Major-bank sustainability focus: Westpac

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.