Environment

Our Approach

We are committed to managing the impact of our business on the environment. Taking a sustainable approach to managing our business is not only important for the environment, but the long-term growth and resilience of our business.

Our environmental agenda incorporates strategies covering:

Climate Change
Resource Efficiency: Beyond Carbon Neutral
Natural Value

You can read more about:

Further information on our approach to managing our environmental impact is provided in the following pages:

Environmental Governance
Our Environmental Policy
Managing Environmental Risk
Products & Services
Engaging Our People
Advocacy and Industry Initiatives
Supply Chain Engagement

Environmental Governance

Environmental governance is provided through our Group Environment Committee (GEC), previously the Group Climate Change and Environment Committee. Membership of the Committee includes representatives from our businesses in Australia, New Zealand, the UK, Asia and the US.

The GEC reports through to our Group Risk Management Committee, which reviews our environmental risks and performance along with other corporate responsibility related matters and approves all Group-wide environmental policies. In addition, from time to time the GEC also reports to our Group Executive's Corporate Responsibility Council. The Board also receives regular reports.

Our Environmental Policy

Environmental management across the Group is undertaken on a regional basis due to differences in regional regulatory requirements and operating practices. Our environmental policy and practices are structured to reflect the ISO14000 framework.

Our commitment to managing our business's environmental footprint is guided by our NAB Group Environment Policy.

This policy is supported by two guidelines that help us with the implementation of our carbon neutral commitment:

Our environmental policy recognises that a sustainable approach to the way we do business isn't only good for the environment, but will also make us more resilient as a company. It's part of our plan for long-term growth. It covers:

our global commitments, including adoption of the Equator Principles and carbon neutrality
compliance with relevant environmental laws and regulation
environmental management and performance - what we do to minimise the direct and indirect impacts of our operations
public reporting to raise awareness of environmental issues and our progress towards our goals
engagement with our employees and the community on environmental issues
governance for delivering our environmental policy and commitments.

Managing Environmental Risk

We are working to continually improve the way in which we incorporate environmental risk into our risk management framework, policies and processes. The information below outlines a number of ways in which we are doing this.

Environmental risk in lending
Project Finance and the Equator Principles
Responsible investment

Environmental risk in lending

Since 1992, NAB Group has had environmental credit risk assessment policies and processes. These help protect our investment, and are consistent with our broader corporate responsibility objectives to understand and minimise the indirect impacts potentially created by our lending activities.

Our lending and investment policies and processes reflect our beliefs and behaviours, changing regulatory requirements, our approach to risk management and our commitment to meeting voluntary standards, such as the Equator Principles..

Each of our businesses has policies and processes to identify, assess and manage environmental risks in dealing with customers. Among other things, these policies require that each of our businesses is able to:

identify environmentally sensitive industries¹
identify relevant environmental legislation and regulatory requirements and assess a customer's compliance with these requirements
assess how our customers' manage environmental risks
consider the impact of changes in legislation and regulations on a customer's business
consider the impact of changes in societal expectations on a customer's business and reputation risk that may be associated with a customer
assess the risk of liability for environmental issues being transferred to the Group entity

Our businesses screen general credit applications to see if the environmental credit policies should be applied. They are applied if the lending has the potential to involve environmental risks due to:

the nature of the industry in which the borrower is involved
the location or nature of the property owned by the borrower - for example, environmentally sensitive sites
an adverse comment made by a valuer in regard to an environmental risk

Each of our businesses is also required to develop and maintain an environmental risk assessment checklist to guide our bankers through the environmental credit risk assessment process. These checklists are updated as required to reflect changing regulatory requirements and regional operating contexts.

Key elements of our environmental risk assessment include understanding the:

customer's current operations
historical uses of a customer's site
customer's environmental practices, management systems and compliance records
risk of liability transfer in regard to environmental issues
nature of any licences, permissions or consents held by a customer
outcomes of any previous site investigations, environmental surveys or audits
community concerns in relation to the customer's operations

Our assessment may also include expert third-party reports, environmental impact assessments, and site visits. This may result in the inclusion of covenants in lending contracts with annual reviews.

It is our policy to encourage customers to establish good environmental management practices and to seek reliable advice on environmental matters. Environmental risks and opportunities are discussed in the normal course of customer-relationship management. Through the use of our policies, bankers are able to better identify and manage risks specific to a particular customer.

