NAB CEO Ross McEwan spoke to ABC Radio National Presenter Patricia Karvelas this morning to launch new research revealing the economic opportunity in Australia’s transition to a net-zero economy by 2050.
The full transcript – including comments on NAB’s climate action, rates, inflation, as well as jobs and skills – is below. You can also listen to the broadcast via the ABC website.
Patricia Karvelas (PK): As inflation grows and Treasurer Jim Chalmers warns of a difficult economic road ahead, the boss of one of Australia’s biggest banks is striking a more optimistic tone. NAB Chief Ross McEwan predicts Australia’s economy will keep growing and is pointing to big opportunities as the country transitions away from fossil fuels. New research commissioned by the National Australia Bank (NAB), released this morning, sets out an economic roadmap to help guide the country to a net-zero economy by 2050. Ross McEwan is the CEO of NAB and he joins you now on RN Breakfast. Ross McEwan, welcome back to Breakfast.
Ross McEwan (RM): Good morning Patricia, thanks for having me on the show again.
PK: The report is called ‘All Systems Go’. Explain the big idea – what needs to happen to transform Australia to a low emissions economy?
RM: One of the things that we were very clear on; we needed to move away from the challenges and threats of how do we get to low emissions, and what do we need to do, what investment is needed over the next eight years and then right through to 2050. And what we found here is that we are investing a lot of money in this economy, both government and business – and there is enough money to actually make the transition if we start and focus it on the right areas. So the report just shows the optimism around, there’s a lot of money being spent, we now need to start pushing it across into the transformation areas, as opposed to the areas that over time will become less and less important to us.
PK: The report says $20 trillion needs to be spent differently. What areas need to be invested in and who needs to pay?
RM: The 20 trillion, which is a huge number, it’s not 20 million or 20 billion. It’s 20 trillion.
PK: It’s huge.
RM: It’s huge. It’s the money that actually will be spent anyway between now and 2050 in this economy in investment – so it’s a huge number. And the report says if we start changing the way we spend it, we will get ourselves to net zero by 2050. There are four major areas that we need to focus on and everyone’s focused on energy – it’s all around coal, oil and gas. And yes, that’s vitally important. But there’s three other major areas that make up the 90% of emissions in Australia. Raw material manufacturing is one of them, mobility – being the car you and I drive, the buses and the trains and the aircraft, and the final one is food and land use.
If we actually concentrate more than just on energy and get our minds around how do we transform and transition these other industries, that’s 90% of our emissions. So it’s got to be greater than just energy. And the report says let’s broaden our view and let’s get all of business involved in this transformation. And if we do, we’ll get there. If we don’t, well we’ve got some difficulties. But it needs to be broader than energy.
PK: And how do you encourage the investment? What will motivate government and business to prioritise those areas?
RM: I think the government is now starting to really have the conversation about what the numbers look like and what legislation needs to be put in place. But businesses for the last five to 10 years have been very focused on what role they have to play to get to a better position. For example, NAB’s having conversations with our top 100 emitters to make sure they’ve got a plan to get themselves to a much better position. We ourselves have already said in areas like coal, by 2030 we will not be funding any coal enterprises. We’ve already put a cap on our oil and gas. So those moves themselves start saying ‘we’re reallocating where we’re putting our money into other areas’.
Over 75% of our energy assets are in renewables, already. It’s the transformation of the other 25% over time, into more renewable sources, that is the reallocation that needs to happen. Then you need the infrastructure behind it – it doesn’t happen on its own. We’re all going to drive around in hybrids or EVs. We need the docking stations scattered right throughout the country. It’s all that infrastructure and it’s around how do we change where we’re spending money and make the transformation into the areas that are going to make a difference across more than just the energy sector.
PK: Given energy is part of it, although you’re saying it goes beyond, do you welcome legislation to entrench emissions reduction? There is an argument that you don’t have to have it, but that it helps drive investment decisions. Do you think it’s true, that it will drive investment decisions?
RM: I think it cements in the drive that’s already starting to happen and makes it real for everybody, that they have to get to those levels or there’s penalties associated with it. I think the certainty – and I was listening to your conversation just prior to this – it’s around the certainty of people knowing where things are going to – the plan – people then can modify what they do to fit in with that plan. As I said at the start, I think businesses have really started to focus on this.
