ANZ Group Holdings Limited (ANZ) Earnings Call Transcript & Summary

Okay. Hello, everybody. Before we begin, I would like to acknowledge that I'm connecting from the lands of the Wurundjeri peoples of the Kulin Nation. I also acknowledge the traditional owners of the various lands in which our attendees are joining from. Now today, I'm joined by Maile Carnegie, our Group Executive, Australia Retail; and Mark Whelan, our Group Executive, Institutional. Now in this session, I'll cover our integrated approach to purpose, strategy and ESG and how it ensures that we're driving value for the bank; an update on the Bank We're Building strategy and how we're setting ourselves up for future growth, including through some structural changes; and then lastly, what we're seeing with the uncertain macroeconomic environment with interest rate rises and cost of living pressures. Now here, I'll mainly talk to the situation with an Australian lens, given most of our customers are here and it's where we're likely to see potential issues arising. But I do want to acknowledge from the outset that the Australian market isn't alone in what it's experiencing. And of course, the same stresses are also being felt in New Zealand and across the Pacific. I'll then pass on to Maile to talk specifically about how our customers are managing and what we're doing in preparation to assist those who may need help. Mark will then cover our environmental sustainability strategy and how we're supporting customers successfully manage their own transition. So firstly, to our approach. At ANZ, we have a clear sense of purpose: to shape a world where people and communities thrive. Now that purpose guides our decisions about who we bank, how we behave and what we care about most. Now we've worked hard over the last 5 years to ensure we have a strong culture, an embedded purpose and that ethics and values are integrated into our everyday decision-making. Now our strategy is also clear. We want to improve the financial well-being and the sustainability of our customers. Now we have 3 priorities that we're focused on, and they are: helping people save for, buy and own a sustainable, livable and affordable home; helping people start or buy and sustainably grow their business; and of course, helping customers move goods and capital around the region. Now aligned with these are the areas that we care about most or our ESG priority areas, and they are: improving the financial well-being of our people, customers and communities by helping them make the most of their money; secondly, improving the availability of suitable and affordable housing options for all Australians and New Zealanders; and supporting household business and financial practices that improve environmental sustainability. Now these are underpinned by our commitment to fair and responsible banking as well as issues identified through our annual materiality assessment, namely: investing in new technology and tools to protect our customers from scammers looking to steal their data and money; ensuring that we have the most empathetic and helpful customer experience processes for when things go wrong, including managing complaints and customers in financial difficulty; investing in technology and partnerships that help customers improve their financial well-being and create value; and finally, looking out for our people, physically and mentally, so they can bring their best selves to assist customers. So our purpose, strategy and ESG priority areas are aligned as well as being integrated with our material issues. And together, they work to support our overall ambition to create value for our customers, for the community and for shareholders. Now what's also unique about ANZ is how our approach to ESG considers our extensive international footprint. As you know, we operate in more than 30 markets. And therefore, manage a broad range of ESG issues across our global business and operations. And that means we need to be aware of challenges across the entire network and regularly assess and identify numerous ESG risks and opportunities. Now this ESG approach is critical to creating value and delivering long-term success. Now how we hold ourselves to account and govern our approach is also critical, and we have 2 ESG committees dedicated to this. Our Board Ethics and Environmental, Social and Governance Committee is responsible for setting the policies and the principles for our approach. It's focused on overseeing our response to risks and opportunities, as well as identifying and understanding our most material ESG issues, which informs our approach and guides our targets, external reporting and disclosures. Now over the past 12 months, this Board committee has spent the bulk of its time on governance issues, such as making sure our policies, like those which govern our lending to sensitive sectors, are up to date and contemporary. It's also spent a lot of time overseeing our climate change commitment, including setting our portfolio emissions pathways like in commercial properties and power generation. Then we have our Management Ethics and Responsible Business Committee, which I chair, and is a leadership and decision-making body. It operationalizes our ESG work. Considering the social and environmental impacts of the industries we finance, so the who we bank side of things, as well as our treatment of customers and the communities we serve, the how we bank and how we behave side. Now this year, the Executive Committee spent its time discussing topics such as scams and cybercrime and customers in difficulty or in need of additional support. Now that included initiatives such as the additional training we provided to 4,500 of our people to help them identify and offer special support to customers facing financial difficulty. Now I just want to talk briefly about the bank we're building, which sets out our ambition to shape a better ANZ, one that's more focused and more connected and one built on contemporary platforms to help grow our market share sustainably and drive better lifetime customer value. Now the last few years, we've rightly focused on our operations, on remediation, costs and simplifying our business to provide returns for shareholders. And now we're concentrating on growth and investment. External forces are going to challenge how we execute the strategy. We've got to hold more capital, competition is increasing and margins are reducing over the long term. So it no longer makes sense to keep doing what we've been doing in the past. So we need to get a few things right. We must build an innovative, compelling and data-driven customer proposition. This means having competitive, fast, reliable and simple products and services that meet our customers' needs. We need to establish partnerships that unlock value for us and our customers. And have automated business services that are supported by cloud-based technology that is open, contemporary, resilient and compliant. And we need to ensure we have a more adaptive and agile organization that encourages innovation. Now our people are also critical to the delivery of the strategy. We want purpose-led people who drive value by caring about our customers and the outcomes we create. And the last couple of years of the pandemic really showed us what our people are capable of: supporting our customers during extreme times of stress. Now we're proud of them and their work, and our recent employee engagement results are testament to this with overall engagement at 84%. Now additionally, 89% of our staff have reported a feeling of belonging, which is above the global best-in-class benchmark. Now to measure our success with the Bank we're Building, we continue to build out clear metrics with internal and external targets. Now these include having customers who are more loyal and engaged and have greater financial well-being over their lifetime. It's also ensuring our financial results are stronger and more sustainable over the long term. So we're building an ANZ that improves the financial well-being and sustainability of our customers and one that delivers consistently strong shareholder returns. Now no doubt, we've got some work to do, but we're excited and driven to be -- to make this succeed. Now in addition to the strategic changes, another part of how we're managing the future of ANZ is with some structural change. You would have recently seen our announcement about acquiring Suncorp Bank. A key benefit of this acquisition is the strategic alignment of bringing the 2 organizations together. We both have strong corporate cultures, engaged workforces and shared values and purposes. And we're excited about what the future holds for us together. And we also recently proposed the establishment of a nonoperating holding company for the group, which will give us strategic flexibility to partner with or acquire nonbanking businesses as we prepare our core business for a digitally enabled future. Now that proposal is subject to numerous approvals, and we're working through that process currently. We expect to send shareholders a memorandum on the NOHC structure in early November '22. Now lastly, before I hand over to Maile, I want to discuss the external environment and some of the economic challenges we're seeing. Globally, there are geopolitical tensions with Ukraine and Russia and North Asia and the Pacific. Trade tensions with the U.S. and China continue. There are also very significant energy security issues in the European Union, which is having a knock-on effect around the globe. And here closer to home, in key retail markets of Australia, New Zealand and the Pacific, many of our customers are dealing with real cost of living pressure. Rising inflation and higher food and fuel prices across the Pacific are starting to have a real impact on people's standard of living. In New Zealand, inflation is at its highest point since 1990. And then Australia inflation is also at its highest point in more than 30 years and is outpacing wage growth. And interest rates are rising with the RBA undertaking a substantial rate tightening cycle. Now because of this, we're asking ourselves what it means for the financial resilience of our customers and what we can do to support them if they're feeling challenged. While we do know households have built up a large pool of savings over the last couple of years, it's still too early to tell how the situation will play out. There are going to be some customers vulnerable to stress and we will be on the lookout to assist them. Now with that, let me hand over to Maile to talk about how we are preparing to assist our customers through potential future challenges. Thanks. Maile?

