Commonwealth Bank of Australia (CBA) Earnings Call Transcript & Summary

[Presentation] Good morning, ladies and gentlemen. My name is Helen Daley, and I'm your emcee for today's Annual General Meeting of the Commonwealth Bank of Australia. My role is to help shareholders understand how the meeting will work, how shareholders ask questions and how you can vote. I would like to begin by acknowledging and paying our respects to the traditional owners of the land on which we meet, the Gadigal people of the Eora Nation, and we acknowledge their elders, both past, present and emerging. In light of the coronavirus pandemic and the state and federal government health advice and guidelines, the Board determined the safest way to hold this year's AGM is as a virtual meeting. While shareholders in Sydney, where this year's meeting is being conducted, cannot attend in person, a virtual meeting allows all shareholders, regardless of where they live, to participate either online or via the telephone. I will explain how this will work shortly. Before I hand over to your Chairman to formally open the meeting, I would like to explain how the technology will help us conduct this meeting and the procedures that will allow shareholders to participate. We acknowledge this is very different from the usual meeting experience for you, and we appreciate your support and patience as we navigate this different way of conducting the meeting. CBA staff, together with the share registry and technology providers, have sought to ensure that CBA provides you with a seamless virtual experience. Along with the Notice of the Meeting, we've prepared a virtual guide to this AGM to help you. This guide can be found, both on the AGM page of the CBA website, or if you're attending online, simply click on the Related Documents button on your screen. Now if you experience any issues with your technology today, you can chat online to an operator live by clicking on the Help Center button which is located under the webcast screen, or you can press star 1 on your keypad if you're attending via phone and you need assistance. If we experience a major IT disruption beyond our control that prevents shareholders from participating, we will adjourn the meeting and notify the ASX with details as to when another meeting will recommence. If you're participating online today, you will see a split screen, which shows the video stream of the meeting and the presentation slides. You can make either of these screens bigger or smaller by clicking on the yellow button labeled Switch View on the right-hand side of your screen. Now to voting. Shareholders attending the meeting online can vote on the resolution set out in the notice of meeting by selecting the white button labeled Information, which is located below your webcast screen. You can then select the yellow button labeled Shareholder Voting and Questions. Now a separate tab will open in your browser, which will take you to the Link Market Services shareholder portal so you can vote. You will need to register to be verified as a shareholder or proxy holder. To get a voting card, select the Get a Voting Card button located at the bottom of the screen. Once the Chairman formally declares the poll open, you may vote on a resolution at any time during the meeting. For shareholders attending today's meeting via telephone, our call moderator will provide you with the instructions on how to vote on each resolution once the meeting closes. Now to some guidance on asking questions. Shareholders who've submitted questions prior to the meeting, thank you. We have sought to address many of these questions throughout the remarks that will be made by the Chairman and the CEO in their formal addresses to the meeting. Shareholders attending online who wish to submit a question now or during the meeting can do so by selecting the Ask a Question button located at the bottom of the screen. We encourage you to please submit all of your questions now to assist us in getting through as many of your questions as possible. To ensure all shareholders have an opportunity to ask a question today, the Chairman will accept up to 2 comments or questions from each shareholder for each item of business. We ask that you submit each question separately. Please select the item of business your question relates to, type in your question and press submit. Your question will be placed in a queue. Now questions are limited to 512 characters. If you exceed the limit, you will be unable to submit your question, and you'll be asked to revise your question. Shareholders attending via telephone are able to ask a question live by pressing star 1 on your keypad. Our call moderator will take your question and submit it to the queue. Please submit your questions now. When questions for each item of business are ready, I will introduce the shareholder by name, and I will read the question for the Chairman to answer. It's possible if we receive a number of questions that are similar, we may answer those questions collectively. Questions submitted on customer or personal shareholding matters will not be put to the meeting. You will be contacted after the conclusion of the meeting to ensure you receive the individual support you require. Representatives from CBA share registry, customer service or customer advocate teams are available to assist you. Contact numbers are provided on the CBA website or by selecting the Contact Us button located at the bottom of the screen for those attending online. For those of you attending via telephone, the call moderator can provide these details to you. Just another reminder to please submit your questions now, but remember, to limit your questions to 512 characters. This applies to questions submitted online and via the telephone. It's my great pleasure to now introduce you to Catherine Livingstone, your Chairman.

