Improving our climate-related financial disclosures
Climate risk disclosure is evolving and we acknowledge it can be difficult for stakeholders to compare information reported by different banks.
We are improving disclosure of our carbon strategy, management, metrics and targets and are the first bank to report in line with the Financial Stability Board’s (FSB) Task Force for Climate-Related Disclosures (TCFD) recommendations.
Using the FSB TCFD’s disclosure framework, we have begun discussions with some of our customers in emissions-intensive industries.
Their public disclosures under the framework will enable us to better understand how they are managing their climate-related risks and opportunities.
Energy and the coal sector: scenario testing
This year ANZ completed climate-related scenario testing of a group of customers that have some operations in the thermal coal supply chain.
This included Australian and international customers with operations in thermal coal extraction, coal rail transport, coal-associated ports and coal-fired power generators.
A reduction in the use of coal for electricity generation could have impacts on thermal coal companies. It is on that basis that we assessed our customers and gave consideration to the following issues:
• Their policies on climate change and whether they support government efforts to limit global warming to less than 2 degrees above pre-industrial levels;
• The actions they are taking to address the challenge of climate change, such as investments in lower carbon manufacturing processes, power generation and transport;
• Their resilience to future policy scenarios that may regulate greenhouse gas emissions;
• Whether they are ‘stress testing’ their portfolio against a range of possible policy scenarios that may impact their business model and profitability;
• Whether they factor a future carbon price into capital expenditure decisions;
• Their ability to diversify their business to invest in more efficient resource use and less emissions intensive products or processes; and
• The cost of future regulation on their business model and profitability.
For banks like ANZ, the greatest risk from lending to companies with operations in the thermal coal supply chain is that a reduction in the demand for their product may affect their ability to repay loans.
Our analysis revealed varying degrees of resilience for our thermal coal customers in managing the transition risks associated with climate change.
The two scenarios diverge in predicted coal demand over the medium term (5 year) horizon and risks were found to be higher for those companies with higher revenue reliance on thermal coal and with business strategies less prepared for this early shift to a low-carbon economy.
Note: the content above has been extracted from our forthcoming 2017 ANZ Corporate Sustainability Review, available on anz.com/cs in December.