National Australia Bank (NAB) 2023 Climate Report Summary

The National Australia Bank (NAB) 2023 Climate Report details the bank's climate action activities from October 2022 to September 2023. It outlines NAB's climate strategy and progress against targets for decarbonising operations and supporting customers in transitioning to a net-zero economy and building climate resilience. The report discloses exposures to high-emitting sectors, operational emissions, and environmental financing. This report aligns with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and the target-setting requirements of the Net Zero Banking Alliance (NZBA), of which NAB is a member.

In 2023, NAB provided $4.5 billion in new green lending, green commercial real estate (REIT), securitisation, underwriting, and arranging activities. 73% of the Group's lending to energy generation is now directed to renewable energy. NAB's Ready Together initiative supported communities with $3.2 million for natural disaster recovery. Over 1,200 colleagues received climate training. The bank set three new interim sector-specific decarbonisation targets, bringing the total to seven, covering 70% of financed emissions attributable to emissions-intensive sectors. Operational Scope 1 and 2 emissions saw a 35% reduction compared to the 2022 baseline, with 88% of electricity consumption from renewable sources. NAB's Chair, Philip Chronican, emphasized the urgency of the transition and NAB's role in funding it, while Chief Climate Officer, Jacqueline Fox, highlighted the economic opportunities and risks associated with climate change.

NAB has a long-standing commitment to climate action, evident in its 20+ year journey. Key milestones include becoming a TCFD supporter in 2017, joining the NZBA in 2021, and setting various decarbonisation targets. In 2023, NAB published three further decarbonisation targets for aluminium, iron and steel, and aviation, appointed its inaugural Chief Climate Officer, and launched business finance for green equipment. The roadmap to 2050 includes future goals such as further sector decarbonisation targets (planned for 2024), 100% renewable electricity by 2025, requiring Customer Transition Plans for key sectors from October 2025, and reducing thermal coal mining exposures to effectively zero by 2030, in line with its net-zero ambition.

NAB's climate strategy is aligned with its ambition to serve customers and help communities prosper, viewing climate transition as both a significant risk and an immense economic opportunity. The strategy aims to maximize economic benefits and achieve emissions reduction consistent with a 1.5°C temperature rise. NAB acts as a catalyst through financing and insights, supporting customers to decarbonise, adapt, and build resilience. This includes developing products like business finance for green equipment and the NAB Agri Green Loan, providing discounted Lenders Mortgage Insurance for energy-efficient homes, and supporting the Bushfire Resilience Rating system. NAB's environmental financing activities in 2023 totaled $2.6 billion in new lending and $1.9 billion in underwriting/arranging activities. NAB is the #1 Australian bank provider of project finance to the global renewable energy sector.

NAB is actively connecting customers to carbon markets and sustainable investment opportunities. The bank launched a carbon markets capability in 2023, offering risk management solutions across domestic and international markets for carbon and renewable energy needs, including Australian Carbon Credit Units (ACCU) and European Union Allowances (EUA). NAB also acts as a lead manager for green, social, and sustainability-linked bonds, facilitating over $46 billion in such transactions in the past 12 months. NAB has issued five CBI certified green bonds and two green residential mortgage-backed securities (RMBS) tranches. The bank supported NBN Co and Australia Post in their sustainability bond issuances.

NAB is investing in data and technology to measure customer-level GHG emissions and support reduction efforts. This includes leveraging internal and external datasets for financed emissions estimates and developing solutions for baseline calculations to inform decarbonisation targets. NAB has established a dedicated Climate Data Science and Engineering team, collaborating with universities and research bodies. Through partnerships like with cleantech start-up Greener, NAB supports small businesses in decarbonisation. The bank completed transition maturity assessments for 100 of its largest GHG-emitting customers, revealing that 71% are relatively transition mature. From October 2025, NAB will require Customer Transition Plans for new or renewed corporate/project lending in fossil fuel sectors.

NAB is investing in its capabilities by developing banker climate knowledge, skills, and awareness. This includes updating climate risk modules, launching bank-wide climate training with Melbourne Business School, and specialized programs for bankers in key sectors. NAB participates in industry initiatives like the UNEP FI TCFD program, Climate Measurement Standards Initiative (CMSI), and Australian Banking Association (ABA) working groups to enhance climate risk management. NAB emphasizes its role in climate advocacy, contributing to policy discussions on sectoral pathways, sustainable finance, emissions reduction, and consistent reporting regimes. The bank aligns with major industry associations on commitments to net-zero, mandatory climate disclosures, and development of sectoral pathways.

