Major-bank sustainability focus: ANZ
ANZ is on a journey toward integrated reporting among a raft of initiatives in the sustainability space. Anna Stewart, head of corporate sustainability in Melbourne, and Katharine Tapley, Sydney-based head of sustainable finance, share views on the bank’s approach.
PURPOSE: To shape a world where people and communities thrive.
There is a global shift toward integrated reporting taking place in the banking sector, and among companies more generally. What is ANZ’s position in this regard?
You can’t just suddenly start doing integrated reporting – it’s actually quite a difficult thing to do, involving many parts of the business. Integrated reporting is an output of integrated thinking, and getting the integrated thinking piece right takes time. The work we’ve been doing over the past couple of years on defining our organisational purpose has helped with this. We know what our purpose is and we have clear strategic priorities, so it makes sense for us to move toward integrated reporting now.
A particular value of integrated reporting is that it brings together different areas of the bank and helps break down silos. A number of teams need to be involved, including strategy, investor relations, finance, sustainability and risk. It really does involve a whole-of-organisation approach, which I think is why it is quite difficult and why we haven’t yet seen large numbers of companies in Australia doing it. But the momentum is definitely growing.
Integrated reporting came into being for investors. But the audience is broader than this. We would like all our stakeholders to pick up the annual review and get a feel for ‘who’ ANZ is – how we are creating value, the challenges and opportunities in our operating environment and how we are managing them, our governance, our key strategic priorities, and how we have performed.
I think integrated reporting represents the next wave of best practice in reporting. We are increasingly seeing the environmental, social and governance (ESG) world intersecting with the financial world. You just can’t talk about them separately now.
Are fixed-income investors asking for integrated reporting?
Through socially responsible investing (SRI), investors are able to get their hands on information that tells the story. They haven’t previously had this level of information available to them. Nor have they asked – until recently. It’s working both ways: debt investors are finding their voice and they are also getting better disclosure through instruments like green bonds.
Impact reporting is also gaining traction. When we roadshow bonds, the more sophisticated investors are asking about issuers’ intentions around impact reporting, the metrics that will be reported on and whether the investor can have any input. This is becoming more prevalent across the debt investor community, particularly in Europe.
All the major Australian banks have signed up to support the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations. Why is this important and what is ANZ doing in this regard?
The TCFD is focused on financial risks and opportunities associated with climate change. Having a reporting framework like the TCFD is helpful as it enables more consistent and comparable reporting. This is particularly beneficial for stakeholders who are interested in how we are supporting the transition to a low-carbon economy and managing the physical and transition risks associated with climate change.
Will ANZ continue publishing a separate sustainability report as it progresses more on the integrated annual review?
I think what we may start seeing is climate disclosures being published separately, as they already are in some European countries. Some companies have released a separate TCFD or climate-risk report in addition to their financial and sustainability reports. I think there’s a specialised audience for certain types of disclosures.
Companies can report under a dizzying array of frameworks. Would investors or other stakeholders get better outcomes from the commoditisation of some of these reporting standards?
We do a materiality assessment every year, for which we consult internal and external stakeholders. It’s a good check for us to make sure that what we think are the most important issues is in line with what our stakeholders believe.
ANZ and ESG collaboration
A strong environmental, social and governance (ESG) agenda is not just about a bank’s independent actions. ANZ is actively involved in collaboration with third parties to improve social and environmental outcomes.
STEWART I would highlight our financial-wellbeing work. We have some very strong partnerships in this space working together with a number of fantastic community partners, including The Smith Family and the Brotherhood of St Laurence.
In 2018, we undertook a substantial piece of work surveying the financial wellbeing of Australian and New Zealand adults. It was really informative in highlighting that financial wellbeing is not so much about what you earn but rather your savings habits and not using credit for everyday expenses. The survey results are helping inform our product development and the types of conversations we have with customers.
TAPLEY Another one I’d mention is our membership of the Qantas Future Planet Partnership. This partnership was established by Qantas alongside various corporate members.
We have a number of initiatives under the partnership. We’re doing carbon offsetting for our environmental footprint. We’re working out ways to engage our employee base around issues associated with environmental degradation.
There are also some initiatives in the pipeline on the corporate side with the partnership – for example, we’re part of a group talking about developing “blue carbon” markets.
Some market users believe taxonomy is crucial to support the transparency and comparability needed for the sustainable-finance sector to grow. What are your views on some of the moves to develop standardised taxonomy?
Personally, I’m somewhat on the fence about taxonomies because I think defining what is green, ESG or SRI is quite jurisdiction-dependent. What’s green in Australia may be very different from what’s green in Vietnam.
This informed our thinking when we started looking at how to produce an impact report showing the benefit from the use of proceeds of our green bond. This was nearly 18 months ago, when there wasn’t any formally developed taxonomy. We went to a few key investors in Australia and Europe and asked them what they wanted to know.
Do you think ANZ will continue with this investor consultation process even as the EU and ASEAN nations move closer to developing their own taxonomies?
Data is another issue for banks in particular, because we don’t own the assets. We’re reliant on our clients to provide data and information, and we have to manage this within the expected degree of confidentiality that should flow between a banker and its clients.
Do you plan to report annually on SRI bond impacts?
Source: ANZ Sustainability Review 2018
Should reporting have a view on downline impact? For example, investors might question the funding of a light-rail project because the electricity that powers the trains is not renewable.
Let’s talk about ANZ itself. What commitments has the bank made on climate change?
In 2018, Australia’s Royal Commission in the Banking, Superannuation and Financial Services Industry has caused the banks to focus on social and governance issues. How has ANZ responded?
I don’t think we can underestimate the impact the royal commission has had on our sector. Our key priorities must be improving customer outcomes and ensuring the failures of the past are not repeated. Governance is incredibly important and the royal commission highlighted some governance failures across the sector. There’s quite a bit of material on governance in our annual review because, understandably, stakeholders are interested to know what boards are focused on.
We have endeavoured to improve transparency in our reporting, including disclosing information on the board’s focus areas. In 2018, these included strategy, improving customer outcomes, the bank’s purpose and values-led transformation, and financial and regulatory issues.
At board level we have an ethics, environment, social and governance (EESG) committee, led by our chairman. The committee has a specific focus on sustainability, approving the bank’s sustainability targets and reviewing progress in achieving them.
At executive level, we have the ethics and responsible-business committee chaired by the CEO with senior executive representation from across the business. It is a leadership and decision-making body that exists to advance ANZ’s purpose.
In 2018, this committee informed the development of an ethical decision-making framework to help guide who we bank and the activities we undertake. During 2018, Dr Simon Longstaff from the Ethics Centre joined this committee as an observer, providing an independent voice on the committee.
Which external rankings does ANZ focus on?
All the Australian banks decreased their ranking on the DJSI in 2018. Australian banks have traditionally led the rankings, but we all saw our scores go down this year as a result of governance failures highlighted by the royal commission.