of these metrics in our own carbon-risk-related reporting.
We have been evolving our performance reporting more broadly across the bank, taking into account the opportunities the SDGs provide to create an overarching framework for impact measurement.
We have mapped key elements of our performance to the SDGs. This has helped inform strategy development so we can focus on areas where we can contribute the most. We have also leveraged a number of our flagship corporate-responsibility initiatives in the social-impact-transaction space to continue to develop our understanding of how to do this.
Can you give an example?
As well as providing Good Shepherd Microfinance with capital and support to build out a suite of microfinance products and support for the people accessing them, we have also been working with the Centre for Social Impact (CSI) for many years to understand the state of financial exclusion and resilience in an Australian context. This is broad-based population market research on who is doing better or worse with respect to financial access and resilience.
We used to focus solely on exclusion but then we realised that what is needed to bounce back from financial shocks isn’t just about access to financial products. We needed a more sophisticated understanding of resilience that would bring multiple factors –including access, economic resources, social capital and financial knowledge – into consideration.
The work we have been doing with CSI consistently maps how we are performing, year-on-year. As a result, we have provided baseline data that Australians can use to think about how they can work towards addressing financial resilience and financial health.
That’s a key contribution to baseline data. Then you layer the impact data on top. The point is that you need to start with baseline data and, if this doesn’t exist, someone has to invest in it. The key is to be able measure whether what you are doing is having an impact.
All Australian banks have signed up to support the Task Force on Climate-Related Financial Disclosure (TCFD) recommendations. Why is this important – particularly as there are so many benchmarks and frameworks for companies to choose from?
We don’t know the answers to all these questions for all social and environmental issues at all scales and in all regions. By necessity, there’s a lot of experimentation and learning.
The flip side is that, at some point, we also need to get to standardisation, harmonisation and benchmarking to support comparability. A consistent approach to reporting across and within sectors can help stakeholders and reporting entities understand performance, risks and opportunities, and how they can improve relative to peers.
Work on experimentation and standardisation in impact measurement is happening at the same time, and they are both important. We at least have some common metrics with which to interpret performance in the climate-change space.
At the same time, understanding the risks and opportunities, being able to integrate climate scenarios and data into scenario modelling, articulating the assumptions going into this process and identifying where the data sets are coming from are all highlighting gaps in current understanding and in data availability.
This must be pretty tricky as you’re not just looking at what’s happening here but also on a regional and global level – and how Australia sits within this.
NAB focused on metals and mining as well as power generation when looking at transition risk as part of the pilot.
For physical risk, we focused on the agriculture and property sectors. Being involved in this process has given us good insights on how to engage with customers in these sectors on climate risk.
We are also learning in this pilot that it’s really important to have the right data sets with long-term data trends from which to predict future changes due to climate change. For example, the pilot banks all used the same integrated assessment model, which didn’t have an Australian-specific data set, for transition risk in the first instance – to enable comparability and shared understanding of the methodology. This meant the outputs we generated didn’t all make sense in a local context. This will be improved by building Australian data into the integrated assessment models – which is now happening.
National Australia Bank (NAB) is Australia’s most diverse issuer of labelled bonds, including in green, social and sustainable development goal (SDG) format. Issuing a wide range of such product brings its own challenges.
JENKINS We have broad bank-wide initiatives as well as reporting on the green and social bonds. With regard to the bonds, impact reporting is front and centre for investors at the moment. The first question we are asked is what impact reporting we are doing and whether we will provide it on a regular basis.
Over the last three or four years, the green-bond space has been converging towards a key set of impact metrics. Initially this was informed by the harmonised framework for impact reporting developed by a number of supranational, sovereign and agency issuers back in 2015.
We have taken this as our guide as an issuer of green bonds. We look at the metrics, which are typically around avoided greenhouse-gas emissions. In the case of renewable energy it’s quite clear: annual generation times the various grid intensity factors arrives at an avoided greenhouse-gas emissions number.
For the transparency and comparability that is needed for the sustainable-finance sector to grow, taxonomy is pretty crucial – and not necessarily at a local level but also a global one. Do you agree, and do you think Australia should have its own taxonomy or follow global initiatives?
At NAB, we have used this as a guide for developing our SDG-aligned green-bond framework. Around 18 months ago, we met with a wide range of global investors and received some specific and tangible feedback. We came away focused on the opportunity to hardwire what we are doing in the green- and social-bond space so it directly maps to the SDGs.
It’s worth highlighting that, for the purpose of reporting on NAB’s A$55 billion (US$39.4 billion) environmental-finance commitment, one of the key standards we have used is the Climate Bond Initiative taxonomy. This taxonomy is already informing the EU sustainable-finance roadmap. We are continually monitoring this evolving area and integrating new developments into what we have already started to apply.
What do you say to investors who criticise green bonds on the basis of ‘downline’ influences, for instance those that fund public transport powered by brown energy?
We need a continued modal shift to move people out of fossil-fuel-intensive forms of transport such as combustion-engine cars into lower emissions-intensity forms of transport such as electrified passenger rail. We are transitioning towards a 2050 zero-carbon economy and financing electrified rail projects is part of this low-carbon transition.
What’s your view on benchmarking? With so many benchmarks out there, how do you choose which ones to focus on?
Practically, there is a limit to how many benchmarking activities a company can participate in. Therefore, we focus on a few key benchmarks like the Dow Jones Sustainability Index and the Carbon Disclosure Project among others, and in some areas we do our own benchmarking of NAB versus peer performance.
What are NAB’s in-house commitments on the environment, and social and governance issues?
Other commitments include sourcing 50 per cent of our electricity from renewables by 2025 and playing an active role in climate change by innovating across key markets we serve and activities we undertake, and supporting low-carbon initiatives.
Some examples of this are our green-bond origination and financing activities, and the work we’re doing with Clean Energy Finance Corporation including the discounted funding NAB provides to SMEs and agricultural customers to invest in energy efficiency and renewables.
This involves delivering for our customers and specifically includes doing the right thing by talking directly to the outcomes of the banking royal commission and the changes we need to make to address mistakes.
It’s also about supporting communities. We have made a commitment to be the bank for rural and regional Australia. We’ve been doing a lot of work on this by visiting rural and regional communities in Australia, listening to what they care about and how we can serve them better.
From a social perspective, there’s also a continued focus on the financial health of our customers and looking at financially vulnerable customers which will come out with the banking code of practice. Modern slavery has been a big topic over the last year in Australia and is now a key focus of investors. It’s something we have been focused on since 2016, as NAB is already subject to the UK Modern Slavery Act and publishes a modern-slavery statement annually on its website.