Thanks, Shayne, and I'm really pleased to be here on my first ESG briefing. Today, I want to focus on 3 things: firstly, what we're seeing with our retail customers considering the challenging economic environment; secondly, our strategy for early identification of those customers heading towards difficulty because we believe early engagement will lead to better customer outcomes, particularly in the environment we're heading into; and thirdly, how we're building propositions to help strengthen the overall financial health and well-being of our customers for the long term. Now our strategy in Australia Retail is to support our customers to achieve their financial well-being goals. For our home loan customers, this means making sure they are informed about their mortgage and that it's within their means. At ANZ, we have about 1 million Australian customers who have a home loan with us. Many of these customers have built up a significant savings buffer through COVID, as Shayne has already mentioned. About 40% of our customers have 12 or more months of saving buffers across offset savings or redraw facilities. We also have about 70% of our customers who have paid additional funds to reduce their principal debt. Our default direct debit setting, which is not consistent across the industry, means we did not automatically reduce minimum payments amounts as interest rates decreased, and this has helped play a part in this. In effect, we put friction in our customers' ability to step down their payments because we wanted to encourage them to get ahead on their loans. So far, even as rates are rising, more than 50% of our principal and interest customers with direct debits are continuing to pay more than their minimum repayment amounts. The percentage of customers who are behind in their loan repayments has also continued to decrease. About 0.7% of home loans are more than 3 months behind, which is lower than pre-COVID levels. Now there are a range of factors that are behind this. A typical trigger for default is a life event like illness or unemployment. So record low unemployment rates are certainly playing a part as are some of our customers who reset their mortgages during COVID. But it's also a reflection of the quality of home loans written in recent years, from changes to our lending policies, as well as the regulatory changes that followed the GFC. Measures such as interest rate floors and higher interest rate buffers when assessing home loans, which are now at 300 basis points, and higher household expenditure measures have contributed to customers being better placed to service their loans through these challenging times. While customers are in a stronger starting position, the current environment is clearly a challenge for many people. The potential downturn will look different to what we've seen in recent history where hardship was triggered largely by unemployment. We're in a rising rate environment. And for many of our home loan customers, this is the first time they're experiencing this. So potentially, even those customers who are employed with regular wages may experience some stress with meeting their repayments. Our job here is to identify those customers and work with them as early as possible to support them through this challenging period. Data plays an important role in early identification of customers heading towards difficulty, and we believe this is particularly important in today's environment. We are using data analytics to look at savings, credit and offset accounts to help understand customers' financial behavior and the potential of future outcomes. It analyzes events like interest rate changes, increases in cost of living and cash flow where these could have an impact on our customers' financial position. This is helping us to understand who is in positive financial position to meet future repayments, but also who could experience financial stress in the next 12 months including accounting for forecasted increase in rates. The data is actually showing very low levels of stress. And we're not seeing any more kind of increase in our lag measures as well, such as calls to hardship teams. But we are assuming that this may change and we're focused on proactively identifying and contacting customers who may need help so that we can try and support them early. This could be through text messages, nudges or prompts. For example, courtesy reminders of when next payments are due or direct phone calls suggesting, for example, to set up a direct loan payment. When we do identify potential hardship, we do a full review of our customers' financial position to see what additional assistance may be suitable. Measures range from arrears capitalization, rate reduction, term extension or conversion to interest-only for a period. Overall, we want to support our customers through periods of financial hardship as it's in no one's interest to have them default. We invested significantly in building and upskilling our financial hardship team during the pandemic to support our customers through those tough times. So our team is well positioned to help those who might need assistance as we enter into a period of economic uncertainty. Now before I hand to Mark, I wanted to quickly mention how we are building our propositions to help strengthen the overall financial well-being of our customers, including through ANZ Plus. The transformation of our retail platform has involved the simplification and rebuilding of hundreds of products, systems, processes, and yes, technology with a mission to improve the financial well-being of our customers. What's important here is that we did not start the process with what technology to use. Rather, we started by identifying the 9 core principles that drive financial well-being. We then have built the products, systems, processes, and yes, the technology that would enable us to bring these to life with our customers. Our initial transact and save product within the ANZ Plus app is just the tip of the iceberg in the functionality to enable customers to have better visibility and control over their money and to help them achieve their goals. We only launched in July and are seeing strong growth not just in customers joining, but also using key features such as spend predictions and saving goals. We will give more information about the ANZ Plus program at our year-end results. But we are working hard to expand the program as quickly as possible because we believe the financial well-being tools, insights and support offered by ANZ Plus will stand our customers in really good stead, particularly in periods of economic uncertainty. It's got a lot to live up to, but I'm excited by what's coming with ANZ Plus. And with that, I'll hand over to Mark. Thank you.

