BEHIND THE NUMBERS: ANZ's climate-related risks and opportunities

We recognise ambition alone won’t support the transition or deliver on our purpose of shaping a world where people and communities thrive. We have a plan to deliver on our ambitions. As part of this we are continuing to evolve our work in this space.

" Our engagement program focuses on understanding our customers’ transition plans and how we can help them to get there.” – Mark Whelan

I sat down with ANZ Group Executive Institutional, Mark Whelan, and Chief Risk Officer, Kevin Corbally, to discuss how we are evolving our work which is outlined in ANZ’s 2023 climate reporting released today and what this means for our customers. You can listen to our conversation in full below.

A new phase of engagement

Whelan says the bank is beginning a new phase of engagement with its largest emitting business customers, partly due to the Safeguard Mechanism reforms which came into effect from July this year in Australia.

“Our engagement program focuses on understanding our customers’ transition plans and how we can help them to get there,” he says. “We look for three elements: governance, targets and disclosures… In addition, what we're doing now is [looking] to see the good evidence of progress going forward.”

Whelan says the “ratings” of these customers’ transition plans – which can be found on page 23 of our Climate-related Financial Disclosures – ultimately feed into credit decisions, alongside considerations of ANZ’s Net-Zero Banking Alliance (NZBA) pathways.

Corbally echoes these sentiments, noting the NZBA pathways are “essentially our approach to steer the most carbon intensive parts of our portfolio towards net zero.”

To-date, the industry segments ANZ has focused on as part of our commitment to the NZBA are power generation; oil and gas; thermal coal; transport; steel; aluminium; cement and commercial real-estate. More information regarding our performance against existing pathways and new pathways disclosed this year can be found in our Climate-related Financial Disclosures.

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Click here for a transcript of this podcast

Communicating our trajectory

This year, as part of its evolving approach to energy customers, ANZ has also set a target to reduce its exposure to the oil and gas sector by 40 per cent by the end of 2025. Whelan says he thinks the target will allow ANZ to continue to back customers that have ‘well-developed’ or ‘advanced’ transition plans, while also recognising there is a need to manage exposure.

“We're challenging ourselves to… better communicate our trajectory to the market,” he says. “Transitioning the global energy system is very complicated and it's going to take time. We have to find the balance between seeking action and understanding that sometimes a lead of several years might be needed… to diversify a business and make the required capital investments.”

Assessing and managing risk

Corbally says approval by ANZ’s Board to elevate climate to a material risk means this topic is treated on par with other risks such as credit risk.

“It also means we're strengthening our enterprise-wide approach to managing climate risk, including its impact as a cause of other material risks,” he explains. “It helps us to bring organisational focus and discipline to meet regulatory requirements and mandatory disclosure obligations, and it assists us with strategic planning and to further develop our capability and expertise.”

Another topic which has emerged over the past few years is biodiversity. This is a new lens on environmental risk and we are working through the complexities alongside our customers.

According to Corbally, managing biodiversity risk is at a more “embryonic” stage than climate risk. He says ANZ, like many banks globally, are learning about biodiversity and identifying good practice as it emerges both locally and internationally.

However, Corbally reaffirms ANZ’s existing Social and Environmental Risk Policy and Land Acquisition Statement makes clear the bank will not knowingly support customer activities that significantly impact on culturally or environmentally sensitive areas.

“One of the key things we have been doing this year to improve our knowledge on this topic is having discussions with some of our largest-emitting business customers,” Corbally explains. “We're certainly seeing an increased awareness of biodiversity from our customers, but also an increased willingness from those customers to improve their approaches.”

Corbally says this work is supported by a Climate Change Risk Assessment tool, which was upgraded this year to guide our bankers’ engagement with these customers to better understand their climate risks and opportunities and how they're managing their impacts on nature, including biodiversity.

Personally, I'm loving all the conversations we have with our customers about the innovative ways they're looking to change how they do things. We are all just learning along the way.

Jo Scotney is Group General Manager for Property and Health in Institutional at ANZ