NAB is committed to supporting a just transition, recognizing that some customers, colleagues, and communities will face greater climate challenges. The NAB Ready Together program aids those affected by natural disasters. NAB is involved with the United Nations Global Compact (UNGC) to develop guidance for businesses on addressing inequalities and creating opportunities during the transition. The bank has established a climate investment capability to provide equity funding to early-stage companies and joint ventures that accelerate climate capability and support customer transition. NAB also partners with initiatives like ClimateWorks Natural Capital Investment Initiative and Farming for the Future to measure natural capital and on-farm emissions. Research, including Deloitte Access Economics' 'All Systems Go' report, highlights Australia's potential economic opportunities in a rapidly decarbonizing world.

NAB aims to reduce attributable financed emissions, aligned with its net-zero by 2050 ambition, by improving understanding of emissions, setting sector-level decarbonisation targets, and mobilising investment in capabilities. As a member of the Net Zero Banking Alliance (NZBA), NAB's decarbonisation targets are reviewed every five years. The bank prioritizes target setting for emissions-intensive sectors, aligning with the Australian Government’s sectoral decarbonisation plans. Key targets include a 32% decrease in emissions intensity for power generation, a 100% decrease in absolute financed emissions for thermal coal, and a 21% reduction for oil and gas by 2030. NAB also targets a 72% reduction in Scope 1 and 2 emissions by 2030 (from a 2022 baseline) and 100% renewable electricity by 2025 for its own operations, having been carbon neutral for Australian operations since 2010.

The NAB Board oversees ESG matters, including climate-related risks and opportunities, which are integrated into business strategy and risk management. The Board Risk & Compliance Committee (BRCC) provides oversight of the Group’s risk profile, including 'Sustainability Risk,' a material risk category encompassing climate-related risks. The Group Chief Financial Officer (GCFO) and Chief Climate Officer (CCO) are accountable for executing the climate strategy, investing in innovation, and meeting goals. The Group Chief Risk Officer (CRO) develops and coordinates climate risk management strategies. NAB assesses director skills and capabilities, prioritizing education on ESG topics. Climate-related matters are regularly reported to the Board and BRCC. The Group’s performance framework, including key performance indicators, incorporates financial and non-financial measures, including sustainability, for evaluating performance and remuneration.

NAB identifies, measures, monitors, reports, and oversees climate-related risks in accordance with its Risk Management Framework. Climate risks are categorized into transition risks (e.g., regulatory changes, technology shifts) and physical risks (e.g., acute extreme weather, chronic climate shifts). These risks are assessed across short-, medium-, and long-term horizons, impacting various material risk categories such as credit, compliance, operational, and reputation. NAB reviews its customer-related ESG policies and appetite settings to manage exposure to emissions-intensive sectors, implementing qualitative risk appetite descriptions and quantitative tolerances. NAB has proactively reduced its exposure to fossil fuels, for example, having no corporate lending to thermal coal mining customers or project finance to thermal coal mining assets as of September 2023. These policies are supported by continuous monitoring and reporting to senior management.

NAB uses climate-related scenario analysis to inform its strategy, risk appetite, and risk management. This involves understanding the vulnerability of lending portfolios and customers to transition and physical risks and determining sectoral decarbonization pathways for a net-zero portfolio by 2050. Scenarios used include the Network for Greening the Financial System (NGFS) 'Delayed Transition' (1.6°C warming) and 'Current Policies' (3°C+ warming) to test sensitivities to high transition and physical risk, respectively. For sectoral decarbonization target setting, NAB utilizes IEA 'NZE 2050', ATAG 'Waypoint 2050', and IAI '1.5°C Scenario'. BNZ, a NAB subsidiary, participated in the Reserve Bank of New Zealand's (RBNZ) 2023 Climate Stress Test, using the 'Too Little, Too Late' scenario to model severe but plausible impacts, which is due to publish its results early 2024. NAB leverages these analyses to integrate climate risk into its policies, develop new tools like HomeID and FarmID for assessing physical impacts, and enhance climate-related training for colleagues.

NAB prioritizes managing its attributable financed emissions in emissions-intensive sectors, with seven 2030 sector decarbonisation targets already set, and further targets planned for May 2024. These targets include: Power generation (32% reduction in tCO2-e/MWh by 2030), Thermal coal (100% reduction in MtCO2-e by 2030), Oil and gas (21% reduction in MtCO2-e by 2030), Cement (24% reduction in tCO2-e/tCement by 2030), Aluminium (n/a reduction in tCO2-e/tAluminium by 2030), Iron and steel (22% reduction in MtCO2-e by 2030), and Transport - aviation (26% reduction in gCO2-e/pkm by 2030). NAB is increasing financing for renewable energy, supporting distributed energy resources, and requiring Customer Transition Plans for certain corporate and institutional banking customers in power generation. For thermal coal, NAB has reduced exposure to effectively zero and is committed to maintaining this position. In the oil and gas sector, NAB has capped exposure and will reduce it from 2026, aligning with IEA NZE 2050. The bank also acknowledges the importance of a just transition in these efforts.