NAB has obviously committed significant resources to its involvement in the development of sustainable and socially responsible debt securities in Australia. What’s the bigger picture at the bank?

This is certainly part of a broader ESG commitment within NAB, and it also relates to the fact that we’re constantly working very hard to create product that the broadest group of investors wants to buy.

The bigger picture for us is that we have adopted a ‘shared-value’ approach to completely rethinking parts of our core business. This has involved creating products and services that address social and environmental issues, to give the investor community choice in how they invest their money in more meaningful ways.

I think this commitment is unusual for a bank. It is having real impact in areas like fair and affordable finance for individuals through our A$130 million (US$98.6 million) investment in microfinance and our development of the socially responsible investment (SRI) market.

Why have ESG asset classes apparently become so relevant to your business – capital financing – in particular?

First of all, I believe there are a number of societal issues that can be addressed using capital financing. Not solved in their entirety, but addressed through a combination of shared value, the concept I mentioned earlier, and by the use of market solutions in this way.

What’s interesting is the way socially responsible product is resonating with investors. This drives our desire to offer investors product they want. In fact, because of our deep interest in what investors want, we have supported the growth of specialist funds in Australia over the last 7-8 years.

This specialist demand specifically for SRI product comes of course from mandated institutional investors. But we are also seeing a desire to ‘do good’ via investment growing in the middle market and self-managed superannuation. This fits into the process we are pursuing diligently, of educating these investors about the market ecosystem as a whole.

Most of the green and social issuance completed in Australia so far has been sold to institutional investors – and yet you’re discussing the noninstitutional sector. How does the education process relate to this product?

The product plays very well with noninstitutional investors. It’s true that most of the distribution to date has been institutional, but there is also a great deal of interest from middle-market funds. I think we will see growing interest in future trades from these investors.

But there are even wider trends at play. The first goes back to the age-old issue in Australia: the fact that our investors have too much money in property and equity. We are going through a long process of demystifying fixed income for investors in this sector, including giving access to a wider range of products to satisfy a range of interests.

Thinking about product depth and meeting investor demand is what led us, in the end, to things like NAB’s own green-bond debut as an issuer, what we’ve done in sustainable securitisation, government-sector green bonds and now a social bond addressing gender equality. Again, the real issue is tying in what investors want with what we can deliver on the product side.

Cynics argue that green and social bonds are just a way for banks to get credit for lending they already do to suitable clients, especially without differential pricing. How do you respond to this?

It’s a bit chicken and egg: it’s hard for us to get investors on board for new lending for sustainable or ethical projects because they want to see the type of accreditation that can only be granted to existing assets.

Hopefully, this will prove to be a passing phase. By creating these types of products we are seeking to create demand in the SRI ecosystem so we can continue to create financial products that address social and environmental issues.

We are very conservative around the overcollateralisation our green-bond pools offer relative to issuance scale. This makes sense in the early days of the asset class’s life. But as investors get more comfortable and we improve our understanding of things like transition finance I hope we can find more assets and more issuance.

The main challenge we have is understanding and measuring the impact of these assets. Carbon-accounting frameworks have been a key factor for the acceleration of clean-energy finance.

What I would say is that NAB itself is doing much more than just paying lip-service to how it helps Australia transition to a low-carbon economy. The bank is already lending to renewables at a one-to-one ratio with fossil fuels – clearly the best ratio of the Australian majors.

NAB is also looking very carefully at its own footprint. It was the first Australian bank to go carbon neutral and we are paying close attention to the policies deployed by our suppliers. If anything, we want to go harder in this space – we want to find even more investors to support further business, on or off NAB’s own balance sheet.