Q&A: What does sustainable finance look like at National Australia Bank?

MELBOURNE, Australia — David Jenkins, head of sustainable finance at the National Australia Bank, calls his banking background “nontraditional.” Before entering the sector, he worked in civil engineering as well as the New York real estate market. Within banking, he has helped financing infrastructure, health care, and large public sector projects, as well as supported small renewable energy funds in Asia.

This background helped with NAB becoming the first Australian lender to issue a green bond in 2014 and leading the Australian and global market for more sustainable private sector investment.

“It’s been an evolution,” Jenkins told Devex. “It’s an area that is topical — but we have been working on it as a collective and what we are doing across the bank by our investor clients who are motivated to do more in the same vein.”

And at the 2019 Global Compact Network Australia conference on April 1, Jenkins discussed with Devex the journey he has helped NAB take and the changes in thinking required.

Here is the interview, edited for length and clarity.

What has been the strategy to build this capability and thinking across the organization?

For us, it has been a journey. Initially, some of the challenges were answering why we would do this [looking at sustainable financing] when it costs money and there is no apparent benefit. We had to find key stakeholders and supporters. We lobbied hard and presented a proposal which had the benefit of getting investor feedback.

We spoke to the investors on what the interest would be in bringing a green bond to market back in 2011 — and we were able to get tangible feedback from superannuation fund investors who said they would love to invest, but did not see any opportunities to do so. They told us if there was a product that would deliver a measurable environmental outcome and was priced fairly, they would be interested.

We used that argument to go to our treasury team to convince them it addressed their need for diversity and was raising the work we were doing in financing renewable and clean energy. And we were able to join the dots around the organization.

The first transaction for the bank only raised $300 million [Australian dollars], but it garnered far more positive support and profile than our largest transaction that year, which would have been worth several billion.

Fast forward four years, we were able to bring a green, mortgage-backed security into the market and as time has gone on, appetite to do things is increasing along with the investor appetite.

What are the challenges in reporting on sustainable financing within the banking structure?

It’s part of the challenge with financing. From the outset, we need to know what we can measure in order to attract investors to something that is, on one hand, investable and commercially financeable, but we need to be able to prove to them what the relevant metric is.

To that effect, it has been challenging to provide databases. In many cases, we are having to work with academic institutions and NGOs to develop these metrics or look at best practice offshore and adapt that. It is iterative and the starting point is often looking at what others have done and whether it is relevant to our markets.

People talk about the Sustainable Development Goals and the targets underlying that, but in many cases, they are not directly applicable to our developed economy. So we have to find a metric we can prove or develop into something that aligns and gives tangible information.

Simple things within the SDGs around the uptake of renewable energy is quite clear and easily measurable. But the socially focused metrics are a challenge. And this makes it difficult to create an impact report.

We are continuing to work through a number of initiatives for consistency in measurement including using development bank models. We don’t want to create metrics in isolation.

A part of sustainable finance is also deciding what you won’t lend to. What is the decision-making that occurs at NAB on this?

The easiest example is looking at coal — we have a climate change working group made up of key stakeholders at the executive leadership level within the bank. They look at the risks and opportunities moving forward and areas where we can do more to transition our balance sheet.

Last year, we came out and said we would not lend into thermal coal projects and would do more in the renewable energy space. So we have large commitments and targets we are looking to meet and our transition sheet is moving towards that.

In terms of coal generation, our portfolio has gone from less than 45% renewables to no north of 70%.

That is one example, but there are other sectors that we are looking at, including oil and gas. But it is a continuing discussion to identify the risk sectors, and how we can transition from a brown to a more green balance sheet over time.

What should we be expecting from NAB and other private banking institutions in sustainable financing?

I think you will continue to see issuances in sustainable debt markets becoming more frequent and prevalent from a broader range of issuers. There will be more in this space from banks and nonbanks borrowers. And we will be doing more investment in this space to give our investors more opportunities.

Devex is a media partner for the 2019 Global Compact Network Australia conference. Follow Lisa Cornish and Devex for more insights.