Westpac Banking Corporation (Westpac) is an Australian bank with operations in Australia, New Zealand, and several Pacific Island nations. Westpac offers a variety of banking and financial services including personal, business, and corporate banking in addition to wealth management services.
Impact and Opportunities for Banks
Environmental, Social, and Governance (ESG) Risk Analysis
Banks that offer lending services have significant exposure to the indirect environmental risks associated with their financing activities. In an effort to analyze and attempt to minimize these risks, banks should have strong environmental and social policies and assessment tools. Banks involved in project finance should also participate in industry initiatives, such as the Equator Principles (EP).
Westpac is a signatory to the Equator Principles and goes beyond the requirements by applying the EP to all project finance transactions assessed, irrespective of project value. The bank also has an internal Environmental Lending Policy, which seeks to identify and mitigate environmental risks when evaluating lending proposals.
A 2013 report from the International Finance Corporation (IFC) highlights up to $1 trillion of investment potential in renewable energy, resource efficiency, and climate change adaptation in Europe, Central Asia, the Middle East, and North Africa. In these areas alone, the IFC estimates the potential investment opportunity of $270 billion in renewable energy generation, rehabilitation of power infrastructure, and improved transmission and distribution. ((International Finance Corporation. “Climate-Smart Business: Investment Potential in EMENA.” November 2013. Accessed March 13, 2014. http://www.ifc.org/wps/wcm/connect/f9d1938041aa9f1f8e23bf8d8e2dafd4/Investment+Potential+in+EMENA.pdf?MOD=AJPERES))
Westpac’s sustainability strategy includes a commitment to making $6 billion dollars available for lending and investments in clean technology and environmental services. As the company explains on its Sustainability Strategy webpage “…our new strategic focus is to anticipate and shape the most pressing emerging issues where we have the skills and experience to make a meaningful difference.”
Green Product Offerings
Banks can encourage environmental stewardship through their products and services. For instance, banks can offer green loans focused on green technologies. Banks may also offer green mortgages with better rates or terms to buyers with energy efficient homes. Green credit cards can be used to support local charities and green checking accounts may reward customers with higher rates for personal behaviors that reduce individual impacts.
Westpac offers several products that enable customers to minimize environmental risk or adapt to environmental challenges, in particular climate change. Westpac has, for example, the Energy Efficiency Lease, which makes it easier and more cost effective for large consumers of energy to reduce their carbon emissions and cut energy costs.
Direct Environmental Impacts
All financial institutions have a direct environmental impact stemming from their retail branches and headquarters. To minimize a bank’s direct environmental impact, common initiatives include online banking to minimize paper use, energy efficiency efforts for buildings and data centers, and videoconferencing to minimize business travel.
Westpac has reduced its greenhouse gas emissions more than 40% since 1996 through investments in energy efficiency upgrades and converting its vehicle fleet to hybrid technology.
Areas for Improvement
While Westpac provides some distinct metrics in its reporting, such as how much energy the bank’s automatic teller machines use, Portfolio 21 has asked the company to provide comprehensive reporting on its initiatives in one group-wide report.
To the best of our knowledge the above information is accurate and was obtained from sources we believe to be reliable. Neither the information presented above nor any opinion expressed shall be construed as an offer to sell or a solicitation to buy the security. The views expressed are those of portfolio management as of 5/31/14 and may not reflect current opinions or subsequent events.