Terrific. Thanks, Maile. I'll cover 3 areas before handing back to Shayne for Q&A. First, our environmental sustainability strategy; second, how we're engaging with our customers on their transition; and finally, some insights from my recent climate-focused discussions with customers, regulators and peers in the U.K. and Europe. Now we want to be the leading Australian- and New Zealand-based bank in supporting our customers' transition to net zero emissions. And currently, we are in a net zero super cycle of activity. This presents an unprecedented opportunity around how energy is produced, distributed and also consumed. Effectively, it's the climate value chain. We have a key role to play by directing our finance, services and advice to support our customers in shifting to low-carbon business models. That's why we're committed to funding and facilitating $50 billion by 2025 to help our customers achieve low emissions and are well advanced in meeting this target. Our strategy embraces the opportunities presented by the transition. It leverages our strengths and focuses efforts on customers, sectors and products that offer the best opportunities for positive impact in climate change and also for our shareholders. I'll now give some real examples of our strategy coming to life. First, a $1.4 billion green loan for the Intellihub Group, a leading provider of metering infrastructure and data solutions. The funds are being used to roll out smart meters across Australia and New Zealand. Also a new banking relationship with U.S.-based Nextera, operator of the largest portfolio of wind and solar projects globally. And we've also financed the first-ever EV battery manufacturing plant in Southeast Asia for HLI Green Power, a joint venture bringing together the Kia and Hyundai Motor groups and LG Energy Solutions in Korea. These examples show the value of our regional network, which is the broadest and deepest of the Australian banks. We've also provided a $200 million funding program with the Clean Energy Finance Corporation, which offers discounted asset finance to help medium-sized businesses improve their energy efficiency. Now I wanted to also highlight 2 other recent examples of work underway in the Institutional business. We recently piloted the trading of tokenized carbon credits using ANZ's Australian dollar stablecoin. The transaction was successfully executed with long-term customer, Victor Smorgon Group. Finally, we have a memorandum of understanding to develop a carbon farming and biodiversity project. This will support our customers by contributing to supply, market making and distribution capabilities for high-quality carbon credits. The project is expected to provide opportunities for rural landowners in the Wheatbelt community in Western Australia and allows us to develop the project with major corporate customers, INPEX and Qantas. It will combine native reforestation and biomass harvesting to develop a carbon farming and renewable biofuels project. Now the diverse nature of these example shows the breadth and growth in our environmental sustainability capabilities across the portfolio. Now before I talk to our customer engagement strategy, I want to discuss how we are aligning our lending to the Paris Agreement goals. We were the first Australian bank to sign up to Net Zero Banking Alliance, the NZBA. The NZBA commits us to aligning our lending portfolio with the goal of net zero emissions by 2050. We are on track to set targets for 9 priority sectors. Now we commenced this work last year, setting emissions intensity targets for power generation and large-scale commercial real estate. We've been continuing that work, and later this year, we will be announcing targets for oil and gas and building products. Our target, pathways and disclosures make very clear how we are aligning our lending to the Paris Agreement goals. Our disclosures are TCFD aligned and our target setting is guided by the Partnership for Carbon Accounting Financials, or the PCAF standard. This is consistent with good global practice. Let me now turn to our customer engagement program. As we previously said, the most important role we can play is to help our customers reduce their emissions and shift to low-carbon operations. In our ongoing engagement with 100 of our highest emitting customers, we consider that 3 key elements constitute a robust low-carbon transition plan: governance, targets and disclosures. In our customer discussions, we explore each of these 3 areas. To illustrate this, let me step you through an example of engagement with one of our key energy customers and how that's evolved over the past few years. Our first discussion focused on the customer's approach to climate, their strategy and what good practice looked like for the sector. Essentially, we were seeking to understand their approach. Our second engagement was centered on their emissions reduction targets. Our third engagement followed the customer's public release of their climate change statement with clear targets. And at that time, we also discussed their proposed governance frameworks. Our most recent engagement this year was also broadened to include biodiversity matters. Now while this customer is a large emitter, their immediate biodiversity impacts are relatively low, given operations are at established sites. Therefore, discussions are focused on how they are working towards more positive biodiversity impacts through the progressive rehabilitation of mine sites. Now we feel we're assisting customers to make real progress with their transition plans as our engagement deepens over time and as we provide more products and services to assist. Now biodiversity has become a new topic of engagement and this year is included in our customer conversations. For example, a large commodity customer in the top 100 group is talking to us about how they're identifying and understanding the material biodiversity issues at their operations, including deforestation management and an audit of wildlife sightings to ensure more robust measurement. Finally, several months ago, I met with key customers, regulators and peers in the U.K. and the European Union to discuss their responses to climate change. Several themes came up frequently in our conversations and these included: the pace of the greening of the financial economy, including portfolios and product development and also how it impacts the real economy; prudential policy and insights into banks' balance sheets and models that were exposed to climate risk, including data quality; and finally, the importance of building internal capability and capacity to support the transition, including the use of partnerships to bring in specialist expertise when needed. An example for us is being our partnership with Pollination. The discussions were an opportunity to get a pulse check and some guidance on what may come next here in Australia. We're confident we're well positioned for the future and looking forward to the opportunities to come. And with that, let me hand back to Shayne for question and answer. Thank you.

Thanks, Mark. So operator, over to you for the first question, please.

[Operator Instructions] Your first question comes from Rob Koh from Morgan Stanley.

I wonder if I can direct my first question to Ms. Carnegie in relation to, I guess, the journey that you're on for how much housing property in the mortgage book is at risk, physical risk, from climate change and whether the lending systems -- where the lending systems are at in terms of, I guess, declining loans to properties in that risk places, please.

Thanks very much for the question. Actually, it's something that Kevin Corbally and I were discussing. So I might -- Kevin, do you want to pick this up?

Look, it's something that we've been looking at quite extensively over the course of the last couple of years. So a lot of work going on in it. We've also done some work in conjunction with our principal regulator APRA in terms of the Climate Vulnerability Assessment. We've also done some specific work looking at certain areas, in particular, which may be more prone or subject to flooding or may be more prone or subject to bushfires, et cetera. At this stage, there's still more work for us to do on it. I don't envisage us necessarily producing or releasing anything in the near term on it. But I think it's something, obviously, over the next couple of years, we probably will look to do that on.

Okay. I guess just as a follow-up, if I can. Do you feel comfortable that you've got the lending screens for new business such that other banks who are working on this are not just kind of giving you the properties they don't want?

Can I maybe answer that a little bit, Rob. I think it's -- and I know you know this, and please, we don't lend to homes, we lend to people. And those people we lend to on the basis that they can afford to repay that loan from their income and maintain a decent life and be able to do that. And they provide the house as security. So I think -- I know you know that, but I think it's important just to remind ourselves of that. Our job is to make sure that we're lending to people, who are good people with the right character and have the right levels of income and prospects for the future. So no, I don't think there's an adverse selection risk there. That's not to say we completely ignore the location of somebody's home or their business or the nature of the asset. And again, I don't mean to diminish it, but it is secondary to the income-producing nature of that person and their ability to repay from their employment.

Yes. Okay. Yes, I appreciate that. That's a good, nuanced answer. If I can ask a question to Mr. Whelan about the institutional client conversations that are going on. Have you come up against a situation where you come out of the meeting and you go, well, those guys don't get it. We've got to work our lines down over time. Have you gotten to that point in the conversations?

Occasionally, to be honest. But this has been developing now for -- the conversations have progressed and have got probably deeper and more nuanced as well at the same time over the course of the last 2 years. And we're finding that the vast majority of the customers that we're having discussions with, particularly the top 100, there's others now that are coming to us that are outside the top 100 where we're having similar conversations at their request, are very keen to understand what's happening in the marketplace and have a part of the solution with climate change. So it's in general, most of the conversations, the vast majority, I should say, are very positive in nature. But not -- occasionally, we've had 1 or 2 where we felt that they -- their strategy on what they're looking to do is not necessarily as advanced as many others. And in that instance, what we do to -- I guess there'd probably be a follow-up question here -- would be that we would have further conversations with them around that being misaligned with the way we see our portfolio moving and we would then have discussions around what that means for our continued relationship. But it's very much in the minority.

