Our Carbon Neutral Commitment

National Australia Bank's carbon neutral commitment covers our operations in Australia, New Zealand, the United Kingdom, the US and Asia.

We've been operating on a carbon neutral basis since 1 July 2010. This followed a three year journey after we announced our commitment in March 2007.

Our carbon neutral commitment was made because our executive and Board could see that communities in the regions where we operate had become concerned and engaged on the issue of climate change. Likewise, our employees also felt strongly that we should be doing our part to help reduce greenhouse emissions and we could see the importance of helping our employees to contribute to reducing greenhouse emissions both at work and at home.

Carbon neutrality has become a key component in delivering the 'lead by example' element of our Group climate change strategy. The reaction of our employees to our carbon neutral commitment has been extremely positive. Employee interest and enthusiasm is helping to make NAB Group a more sustainable organisation.

But we're not stopping with the achievement of our carbon neutral commitment, now we are going Beyond Carbon Neutral and we will continue our journey to improve our resource efficiency.

Being carbon neutral means that the net emissions of greenhouse gas emissions from our carbon inventory is zero.

We've reduced our energy use, not just purchased carbon offsets

We've become carbon neutral the responsible way by making energy efficiency a high priority to reduce our energy consumption. We have also considered and implemented options to switch some of our energy usage to cleaner sources of energy - including purchase of government accredited green electricity. Purchase of green electricity has also been a way to invest in local greenhouse emissions abatement alongside our financing of renewable energy projects.

After these steps there are still some emissions that we can't reduce or avoid, so we've purchased verified and accredited carbon offsets to take our net greenhouse gas emissions for our carbon inventory to zero. Our carbon reduction initiatives have included:

• energy efficiency projects that change the way we heat, cool and light our properties
• establishing a tri-generation plant at our major data centre in Australia
• growing a carbon-conscious workforce.

Further information on what carbon neutral means to NAB and what we have done to meet our commitment is outlined in the following sections:

• NAB Group's definition of carbon neutrality
• How NAB Group calculated its carbon inventory
• Consolidated emissions totals and offsets retired
• Types of offsets purchased
• Forward purchasing offset model
• Assurance and Certification of our carbon neutrality
• References & Links

NAB Group's definition of carbon neutrality

As per our Carbon Inventory Guidelines, NAB Group defines carbon neutrality as a process involving five steps:

• Defining and measuring our carbon (greenhouse gas) inventory or footprint
• Reducing our greenhouse gas emissions through energy efficiency and demand management (employee behavioural change)
• Avoiding greenhouse gas emissions through increasing the amount of energy we purchase from renewable sources where practicable (and where we are allowed by Government rules to apply a zero emissions factor to the renewable electricity purchased)
• Offsetting remaining greenhouse gas emissions by purchasing quality accredited carbon offsets
• Verifying and reporting on our progress by:
  • regularly assessing our progress towards meeting our commitment and targets
  • obtaining external assurance of our carbon accounts (inventory and offsets) underlying our carbon neutral commitment
  • reporting regularly to key internal stakeholders and annually to external stakeholders.

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How NAB Group calculated its carbon inventory

NAB Group has been reporting energy and greenhouse gas performance data since 2003. We have been working to improve the quality of this information over time and in 2009 we undertook stakeholder consultation in all key regions where we operate to help us develop our Carbon Inventory Guidelines (pdf).

Based on these Guidelines, in 2010 NAB Group has calculated an expanded carbon inventory which includes greenhouse gas emission sources from its operations in Australia, Asia, New Zealand, the United Kingdom and the United States.

Work on our carbon inventory is ongoing. For some emissions sources, it is difficult to get access to the activity data needed for accurate greenhouse gas calculations. The table attached (pdf) provides a picture of the items in our inventory that have been calculated for each of our businesses.

The boundaries for Scope 1 and 2 emissions have generally been determined using an operational control approach. More specifically, in Australia and the UK, the boundary requirements for most Scope 1 and 2 emissions are covered by the regulatory requirements of the National Greenhouse and Energy Reporting Act 2007 (Cth) (Australia) and the Carbon Reduction Commitment Energy Efficiency Scheme (UK). Using these regulatory reporting requirements to define our Scope 1 and 2 emissions and boundaries for reporting ensures we have alignment to our regulatory reporting requirements and supports our compliance. For further detail on these requirements, please refer to the reference page.