Credit and risk managers in corporate and business banking units oversee credit quality and provide on-the-job training to bankers so that they can properly apply the environmental risk policy.

Group level policy also requires that we should avoid lending to certain industry sectors.

For example:

industries with which our Group, for ethical reasons, does not wish to be associated. Examples include pornography, arms dealing, and testing on animals
non-government regulated gambling.

Project Finance and the Equator Principles

We signed the Equator Principles in 2007, committing ourselves to a voluntary set of standards for determining, assessing and managing social and environmental risk in project financing.

The Equator Principles are a set of globally recognised, voluntary guidelines to assess and manage social and environmental project financing risk, especially in emerging markets. NAB's project finance activities reside within Wholesale Banking. In FY11, project finance accounted for 1.46% of gross loans and advances including acceptances (including loans at fair value).

When we assess project finance opportunities within high-income Organisation for Economic Co-operation and Development (OECD) countries, we evaluate them for compliance with the relevant domestic regulatory requirements. In FY11, around 93% of our project finance portfolio was in high-income OECD countries.

For projects in all other countries, we apply International Finance Corporation (IFC) and World Bank safeguard policies (as a minimum). We apply these policies - regardless of the monetary value of the project - if there are concerns that environmental habitats, Indigenous peoples and community rights may be at risk. Our internal standards require an environmental impact assessment for all projects we finance.

We apply our specialised finance environmental risk policy to all our project finance deals. The technical review of these deals is managed from Australia.

Our assessment and management of risk in project financing is based on independent expert due diligence, active risk management and continual review of policy specifically applicable to project finance. We have identified a wide range of environmentally sensitive industries which require a higher level of due diligence. Each year, we review the performance of our project finance portfolios' assets. This review may assess actual environmental performance of the financed asset against the contractually required baseline performance. We require our project finance clients to consider environmental compliance risks and we encourage them to consider broader social and environmental risks - and to seek and follow relevant expert advice.

Responsible Investment

As a 'manager of managers', MLC does not select stocks directly; but it researches leading investment managers. An important characteristic of best practice investment managers is the approach they take to assess environmental, social and governance (ESG) issues. MLC believes that sustainable company performance is aligned with strength and leadership in ESG issues. 0.30% of funds under management are in socially responsible investment funds. Full reporting can be found on our performance pages (check page name). [note this link is to dig deeper reports on the CR Performance page- need to check with CR where these reports are now.]

_{1. Environmentally sensitive industries or activities are those that: (1) have capacity to contaminate land, water, air or other natural resources; (2) require a licence or permit to use natural resources, without which they cannot operate; (3) require a licence for emissions and discharges, without which they cannot operate; (4) may incur penalties for environmental reasons; (5) may need to remediate contaminated land or install equipment to treat waste.}

Products and Services

NAB recognises that in addition to reducing our own environmental footprint, significant opportunities exist to help our customers as they transition to a lower carbon way of operating, and adapt to, and manage, the risks of climate impacts, natural resource constraints, biodiversity losses and changing environmental policy and regulatory requirements.

We are committed to:

being a leading financier of renewable energy development;
building capability in servicing carbon markets; and
offering new financial products and services with environmental benefit to meet growing consumer demand.

Business opportunities, such as the provision of environmental products and services, are identified and prioritised through the strategic planning process both at the Group and business line level.

We have developed a number of new product initiatives including:

energy efficiency financing for commercial buildings in the form of environmental upgrade agreements, in collaboration with Low Carbon Australia and Eureka Funds Management;
asset finance solutions for energy efficiency products such as LED lighting and solar systems;
support for small scale renewable energy projects for wind power in the agricultural and community sectors in the UK;
financing forestry developments utilising carbon revenue streams in New Zealand.

We continue to provide project finance for renewable energy development. In 2011, we provided project finance for an additional 600MW of renewable energy generation projects. After accounting for projects removed from our project finance portfolio in 2011, this resulted in a net increase in the design rated megawatt (MW) generation capacity of projects financed from 2361 MW to 2397 MW.