Yes. And I'd add to that, Rob. I distinctly remember one that Mark and I were on together actually. And we did walk away from that meeting we're a little bit concerned. To be fair, it was more common early on. I think that, to your point, Mark, it has evolved and you'd have to be living in a cave if you didn't realize that this was an issue. So people do get it. And then essentially, what we do is not formally, there's almost like a watch list where we basically say, hey, this deserves further scrutiny and follow up and interrogation. And that's precisely what we do. But again, I agree with Mark, it was more early on as we're getting into this. And to be fair, I think it wasn't -- because we were a bit of a leader in the space, customers were a little -- sometimes, not many, but some were a little bit surprised like why are you asking these questions, right, as a bank. And so I think some of it was -- they're not necessarily prepared as well.

No. And that's well behind us now, actually. Very well behind us now, Rob.

Your next question comes from Jonathan Mott from Barrenjoey.

I've got a question for Maile just following on from your presentation. You talked a lot about the early indicators that you're looking for, and I understand going through the transaction accounts is of great value. A lot of loans are now coming through the broker channels and you might not necessarily hold the transaction account, which will make it a lot more difficult to do this for these customers. So can you just give us a feel for what percentage is the front book for the loans originated really in the last 2 years during COVID you do not hold the transaction account with, so it is so difficult to do the data analytics and the early indicators that you're looking to do.

So thanks. It's a great question. And actually, a lot of the data we're starting to build in is from third parties versus just looking at the transaction account. So some of the granularity that I'm talking about, we increasingly are getting from, as I said, to third parties versus just needing to look at the transaction account. So the way to think about the people we have where we hold that transaction account or have a decent amount of data on them, as you would know, we do have the majority of our loans going through brokers. So we're up in the high 50s at the moment. But the reality is that about 70% of those people have a very active relationship, already ANZ customers, of which we have pretty good data for. Now in some cases, it might just be their credit cards. But in many cases, it's also their transaction account. But I can get the specific data. I know that -- but as I said, the vast majority of the people coming through brokers are ANZ customers, and we do have good data on them to do the analytics I'm talking about.

Okay. So just following up. I think you said 70% are existing ANZ customers. Has that changed over time? So the front book, does that differ from the back book?

We're not seeing a significant change.

The other thing I'd add, Jonathan -- it's a good question and the other thing I would add to it, while there's undoubtedly merit in doing a customer by customer understanding, there's also just the generic trend. By just having that massive data, just seeing what's going on in that portfolio, I know you know that, but it's also, a, it's about knowing individual loans, but actually just knowing cohorts. And your ability to analyze that data, what's happening in Queensland versus Victoria, what's happening with people with this job or that job or all of that sort of stuff in general is also really valuable.

Your next question comes from Brian Johnson from Jefferies.

I have two questions, if I may. The first one is, if we have a look at Slide 12, which is as at March, and the real problem that we've got is we've had rate rises in April, May, June, July, August, September. At March, the cash rate was 10 basis points. It's now 235 basis points. When I look at the slides, I can see that 2% were overdue at March. I can see 40% of the book was on time or less than 1 month ahead, and you've very kindly given us the split. Could we get -- Shayne, am I right in sensing that you're kind of flagging that perhaps it's deteriorated a little bit since March? And if so, could we get some commentary on where you see it right now?

Sure. I mean it's a really good point, Brian. And clearly, the issue is around -- there's a disclosure issue here, which these are the last data that we disclosed, and we don't disclose those on a quarterly timetable. So that will be available at the next full year results. And what we didn't want to do is go down the rabbit hole of sort of picking certain points of data we disclosed more fulsomely. So we're not trying to hide anything. And again, the point that Maile was making in her talk is this was the state of people going into the rate rise. So this was the starting point as we've gone in and said people were well positioned going in. Kevin might want to add. But in general, and again, he'll have -- what we're seeing is continued strength of our customers. And again, the mere fact that -- I'm just looking at the same page, if you just look -- and again, you know this, but if you just look at the number of people who are so far ahead, if you are 2 years ahead, that means even despite all those rate rises, those customers haven't felt anything from a rate rise because they're still paying the same amount every month because they were so far ahead. All that's happened is the term, but that was the purpose of the slide. But Kevin, is there anything we can say?

Yes, Shayne. The only thing I'd probably add to what you said is that I think it's important when you look at -- sort of 2 things. One, when you look at the 40% that are on time, the reason for that, in most cases, is actually structural. So it's because they've taken out a fixed rate loan, it's because it's an investment property as such. So they've kind of structured it in a way where it makes sense for them to be on time with their repayments. Or it's because they are new customers and they've joined in the last 6 months. That's the vast bulk of that 40%. And of the 2% that are overdue, what I'd actually say that is if they're overdue even by a day, what we've continued to see since March, and Brian, you would have seen it in our June Pillar 3 results as well, our delinquency as in 90-day past due numbers have continued to come down over that period, too, as well. So that's probably Shayne, the only thing I'd add to it.

And I think that I can give you a bit more data or a bit more insight, Brian, and others isn't on that state in particular, but every day we get the -- Maile get, I get the -- we get the daily balance sheet and the movement on every single product we have in Australia. Retail deposits have actually held up. Now I know that's not entirely just about offsets and what's in this account. But if you just look about the amount of liquidity in our retail customer base, those deposit levels have held up. Now they're not rising anymore. They're not going up like they have been until recently, but they're holding up. The only area where we've started to see that turned a corner has been in small business. So small businesses over the year, to date, they're still, on average, holding higher deposits than they did a year ago. But it's starting to reduce, not in a rapid way, but it's starting to come down as people start to use that money. Now you have to be a little bit careful in small business because some of that's seasonal. And we know, for example, we're entering into a period, for many of our farm and agri customers, a normal time of drawdown. But anyway, that should hopefully give some sense that, from our perspective, the balance sheet still remained in pretty robust shape. You had a second question, go on. Yes, go on.

Yes, yes. Shayne, I'd just make the observation, I suppose. What concerns me, loan losses never come from averages , they come from the extremes. And just because the household has got excess deposits doesn't mean he's going to help out his neighbor, he doesn't. If you look at the slides, 40% of the book are on time when rates were a lot lower. We can see that of that 40%, 20% of brand-new accounts, 24% and even the 43% that have fixed their repayment is going to go up a lot, which brings me on to the second question, if I may. And I asked about this at the last result, and I would beg you guys to really think about it. There were 2 banks in Australia that do not disclose what their downside scenario actually is. ANZ is one of them. When I have look at your base case as at basically March, the last data point, it looks now way too optimistic saying house prices will be up 8% over the course of 2022 and then fall 5.8%. Could we get some kind of commitment that when the next result comes out, because things are clearly deteriorating, could we get some kind of commitment that we'll get a little bit more disclosure to see what the downside scenario is and what the weighting basically is there. Because it's a bit hard to assess ANZ's provision cover when we don't know what the inputs actually are.

