NAB Chief Climate Officer Jacqui Fox sits down with senior writer Richard Gluyas to discuss all things climate.

NAB is considering its next environmental financing ambition after topping its cumulative $70bn target in 2022, three years earlier than anticipated for the 10-year period to 2025.

In its 2023 Climate Report, the bank also unveiled interim decarbonisation targets for three of its more emissions-intensive lending portfolios – aluminium, iron and steel and aviation, with the intention to release further targets next year.

The number of announced interim sector targets aligned with capping global warming at 1.5C has increased to seven, including thermal coal, power generation, oil and gas and cement, all of which have been disclosed.

About 70 per cent of the bank’s estimated financed emissions is now covered by decarbonisation targets.

NAB chief climate officer Jacqueline Fox said the pace of transition is an important issue, particularly among the bank’s bigger customers, ahead of the proposed application of disclosure rules for climate-related financial information to companies with annual reporting periods after July 1, 2024.

“With impending disclosure requirements, our larger customers are becoming a lot more aware, although many of them already have strong momentum,” Ms Fox said.

“The pace of change can differ according to the industry; for example, we have customers operating in harder-to-abate industries, which despite efforts face significant challenges.”

“Corporate and business customers, as well as personal bank customers, are also taking their own action to understand and improve their carbon footprints as well as manage costs.”

In 2022, NAB achieved its ambition to provide $70bn in environmental financing to help address climate change and support the transition to a low-carbon economy, reaching a cumulative total of $70.8bn.

The bank said it had retired its previous target and was now taking some time to consider a new ambition alongside its sector transition planning.

This would recognise evolving market and regulatory expectations, such as the adoption of a national construction code, and the Australian Sustainable Finance Institute’s proposed sustainable finance taxonomy – a set of common definitions for sustainable economic activities.

The bank’s transition has also been partly informed by a report it commissioned from Deloitte Access Economics called “All Systems Go: Powering Ahead”.

Modelling in the report found there was a $435bn economic opportunity from transforming to a net-zero economy by 2050, guided by domestic targets and restructuring of the industrial base to establish a clean energy platform to drive export growth.

Deloitte also found that existing exports would fall by $270bn under today’s net-zero policies if the nation failed to transform and grow new export opportunities.

“That’s why we’re funding renewables and growth of new industries critical to the low carbon transition,” the Climate Report said.

“We’re also supporting customers to build resilience, adapt and reduce emissions to align to net zero pathways.

Also in 2023, NAB completed transition maturity assessments for 100 of its big greenhouse-gas emitting customers of its corporate and institutional banking (CIB) business unit.

The work assessed that 71 per cent of the customers were “relatively transition mature”, with 67 per cent having already set a goal to be net zero by 2050 or sooner.

All companies acknowledged climate change as a business issue, while 72 per cent were reporting, or had committed to report, under the Taskforce on Climate-Related Financial Disclosures framework to increase transparency on climate-related risks and opportunities.

Ms Fox said the purpose of the transition maturity exercise was not to take credit-oriented action against any customer.

“The reason we did it was for our bankers to engage in and continue a conversation with customers about their plans, to better understand their transition efforts,” she said.

“We can’t tell our customers what they have to do but we can share insights and give them our thoughts about what we’re seeing more broadly and direct their attention to future disclosure regimes.”

By October 1, 2025, however, the Climate Report said NAB intends to require a transition plan from CIB customers in oil and gas, metallurgical coal, and power generation where 25 per cent or more of the electricity generated by the customer was from thermal coal. This would apply to applications for new or renewed project or corporate finance.

The requirement for transition plans could be extended to other sectors and exposures in other business units as the bank sets and discloses further decarbonisation targets.

The bank is also developing a framework to assess the transition plans, possibly with the help of external experts.

Ms Fox said it may be that a further round of engagement with a customer could be required to get a “deeper understanding” of the transition plan if it fell short of expectations.

“Subject to what that engagement looks like and what the circumstances are, it could also potentially give rise to the bank reducing its lending or choosing not to renew lending in the future,” she said.

“The approach is not dissimilar to what other banks have disclosed in terms of their intentions in the way they respond to customer transition plans.”

“The other point to make when we’re looking at sector targets is that we’re looking at targets aligned with 1.5°C (of warming) at a portfolio level, and not every customer within a portfolio will necessarily be, or able to be, 1.5°C-aligned in the short to medium term.

“But we’re quite clear we will be looking for alignment with the Paris Agreement, and obviously there’s an expectation that customers will continue to improve their approach to transition over time.”