Our environmental product and advisory teams in Australia and New Zealand are also providing:

advisory and financing work around Clean Development Mechanism (CDM) and Carbon Farming Initiative projects; and
Kauri bond issues

Our Environmental Markets team are continuing to build carbon market trading capability which currently includes Renewable Energy Certificates, Certified Emission Reduction Units and European Union Allowances. They also assist in the purchase of voluntary carbon offsets for NAB's own offset portfolio. In addition, the Environmental Markets team participate in a range of other activities to support development of market-based products including the Victorian Government's Carbon Export Cluster.

Engaging Our People

Our carbon neutral commitment has stimulated significant employee interest and enthusiasm towards creating a more environmentally sustainable workplace. We are now working to develop this further through our Beyond Carbon Neutral programs. We would like every employee to be part of our environmental agenda, so we're continually working to increase environmental awareness across our business.

In Australia

We aim to increase employee engagement further through our newly launched Green Action Program (GAP) champion network. This will continue to build our network of environmentally aware employees in our voluntary green team community. In promoting environmentally sustainable behaviour, our voluntary green champions are advocates for our environmental agenda and programs. They also support events like Ride to Work and Earth Hour and help deliver in-house initiatives such as environmental expos and campaigns including our online PaperCuts challenge.

In 2011, we launched a new environmental behavioural learning module - My Wasteline - to help promote our increased focus on waste reduction. This complements an existing online training module that helps our people understand what carbon neutral means to us. We also use a range of internal communication channels - for example - Internet, email updates, social networking and 'nabTV on demand' - to regularly post environmental updates and news for employees.

In addition, we monitor employee awareness of, and attitudes to, environmental issues along with workplace behaviour change. We do this through employee surveys and participation in our behaviour change programs and initiatives. Since 2007, when we made our carbon neutral commitment, our people have become more interested and enthusiastic about making our workplaces more environmentally sustainable.

For example, in August 2010, we surveyed Australian employees and found that:

93% knew about NAB's carbon neutral program, up from 58% in February 2008; and
48% knew about our green team community, up from 24% in February 2008.

Advocacy and Industry Initiatives

We believe that business has a role to play in advocating on environmental issues.

From providing advisory services, information sessions and workshops, to taking part in consultation on policy developments and joining industry initiatives, we are committed to engaging in meaningful dialogue on environmental issues with our employees, customers, government, our industry peers, business and the broader community.

We regularly take part in government consultation processes on emerging policy and regulatory change. This includes consultation on the development of carbon policy in Australia. In 2011, our Group CEO Cameron Clyne was a member of the Australian Government's Business Roundtable on Climate Change and specialists from our environmental teams participated in a number of industry working groups including the Carbon Working Group of the Australian Financial Markets Association.

We recognise the importance of research and development, particularly in response to global issues like climate change, water scarcity and biodiversity and ecosystem services loss.

Working with ClimateWorks Australia

Through our collaboration with ClimateWorks Australia we have co-hosted forums that have brought industry, government, academic, business and community experts together to discuss best practice in mitigating and adapting to the effects of climate change for both the agriculture and small businesses sectors. In 2011, we commissioned ClimateWorks Australia to undertake research on the marginal abatement costs curve for carbon reduction and energy efficiency opportunities in the retail and healthcare sectors.

NAB Retail Sector report
The retail sector research was released in June 2011 and can be found on the ClimateWorks Australia website

Carbon Awareness and Education

In 2010, we contributed to a Carbon Awareness and Education Forum as statef in the Forum report [add new CarbonCommunicationForum.pdf here]

In 2011, we built on this forum by supporting further stakeholder forums and commissioning a White Paper 'Changing the Carbon Conversation' by Republic of Everyone.

Changing the Carbon Conversation

Green Capital

We are ongoing supporters of the Total Environment Centre's Green Capital business engagement program. Green Capital runs a series of events each year in both Melbourne and Sydney that provide an opportunity for representatives from government, business and NGOs to come together to hear discussion and debate about key sustainability issues.

Industry Initiatives

NAB Group is also a member of global finance sector and industry-led initiatives including:

We are also signatories to the following initiatives:

2ºC Communiqué

Supply Chain Engagement

We recognise that we can have a significant indirect impact on the environment through our purchasing decisions.

As part of our approach to corporate responsibility, we're committed to having a positive impact through our purchasing decisions to ensure our business practices are fair and responsible.

More information on Supply Chain Engagement can be found here