Well, we're not going to give you that commitment today. That's something that we'll consider, Brian. But I think from your previous question, you just pointed out the danger we have when we selectively disclose parts of data. It's easy to pick and choose the data to support your thesis, and I understand there are concerns. Nobody is sitting here for a minute suggesting there's not going to be stress in the home loan book. Of course, there is. To your point, rates have risen quite dramatically and may go higher. So of course, there are going to be people. And I totally understand the point, it's not about the average, it's about the tail. And we can't disclose all the details for our 1 million homeowner customers and their individual situations, I know you're not asking for that. So we try to give the disclosure as best we can. And I think Maile's point was before, we're able now, using data, to have much greater insight into individual situations to the extent we can. So I take the point, not for a minute trying to fudge the fact or just talk about averages. We're not deluding ourselves. Clearly, we are very attuned and very aware of the risks that sit in a book of this scale. But did you want to add anything in terms of the downside on what we're thinking?

Shayne, the only thing I'd add, 2 things. One, and I think Brian's feedback is very valid and we'll definitely take that onboard. There's a lot of work going on at the moment right now actually on each of those scenarios. If you look at it, though, the weightings that we had in our assumptions at the half year were more skewed to the downside and the severe side than they were actually to the best case. But Brian's point is valid, it's kind of hard to -- if you don't actually know what that means. So we will definitely take that on board and we'll look at what we can do for this year's results. So thank you.

Your next question comes from Andrew Triggs from JPMorgan.

Maybe just for Shayne or Mark, the Slide 31 around the progress you're making with the top 100 emitters. To your earlier point, Mark, suggesting that in the early stages of this, it wasn't particularly well thought through by some of your customers. Comparing that chart to last year, I know the disclosure is slightly different. It doesn't seem like there's been a lot of movement over the last year from that sort of 20% of the tail that hasn't really thought about it. I mean -- or at least have public plans for -- and this is not a new issue, it's obviously been a few years that climate change has been at the forefront of these large emitters you would think would have been at the forefront of their minds. So does this -- is there any worry there that the stranded asset risks here are a little bit more substantial than you might have thought?

I think it's important to just get the data right. This is 2021 data, yes? We haven't updated the data, Andrew.

Okay. Is there any reason why not, Shayne?

It's just the same issue we had before. It's just about disclosure and we will go through as our normal year-end, we will update it at the full year results. So apologies for that, and we should have made that clear. But you're right, but you can give some contextual some of that...

Yes. Maybe just a general view. I think the first thing I'd say is that the group of 100 is actually a little bit of a moving feast as well, Andrew, because some will come off for reasons like we may have exited a customer. We've reduced the exposures to a point where it's no longer relevant to be in the top 100 for us. And then what we do is we add more in. And so some of them might be -- they are obviously at a different starting point or potentially at a different starting point. But in general, I think we've seen a shift up, which we'll see through the data into our, what we call our A and B categories, which are the stronger categories and within the D2Cs. But that's certainly a move in the right direction. But the 100 isn't a static number. There is some that come off and we put others in. Invariably, they start around the DOCs.

The other thing we've done, Andrew -- because it is a good question. I mean, we've had this debate -- I mentioned that committee, the ERBC. So one of the things we've been debating is sort of once you've had the conversation with the top 100, and taking Mark's point that it moves, what do you do then? Do you go to the next 100? Like we could have just said, let's just keep going. We made a decision and people will have a different view. Actually the best thing we could do is continue to focus on those large 100 and see this chart move, actually see that migration from -- so that the Bs go down and we see a migration up. That would be the best single thing we could do in terms of enabling transition as opposed to let's just move on and do the next 100, which would be lower impact. So we will give updates on that at the full year results in terms of where we are.

Shayne, are you able to say what the total exposure at default is to those top 100 emitters?

It's a really good question. I guess we are able to do so, we're not prepared to do so today. It's a good question. I think we -- I'm just looking at the -- well, I think that's a very reasonable request, actually. So I think we'll take it on notice. I think the issue there, as Mark said, the names aren't staying the same, but nonetheless, we could give you a sense of how large that exposure is to that 100. That's fair.

But the other thing, Andrew, is just to give you some context to it, the top 100 represents about -- I think it's about 30% of national emissions in Australia. So it's a substantial amount. But I take your point about the EAD. We do, do that for certain sectors, as you're aware. But for the total 100, we can consider that.

And just to that sort of broad point, I mean, the stranded asset risk are you becoming more or less comfortable over time with how you'll manage that the transition of some of these customers who might, at one point, face challenges of staying in business?

I think we're getting much better. The fact is -- and again, this is not a -- it's not something that's just recent, but the mere fact that we are talking to these customers intensely, not a casual conversation, like planned, intense conversation around these things means our level of awareness of those assets, to your point, which ones we do have a view, have the potential to be stranded and really understanding this company's strategy, what they're doing about it has put us in a much, much stronger position. And again, look, there'll always be those that resist change. But the whole point of these conversations is to assist these customers move away from those stranded assets and to help them be a positive force in terms of the transition. So we're in a much better position of understanding than we would have been before we undertook this approach.

And look, many of these customers, Andrew, I mean, they're very aware of that issue, obviously, themselves. And therefore, really moving quickly around their own portfolios. And so that's the first thing I'd say. And the second thing I'd say is, remember, our exposures as a bank tend to be very short in nature if you look at it from a transition sense. Yes, the -- I think the average length duration of our loan book is somewhere around 2.5 to 3 years. So it's relatively short. So we look at all of those issues. But invariably, we look at the 100 and say, okay, where do we think they are in this transition curve. And as Shayne said, I think many of them are moving in the right direction.

And sorry, just the other question I had was around financial well-being. It's obviously the key theme through your presentation, Maile. Can you point to -- I mean what changes are you doing with respect to the, I guess, what's regarded as the loyalty tax on home loan pricing? The RBA data suggests that the front to back book gap has obviously got wider over time. Some other banks have loyalty rewards embedded into pricing now. Are there any such products at ANZ? And will those be considered?

So I mean, when I take a longer-term look at the -- where margin has gone in the home loan business, there is no doubt that it has gone squarely to our customers. So whether it's in front book or back book, just overall, there's probably been a halving of the kind of the return that we're getting on assets in the retail business, and in particular, in home loan. So I think it's hard to not look at and say that customers aren't benefiting in terms of margin being funneled their way. So do we have specifically a loyalty base product like the one you're referring to? We don't have one on ANZ. We are testing one in market with a business that we've got equity in, but -- just to kind of see what the customer reaction is more broadly. But no, we don't have one at the moment on the ANZ brand.

[Operator Instructions] Your next question comes from Ed Henning from CLSA.

Look, today, you've talked about your sustainable finance targets. Can you just talk about the margins on the renewable financing? Are they shrinking with every bank targeting energy transition? And if you look at your institutional book, are those margins different from your traditional lending?

