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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.

PURPOSE: Back the bold who move Australia forward.

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

COURVILLE We are proud to be a leader in this space and have been involved with the International Integrated Reporting Council (IIRC) since its creation in 2010. We also contributed to the development of its framework in 2013 and are one of the few organisations in Australia that continues to highlight the importance of integrated reporting.

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?

COURVILLE Transparency and disclosure are important drivers for NAB and its stakeholders. You can drive new thinking by looking at an organisation’s performance in an integrated way. You can see new opportunities to serve your customers better and how to manage risks in different ways.

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.

JENKINS The fact that we have been working on integrated reporting for many years is proof of how deeply this is embedded in our culture.

COURVILLE Importantly, integrated reporting allows us to bring everything together, rolling up transaction- and sector-level activity to the organisation as a whole. This enables us to find patterns and make connections that drive integrated decision making, building that ‘muscle’ consistently across teams and divisions. Taking this lens makes it easier to see nonfinancial performance considerations linked to social and environmental outcomes both as risks to be managed and as opportunities to develop.

Does NAB do any impact reporting at corporate level at the moment?

COURVILLE We have actively participated in many collaborative initiatives to improve impact reporting across a range of areas. One of the things we’re involved with is the development of the principles for responsible banking, which were released in draft form with a six-month consultation process in late November 2018.

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.

“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.”

Can you give an example?

COURVILLE I’d highlight the work we’ve been doing in the financial resilience and inclusion area, which includes a 15-year partnership with Good Shepherd Microfinance to deliver no-interest and low-interest loans.

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?

COURVILLE It is a very messy time in the world of sustainability and impact investment. But this also leads to opportunities. The reason it’s messy is that everybody is still learning how to measure impact in various situations and on various scales – positive and negative – and we have also given consideration to which metrics are the right ones to connect social and environmental outcomes with financial ones.

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.

JENKINS NAB and ANZ have been participating in the UNEP FI pilot, testing implementation of the TCFD recommendations. The pilot banks have focused on specific sectors in specific geographies as we were participating in methodology development and therefore it was important to reduce the number of variables we were trying to deal with.

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.

COURVILLE We think this work is vital as we need consistent measures and approaches in order to play our role in addressing climate change. Regulators, investors and other stakeholders also see the importance of this effort. What we really value about the UNEP FI initiative is that it involves multiple global banks figuring this out together.

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.

Issuance diversity

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.

Can you give some colour on how NAB is reporting impact, around bond use of proceeds in particular? What measurement tools are you are using?

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?

JENKINS I do agree. A key recommendation from the sustainable-finance event co-hosted by NAB and IAG in September 2018 is to work through 2019 to develop a sustainable-finance roadmap for Australia and New Zealand. In this process, we expect to see a focus on the application of a sustainable-finance taxonomy in Australia and New Zealand and for this to be informed by what is happening in Europe.

COURVILLE Another aspect that has been highlighted for inclusion in the roadmap is setting of sustainable-finance standards. I worked on a lot of standard setting in a former role and it’s really hard to do this without a taxonomy, so the two initiatives go hand in hand.

JENKINS The interesting thing for me is watching the evolution of the EU Action Plan for Financing Sustainable Growth and how this is being implemented through the work now being undertaken by the Technical Expert Group (TEG) on the EU sustainability taxonomy.

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?

JENKINS I’ve been having this debate for six years! It’s true that electrified light-rail and trains are powered by the grid and that our grid here in Australia is fossil-fuel-generation intensive. However, our grid is transitioning to a lower-carbon generation mix as more renewable generation capacity continually comes online.

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.

“Benchmarking is an important element of continuous improvement and we’re trying to have a more positive impact and meet expectations of accountability. This needs to be balanced with the effort involved to do so. There is a limit to how many benchmarking activities a company can participate in.”

What’s your view on benchmarking? With so many benchmarks out there, how do you choose which ones to focus on?

JENKINS Benchmarking is an important element of continuous improvement and we’re trying to have a more positive impact and meet expectations of accountability. This needs to be balanced with the effort involved to do so.

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?

JENKINS We have published six climate-change commitments and are tracking our progress against these. The commitments were launched in 2015 and updated in late 2016. The first commitment is to provide A$55 billion of environmental financing by 2025. For FY18 we have delivered A$23 billion towards this commitment.

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.

COURVILLE An important part of the integrated reporting that appears in our FY18 sustainability report and annual review is the annual materiality process. This is a core part of understanding what is material to our stakeholders and what we should be reporting on year to year.

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. 

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