Some businesses are making very, very strong transformations, and the report actually calls out a number of them. For example, in steel. Major emitters, but the likes of BlueScope are already starting to look at low emission processing and technologies that help. Getting into food – Agrimix is looking at how you use the pastures. All of these businesses are really starting to make the transformation, but we do need to know the rules of the game and I think that would be very helpful to allow a quicker transformation.
PK: I just want to move to the broader economic picture today because figures released yesterday show inflation – over the year to June – at 6.1%. With conflict in Ukraine and higher energy prices, do we have to accept that inflation is going remain high for some time yet?
RM: Look I don’t think we’re at the peak of the inflation cycle yet. We’re predicting it will probably get closer to seven than the six. It’s a big number but there’s still inflation coming through the system before it backs off. It’s not a position anybody wants to be in. I keep reminding people my first mortgage was 18% and 24 on second, but inflation was 14. We don’t want and cannot afford to get back there so we have to take the action now, which is painful. That’s what I think Jim Chalmers was talking about. There is some pain in this and we have to accept that to get inflation back, it’s going to be hurtful. But we don’t want the situation where we’ve got very high inflation staying in this economy – it hurts everybody long-term.
PK: Are there other options to explore to curb inflation other than interest rate rises?
RM: It’s getting the supply issues sorted out as well because this is as much a supply issue as it is demand. We’ve got supply disrupted through what’s been going on in Russia and Ukraine, things like chips for motorcars. We’ve had disruption in getting things in and out of the country because of COVID. Other countries have had to slow down their manufacturing.
It’s as much a supply issue as it is demand. We’re trying to slow down the supply, but if we get the actual manufacturing back up and running again, we get a lot more efficiencies into the system. I think these things will work their way through the system and we end up with lower inflation. One of the levers is moving interest rates to slow things down and that’s what certainly trying to be enacted at the moment. It will have an impact, but I don’t think it’s doing that yet.
PK: It certainly will. How much higher do you believe rates can rise before we start to see significant cases of mortgage stress among borrowers?
RM: Right now, we’re not seeing much stress at all, but you’re right that as interest rates go up it does start to take more and more money out of the weekly and fortnightly purse of people. We’re starting to see more calls into what we call ‘NAB Assist’ which is our area set up for having conversations with people about what can they do if they are having difficulties. We’re starting to see the numbers come up but we’re not seeing it coming through into people not being able to pay their mortgage.
What we’re finding when we’re talking to customers is that they are looking at spending, they are running a budget now where before they didn’t have to run a budget. They’re looking for deals. So they’re being much more cautious about what they pay for things and they’re also changing some behaviour. Through COVID, we all got used to having the food delivered and everything was online or click and collect. They’re starting to go back and actually go into shops rather than having it delivered and the cost of delivery, so you’re already starting to see some behavioural change starting to come through.
The great thing though is that people who come into NAB Assist for a conversation, 90% recover within 90 days. So there are actions that people can take and a lot of it’s just about a conversation. My call out is if people are getting into difficulty – please call your bank early.
PK: We are going to have this big government Jobs and Skills Summit in September and there is a lack of skilled workers in this country. Is that what’s led NAB to set up operations overseas?
RM: Firstly, I welcome the Jobs Summit – I think it’s really needed. Can I just put on the record; I don’t think it’s just about skilled labour that we’re lacking in Australia. When I talk to employers all around the country – and it doesn’t matter whether it’s a blueberry grower or a packhouse or a meatworks or a dairy or a café – they are all struggling to get people. If you look at our care services for aged care, it’s struggling to get people. So it’s skilled, semi and unskilled labour that Australia needs. We’ve been closed for two years. We had net immigration out last year I think of 70,000 people – the first time in decades. We need to get people back into the economy, back into Australia, let people know the country’s open and yes have a long-term plan of how we redevelop the skills of Australians for the future.
So I welcome the Summit. We do need to let people know that we’re open and start getting people back into the country, including getting students physically here – not online, physically here. And also short-term workers. That’s what employers are telling me, every employer I talk to.
PK: Ross McEwan, a pleasure to have you on the show, thanks for coming on.
RM: Thanks very much Patricia.