Yes. Ed, it's a very good question, and we're watching this pretty closely. As you know, there is a mountain of money in the marketplace, be it from banks or funds that are looking to participate in this transition. So as transactions, we're seeing transactions come up. What I would say is that if you go back 12 months ago, the margins were somewhat similar. I think more recently, they're slightly lower but not significantly lower. And you've also seen more recently a move away from bonds into more loans. You've seen that generally across the portfolio, not just in sustainable deals. And so there's different things at play here. But the returns have held up reasonably. Do I think they'll get further pressure? Yes, which is why I mentioned right at the outset what we're looking to do is to be part of the transition, but navigate a way where we're supporting customers who traditionally have obviously supplied us not just a lending relationship, a relationship that's much broader than that with regards to payments and cash management and markets so that the overall return that we get is acceptable to the capital -- cost of capital that we have. And so it's not an easy task, but we review each of these transactions that are delivered to us very closely. A lot of them will come to myself and to Kevin and then Gerard Brown. And we'll look to either participate or not based on does it meet our disclosures and our pathways where we're heading so that we're consistent with what we're talking to the external market and then obviously what it does with regards to our returns for shareholders. That's an inexact science, Ed, but we're seeing that we can still navigate that at this point.

I'd go back to -- I totally agree with everything Mark said and it's a really good point, Ed, into -- you are absolutely right that, that is what's happening. There's this wall of money, not just bank money, by the way, investors looking for green assets to acquire. But I think it goes back to the basics of our business model in Institutional, which is the classic sort of originate and distribute. And so our job is to originate and distribute. So the measure of success for us isn't how much green we have on our balance sheet. But it's how much green financing we are enabling through our debt capital markets, syndicated loans and other things. Now obviously, part of that ends up on our balance sheet. But it's just -- it's not a different business model, it's just slightly higher bar than it is in our normal business. To some extent, we want the least amount of that stuff on our -- of any loans on our balance sheet because of the capital requirements, as you well know, as a bank. But the good news is, there's a really robust growing market for green financial assets out there and that's a good thing for a bank like us, particularly given our international footprint. And the strength of our financial institutions business. Let's not forget that is our single largest customer base. So we're in a great position to be able to benefit from this originate-distribute model. And we -- our distribution reach is much greater than our peers here in Australia, and really is, in particular, Asia Pacific franchise strength for us.

That's helpful. And just one more question, if I can. Can you just clarify the areas where you're running down or shrinking your lending exposure or completely or plan to completely run it down on the Institutional side?

Are you talking like in the sort of climate-related exposures? Well, we've mentioned previously that we've had a step back and step out approach on thermal coal mining as an example, but that was something that we started in conversations with our customers in that space probably 6 years ago now, Ed. So we'd said that we would be out of thermal coal mining by 2030, and we're very well progressed with regards to that. So that would be an example. On the oil and gas, we'll be talking about that later in the year, as I mentioned in my opening statements. So they'd be examples of where we've started to step down. And by the way, that's only in the climate sense, but we obviously look at where there's other risks in certain industries, which we're less comfortable with. And we may not exit those sectors, but we will reduce exposures when we feel that the climate isn't looking good, want of a better term, over the next 2 to 3 years.

And I think it goes back to Brian's question, actually, Ed, which is to do with the tail, right? So I don't know -- and again, I know you know this, thermal coal is probably in a category on its own where we're going to say we're going to -- we're out. But oil, gas, I know it's about sectoral exits, but I do -- but it is about the tail, who are the largest emitters, who are those companies who have high-emitting plants who are not prepared to invest in transition. So I think we're in that phase of our business. And so skewing our capital to those who get it, who have credible robust transition plans and moving our capital away from those who don't as opposed to sort of an industry pick and mix of which industries we support and which we don't. I mean there might be a case for that in the future, but I don't think that's where we are at the present, yes.

But overall, for the portfolio, too, there, Ed, I would say that we've been positioning that portfolio for some time now to be more capital-light, to Shayne's point, some more PCM, more markets as a mix of their business and less in loans. But even within the loans, we're looking to put that to sectors that we think provide a better return on a stand-alone basis of loan let alone the cross-sell, and financial institutions is a very good example of that where we've shifted the portfolio up in a dollar sense to the FIG space, which we think is a very good sector that we're very, very strong in.

Your next question comes from David Whittaker from New South Wales Treasury Corporation.

My question relates to the engagement program. It looks like you're making some good progress. Thanks for the information on Slides 31 and 32. I just -- how do you go about -- how do you ensure the engagements and the assessments and the strategies that your customers are putting in place are of the granularity needed to achieve the risk management objectives being sought? There's some interesting detail here and there are some green ticks and that looks great. But how much detail goes into really assessing whether that tick is the right color? And how should we think about that as investors?

Yes, it's a good point. We love a good green tick. No, but I think, Mark, it's a good question about -- I think it's important, and Mark will give you some more. We asked the same question earlier on because anybody can sit here and say, oh, we had a chat with so and so about their emissions plan and that it all looks good. Clearly, it's more robust than that. So it's quite, we think, a pretty high bar and it's not a onetime thing. But I just want to talk through because -- and as you can imagine, our Board committee asked similar questions about -- because we're -- we take this as seriously as we do any sort of financial reporting. There needs to be robust evidence trail behind here and governance to say no, no, because this is a disclosed data. And we have to have a trail to say how do we get comfort for green tick versus an orange. But do you want to talk a little bit more about the process behind it?

Yes. So we have regular meetings, David, with the customer base. The relationship managers will be the normal face to that. And -- but then there will be opportunities with myself and Shayne and Kevin and others who meet with the senior people at these companies, be it CEOs or CFOs where we talk about the same issues. And what we look for is the clarity and whether it's deepening around strategy, the first thing, what is their strategy? What's the governance structure that they've put in place, so at Board level, like Shayne explained, what we're doing here at Board level and then into -- and operationalizing that within other committees, within the executive. So we seek to understand that. We look at the targets that they're talking about and they've publicized externally. And then we look at -- sorry, the targets and also the disclosures that they're making, if they're consistent with their targets. And then finally, we track real progress. Have they been making real progress over the year, what activities have they done with their portfolio, have they invested more in clean energy? Have they done -- have they sold other things that are more carbon intensive, how are they shifting their own portfolios? So that comes from constant interaction with the customer, us then looking at what the real progress is and checking that against their own public disclosures and through our own private discussions. And it's a combination of all of those matters. We then make a judgment around that, which is at the front line in the business. And then it's also overseen by our centralized area within the bank around our ESG policies and the alignment of that with our customers and our own lending.

Okay. And just if I could ask, the emissions -- the references there on 32 to emissions targets, do you -- is it Scopes 1 to 3 that you're focusing on? Or just 1 and 2?

I think with the -- when we're looking at what we've got with regards to our disclosed, that's 1, 2 and 3 and we progressively will move to 3 with different sectors. But with the caveat that the data around this is pretty inconsistent globally around whether you -- what particular measurement you're looking at, first of all, because there's different ones, absolutes and others and how you're measuring that exposures. But the actual data and the ability to have that published and calculated in a consistent manner globally, David, is really still under development globally. And that's one of the things I heard when I was in Europe and the U.K. So for example, in the U.K., they do have a form of measuring households emissions. They put something in place, but it's, I would say, less than accurate. In Australia, we don't have that. So it is different by sectors. But the data quality, I think, still has a long way to go in this space.