For Scope 3 emissions, NAB has used an operational control approach and has developed principles outlined in its Carbon Inventory Guidelines (pdf) to define the emissions sources included in its carbon inventory.

A summary of the key methodologies, assumptions and emissions factors applicable to each emission source reported by our businesses is provided in the attached tables.

• Asia
• Australia
• New Zealand
• United Kingdom
• United States

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Consolidated emission totals and offsets retired

NAB Group's consolidated 2010-11 gross and net emissions are as follows:

_{*GreenPower is government accredited renewable energy available in Australia}

 _{**Figures in these tables may not sum to total due to rounding}

NAB Group's net 2010-2011 greenhouse emissions by Scope

Forecast NAB Group emissions for 2011-12

 _{**Figures in these tables may not sum to total due to rounding}

Carbon offsets retired for 2010-11 actual emissions:

Carbon offsets retired in advance for 2011-12 forecast emissions:

Read more about the assuranceof our carbon neutral commitment.

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Types of offsets purchased

NAB Group has developed Carbon Offset Acquisition Guidelines (pdf) to help us make sure that we purchase offsets that are real, quantifiable, additional and permanent. Once purchased, we are retiring the offsets required to neutralise our greenhouse gas emissions in recognised registries including Markit and NYSE Blue.

NAB Group purchases offsets generated in accordance with any of the following programs, subject to local jurisdiction requirements:

• Emissions rights as issued in the voluntary market and accredited by one of the following standards:
  • Gold Standard
  • Verified Carbon Standard
• Emissions permits issued from formally regulated compliance markets including EUAs, CERs, AEUs, NZUs
• Renewable Energy Certificates sourced from a government regulated scheme (if additional)
• Emissions rights from OECD Government administered voluntary schemes.

The total portfolio of offsets purchased and retired to date includes offsets issued by the Gold Standard, the Verified Carbon Standard and the New Zealand Emissions Trading Scheme.

The offsets purchased by NAB Group cover vintages that have come from 20 separate projects including:

• wind farm projects in China & India
• a rice husk power plant in Thailand
• fuel switch projects in Brazil, Thailand and China generating industrial heat from renewable biomass instead of fossil fuel
• a Thai biogas utilisation project that substitutes existing methane from waste water for heavy oil
• run of river hydro power projects in China and New Zealand
• upgrades to geothermal plants in Turkey and Indonesia
• and a coal mine project that captures waste methane and uses it for local gas distribution in China

All offsets have been fully verified and accredited in accordance with the Verified Carbon Standard or the Gold Standard. Once purchased, they are transferred to NAB Group's registry account and then retired, to ensure that they cannot be used again.

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Forward purchasing offset model

NAB Group has adopted a forward purchasing model to meet its carbon neutral commitment. This means we have calculated our forecast greenhouse gas emissions for the 2011-12 year using the actual greenhouse gas emissions reported in our 2010-11 carbon inventory. We have then purchased and retired carbon offsets based on this forecast in advance of the 2011-12 estimated greenhouse gas emissions occurring. Information on the types of offsets we have purchased can be found here.

It should be noted that the reporting year used for NAB's environmental reporting and carbon neutrality is 1 July through to 30 June, to correspond to regulatory reporting requirements for Scope 1 and 2 emissions under the National Greenhouse and Energy Reporting Act 2007 (Cth) in Australia.

One of our key assumptions in adopting the forward purchasing model is that the forecast 2011-12 emissions have been based upon the 2010-11 actual greenhouse gas emissions. At the end of the 2011-12 year, we will undertake a reconciliation process of forecast to actual greenhouse gas emissions. If there is any shortfall of offsets at this time, we will retire unallocated stock in our portfolio of purchased and retired offsets to neutralise our actual greenhouse gas emissions for the 2011-2012 period. We will seek external assurance as to the assessment of our greenhouse gas emissions inventory for the year ending 2012 and the reconciliation of this reported number to retired offsets.

The model contemplates that this process will be repeated going forward for the 2012-13 period, retiring offsets based on our forecast which will be calculated from our actual 2011-12 greenhouse gas inventory.

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