Your next question comes from Stuart Palmer from Australian Ethical Investment.

And first one, at least, is a bit of a follow-up, I think, to that previous first question, which was around, yes, I guess we're all getting a little bit better at talking the climate talk, but then the challenges matching that to action, and you'd mentioned looking at strategy, looking at targets, looking at progress. I wonder if you could tell us how you would think about capital expenditure by clients. New capital going out the door on significant new infrastructure, I mean, seems to us to be a pretty good indicator of the reality of our climate ambition and direction of travel. So we're seeing in different sectors and including some of the sectors you're going to be talking about later in the year, oil and gas and building materials, some significant CapEx, long-lived infrastructure without much transparency at all or analysis being given to the market about how the case -- if the company indeed is making the case that this is aligned with a transition, we're not seeing that. So what would the bank look for in those sorts of circumstances? And what might be a trigger for you saying, hey, we need to exit this relationship in terms of infrastructure?

Yes, it's a great question. So I think -- and again, we're talking generics here, but it's all about -- so not only understanding what people are saying and what they're telling us they're doing. But actually, we need to see the evidence, right? And are they doing what they said they would do? And to your point, Stuart, are they allocating capital and are they investing in what they said they would do? Now to some extent, there's sort of 2 types of -- I mean, it'll be more complex than that, 2 types of corporate lenders, the sort of fungible and targeted working capital where we lend money to a company for sort of general purposes. And that's a lot -- because money is fungible, it's hard to know precisely where that money went. But a lot of what we're talking about here is quite of targeted project finance, infrastructure spending where it's very clear. You're going to go and build a wind farm, and that's where the money went. Or we're going to go and refit electricity generation plant to lower emissions, and that's where the money. So we do pay a lot of attention to the use of funds. And by the way, that's not new to banking. That's always been the case. And that's why banks are actually pretty good in general, we always get it right at this because we passionately care when we lend money to somebody what they do with it and whether it's going where it's supposed to go. And so we have -- I think we're pretty good at ensuring that. And then to your point, making sure that customers are backing their intentions with the actual capital investment and that goes into the assessment. I would say that's actually what is really attractive about this whole sector and about financing the transition for a bank like ANZ. So these are not all about risk management. It is about risk management. It's not all about risk management, it's also about opportunity. And the reality is it's going to be significant, as we know, amounts of capital required to finance the transition. And that's why we -- that's an opportunity for us. And that's why we made a decision that the single best thing we can do to ensure a just transition around climate change is actually finance and back those high-emitting customers to get better. That, that's a transition and just exiting those sectors might be required, but in and of itself doesn't really achieve anything. So the best thing is to work with the emitters, provide capital under tight conditions to ensure and make sure that they invest it to improve and to actually finance that transition. And so, as you know, everybody is throwing around huge numbers. There's a huge opportunity and we feel really, really well positioned to be able to enable that for a couple of reasons. These customers we already know. We have a global reach that a lot of our peers don't have. And it is a global challenge and opportunity, not just an Australian one. And third, we're a leader in almost all of the capabilities you need to do to be able to do this, whether it's project finance, export credit agency work. Whether it's debt capital markets, syndicated loans, sustainable finance, we have the capabilities that really enable us to back this. And that's why you're seeing Mark's business really early success and leadership. But still a lot to learn, but that's why we're excited about the opportunity.

I mean just a follow-up on that distinction between project finance and general corporate facilities. Because it does seem to be an emerging sort of -- listen, there's a better word, I'm sure, a loophole in a lot of commitments, which we're seeing. And we've had examples where a company is expanding its thermal coal operations. It's saying it's using its funding from a number of banks to do that. And the banks are saying, well, we offer -- we've got some working capital facilities out to the same customer, that's not what we provided the money for. But of course, that's -- yes, the money is fungible, but it's still being used to grow in ways which might indicate a lack of commitment to a real transition. So would love to think about ways in which some of your policies and your test for customers if they are expanding in a way new projects, which aren't aligned? Or what does that mean for your corporate facilities?

So I agree with you, and this is a gnarly problem, right, because -- and I don't know that there's a formula or a policy or anything that can really deal with it. That's where we need to look at these customers in the eye, and we have to have a high degree of trust that these people get it, right? They understand the needs of the transition. They have governance in place to do it themselves, from their Boards all the way down, that they are committed to do it. Because at the end of the day, there is -- to your point, money is largely fungible. But if we saw that, and again, your example is a good one and these can happen where company A is doing the right thing over here, which we think we're financing, but they're also doing the bad thing over there. That's the kind of thing that's inconsistent. And in our terms, that would not meet the requirements in terms of our review of a customer in terms of being strategically aligned with what we want to achieve. And so that's exactly the sort of behavior we would say that's not credible. That is not trustworthy or credible and it's not the kind of customer we need to bank. So now obviously, it's not as black and white in there, we're talking extremes there. But that is precisely the sort of stuff. And I know, Mark has brought to me and our committee decisions exactly like the one you just talked about, where on their team's judgment we can't back this customer. Even though that project that they're doing passes muster and we can get our head around it, we're not comfortable with the overall direction of the corporate.

Yes. Stuart, I'll just very quickly add to that. It is -- that's when it gets difficult and you have to ensure that you are still committed to the principles, which we've already mentioned and spoken to our customer about. But when we seek to understand their policies, we're also seeking for them to understand ours and how that glide path looks. When you get into that situation, which you just talked about, particularly in more corporate-related facilities, what happens internally in our process is that I'll see that deal, I'll take it to Kevin Corbally, he and I will discuss that. We also include Gerard Brown, who's Head of Sustainability for the group. We will talk about it, the opportunity. We'll also talk about what we're seeing from the customer with regards to their commitments and whether they're meeting them. And then we'll make a determination on that. But then we'll also obviously talk to Shayne as Head of ERBC. So it gets enormous amount of scrutiny, but it does get down to whether we believe that the particular company, who we we're supplying that corporate facility is really committed to this strategy. If it isn't, and this has been the case, we'll decline to participate.

Okay. And I mean that analysis makes sense. I mean sometimes the word is we look at -- we take everything as a whole and taken everything together, we'll get from our perspective if it's not aligned, it's not aligned. So yes, there's that credibility question about the commitments. So that's good to hear. And just a quick final one, if I can. Just you've mentioned biodiversity as being part of something you're starting to talk to customers about. I mean, how are you thinking that might evolve? Australia is being called out globally as being a bit of a recalcitrant in some of the levels of deforestation, particularly in our agriculture sector. I mean are you -- do you have -- would you look at conditions, covenants around land clearing, deforestation for some of your -- or all of your agricultural lending?

Yes. Short answer to that is yes. I mean it's a maturity issue, right? So pick a number, but I don't want to put a number on it because I don't want it to be quoted back to me. But we are some years behind and the way we think about biodiversity is the way we are thinking about emissions, yes? But the same basic principles will apply. I don't know that we'll have -- I don't know what the equivalent would be, but we'll have to think about who are the customers that we bank that have a high impact on biodiversity. And again, we're going to talk -- I imagine, we're going to talk -- we'll take exactly the same approach. Let's measure our exposure, let's understand what they're doing about it, do they get it, do they understand, are they investing and allocating capital to resolve this problem, do we think their values are strategically aligned with whatever the community has set in terms of aspiration? So absolutely. I think -- and again, I'm not the right person to ask, because I'm not the expert. But from my perspective, it feels to me that biodiversity is like the emission things, but even a higher factor of complexity, in my view. If we think measuring emissions and things and Scope 3 is hard, I think the biodiversity one is even more -- way more complex. Look, I might be wrong. But I think it's fair to say we're all learning. And I think one of the things that, again, comes from -- one of the benefits of our international network is we don't just fly around to talk to people in different -- we have businesses in the -- we have customers and businesses, particularly in Europe, which has traditionally been a bit further ahead on thinking on these things. And so we're able to sort of kick the tires, if you will, up in these markets with customers and understand what are regulators doing, what are community expectations, where are they headed, what are -- as I said, companies, regulators and others see that as an early warning signal to say, hey, we need to be thinking about this. And we did that on biodiversity quite a while ago, but it's fair to say Australia is not as well advanced in the thinking, but we will get there.

Yes. I mean the only comment I have is certainly obviously agree that biodiversity, the dimensions of it, make it hugely complex. But I think, yes, there's a parallel with climate that we've known for a while. But the problem is emissions in the air and I guess in the biodiversity context, one of the problems we've known about for a long time and we've had targets sitting under some of the sustainable development goals to stop any new deforestation, I think 2020 was one of the global targets. So yes, there are particular dimensions of biodiversity existing forest, which obviously has huge value as a carbon sink, but also native species. So yes, it's pretty clear today that we shouldn't be knocking that stuff over when we actually do have enough cleared land available for food production and so on. So I hope it becomes a bit simpler.

I agree with that. Yes, I'm not suggesting we have to have it all perfectly wrapped up with a bow on it before we start doing anything. I agree, there is some low-hanging fruit, that's probably not the right analogy at this time, but there are some easier things to do here, to your point, about deforestation and land clearing, which we've had policies in place for a number of years. We're just saying it's getting more complex. The other thing I just want to mention because I think it's important, going back to governance. That's precisely why we have those committees and why we mentioned them. Not only are we dealing with the here and now and the issues that the community and regulators and customers care about today, we also try to stay ahead. And so we use those forums to be thoughtful to the extent we can to learn to hear from other markets, from other people thinking about some of these, what are the emerging issues that are coming. And biodiversity won't be the last one, there'll be other things. And that takes us -- we look at a wide array of issues that have the potential to -- for the community and others to sort of really start to set new standards and making sure that we're thinking about our capital allocation, how we behave, who we bank, the things that we care about most in advance and not just waiting to be told by a regulator or waiting to be told by the -- through bad actions of others that these things matter. So we try our best to stay ahead of it.

Your final question comes from Alison Ewings from Regnan.

As others have already said, it was great to hear more detail on your engagement with customers and I have 2 questions relating to those discussions. Obviously, we need to reduce emissions in the real economy, not just in ANZ lending book in order to reduce the systemic risks that will challenge both the banks and investors alike. So we've got a mutual interest in this one, I think. But I was interested in what scrutiny you apply over how the reductions are achieved to try and ensure that they translate to reductions in the real economy as well as ANZ's own exposure?

It's great question, do you want to talk about that? Yes.

Yes. I mean it's a terrific question, and we look at that with regards to each and every one of our customers and the real actions that they're taking. And while we're talking about a net zero 2050 with all of the targets, the reality is that you want it to be heading towards 0. And therefore, the use of things like carbon credits, as an example, we think have a role to play in the transition, but not necessarily being the answer completely overall. It might be part of the initial answer, but longer term it's not. So moving more to real clean and the old clean, affordable and reliable sort of energy sources and also the consumers and how the energy is being consumed are all part of the answer to that question. So we look to see if a customer is only looking to get, they're not really changing their business and they're actually using carbon credits as a way of them getting to their longer-term target, we would think that might be an issue for us. At this point, though, we feel that using offsets is appropriate, but as long as that's part of the solution, not the solution. Is that helpful?

Yes. I was thinking also about the transfer of assets. So it may be that clients no longer hold them, but they simply sell them to someone else.

Well, that's exactly right. And so obviously, that does occur. It has been occurring. Governments have been actually part of that, as you know, globally. So that will get down to the commitments by all parties to actually make it clean, affordable and reliable. And I think we're still in that journey.

I mean that's a much harder one for us to have an influence on. I mean...

We said we won't finance...

We won't finance it under the new owners, but you are seeing different forms of capital come in to support some of those industries that are, in this case, high emitting. So that is a challenge for the economy. But frankly, there's not a lot a bank can do about that other than make sure we lobby governments and others to make sure we're doing the right thing at an economy level.

The patience is an important lever on that one. The second, I was struck when you were talking about biodiversity that you frame those discussions very much around the impact of the business on biodiversity. The example you talked about being low because it's from existing sites. And I think in answer to Stuart's question, you talked about the company's impact on biodiversity. I was interested about what extent you're also thinking about the impact of biodiversity loss on the businesses you'd lend to. So for instance, the potential for scarcity within their supply chain if something becomes compromised, so more about the risk to the business than the risk of the business to the environment.

Yes, we are doing both. I think -- and certainly, what we saw when we went to Europe earlier in the year, and we'll be doing those trips regularly because we get -- we think a lot of the thought leadership still is emanating from that part of the world. And we know that what happens there tends to happen here in a customer sense, but also in a regulatory sense. . And our view is that this is -- we're nascent in, if I can put it that way, in our approach to this, but we do look at the supply chain impacts on certain parts of their book at the moment. We are taking it into consideration. We're building the internal muscle around the questions that we need to ask and where we apply it to our customers as we speak. I think it's fair to say we've got a little way to go on this one. But I think that's no different to what you're seeing in Europe and other parts of the world.

Okay, I think that was our last question. So look, thank you, everybody, for joining us today. Once again, it was a very engaging conversation. And I hope you found it useful. We've obviously got a number of takeaways from it and some follow-ups, which we are committed to. We do try to discuss issues that are topical to you and the market, as our owners and other stakeholders, but also issues that are really important to us. And going back to Alison's question there about not in terms of just -- not just our business but are important to us in terms of the impact our customers have on the broader community. So hopefully, we've achieved that today. There are lots of things we can cover in these sessions as you're well aware, but we try to make them contemporary with issues that are front of mind for our stakeholders, and hopefully, we've achieved that. So thank you very much for your time and your questions.