Thank you, Helen, and good morning, ladies and gentlemen. On behalf of my fellow directors, it is my pleasure to welcome you to the 2020 Annual General Meeting of the Commonwealth Bank of Australia. As we have a quorum, I declare the meeting open, and propose that the notice of meeting is taken as read. The resolutions in the notice of meeting will be decided by way of a poll, which I declare open for each item of business. The poll will close 10 minutes after the conclusion of the meeting. I would now like to introduce our Board and the Chief Financial Officer and the Group Company Secretary. Joining me here in Sydney, from my far right, are Rob Whitfield AM, who is Chairman of the Risk and Compliance Committee, and who will stand for reelection today; Kara Nicholls, Group Company Secretary; Matt Comyn, Chief Executive Officer; Alan Docherty, Chief Financial Officer; and Anne Templeman-Jones, who is Chairman of the Audit Committee. Joining the meeting today via video conference due to travel directions are Shirish Apte; Wendy Stops, who will retire at the conclusion of today's meeting; Mary Padbury; Paul O'Malley, who is Chairman of the People and Remuneration Committee; Genevieve Bell AO; and Simon Moutter, who will stand for election today, having been appointed to the Board with effect from 1 September this year. Also attending today's meeting are members of the bank's executive leadership team; and Mr. Matthew Lunn from our external auditor, PwC, who will be available to respond to any specific questions you may have in relation to the audit of the bank's financial statements. Questions for the external auditor received prior to the meeting have been responded to directly, and those responses are available on request by contacting our share registry. The agenda for today's meeting is as follows: First, I will comment on a number of important matters, then Matt Comyn, our CEO, will speak. And after Matt's address, we will proceed with the formal items of business as set out in the notice of meeting. The fact that we're meeting virtually today shows just how much and how quickly things can change. It also demonstrates how collectively, we are able to adapt and find solutions. Despite the year's challenges, your bank has continued to deliver on our purpose of improving the financial well-being of our customers and communities. We have quickly found new ways to support our customers, our people and the economy. We have made substantial progress on becoming a simpler, better bank and achieved important governance, culture and risk management milestones and have delivered strong business performance and a strong balance sheet, supporting long-term returns for shareholders. 2020 has been marked by droughts, bushfires and the coronavirus pandemic. And our focus throughout has been to support our customers and communities in these difficult times. When the COVID-19 crisis hit, the bank's leadership and our people mobilized immediately to proactively meet customer needs and to keep our operations running safely and smoothly. The bank has also played an important leadership role nationally, helping to facilitate and deliver the government's stimulus packages and to cushion the financial shocks, which the country has been experiencing as a result of the pandemic. By working together with government, regulators and our industry peers, we have been able to keep families and individuals in their homes, keep people in work and keep businesses operating. For CBA, in the 6 months to June, this included providing repayment deferral relief on more than 250,000 personal, business and home loans; helping businesses to access JobKeeper; and advancing more than half of all new lending under the government's Coronus (sic) [ Coronavirus ] SME Guarantee Scheme. The bank has been able to move at great pace and provide extensive support, thanks to the dedication of our people, the agility of our operations, the strength of our balance sheet and our commitment to the interest of the customers and the nation. Our focus remains on helping our customers through the challenges ahead by providing them with the support and solutions that respond to their needs. We will also continue to support initiatives that promote jobs and economic recovery. The commitment and leadership of the renewed executive team have been key to the bank's delivery of strong stakeholder outcomes this year. Our people have also worked extremely hard in challenging circumstances to continue delivering exceptional service to our customers. So on behalf of the Board, I would like to thank the leadership team and our people for their dedication to the bank's purpose. In addition to responding to the new environment, we have remained steadfastly focused on executing our simpler, better bank strategy. We have now substantially divested or ceased our Wealth Management businesses. And this has allowed management to focus on driving operational excellence in retail and business banking and on maintaining the bank's leadership in digital banking and innovation. Our technology strengths and our market-leading digital assets have stood the bank in great stead at a time where we've seen a tremendous shift to digital banking, including for payments. A disciplined focus on our core business has also supported the bank's financial performance. This year, operating income increased as a result of outperformance in home lending and deposits, and statutory profit was higher as a result of the significant gains on sale of our Wealth Management businesses. Cash net profit after tax was lower largely due to the $1.5 billion impairment provision taken for expected loan losses related to the pandemic. Importantly, our balance sheet continued to strengthen, and we ended the year with a very strong capital position. CBA is one of the best capitalized large banks in the world. The bank's capital and operating performance continue to support returns for shareholders. In March, we paid an interim dividend of $2 per share, fully franked. The final dividend of $0.98 per share paid on the 30th of September conforms to APRA's guidance, which remains in place until the end of the calendar year that banks should retain at least 50% of their earnings. Our final dividend payout ratio was, therefore, 49.95% of statutory earnings for the second half of the financial year. In total, this year, shareholders received $2.98 per share fully franked, with the bank returning $5.3 billion in dividends to shareholders. At the same time as delivering financial performance, we continue to strengthen governance, culture and risk management. We have made significant progress on implementing the recommendations of the 2018 APRA Prudential Inquiry and have now delivered more than 3/4 of our remedial action plan milestones. Our progress is monitored quarterly by the independent reviewer, Promontory, and in its most recent report to APRA, Promontory stated that it had perceived a material change in the attitudes and culture within the bank over the 2 years since the start of our plan. It also stated that in many respects, the bank is almost unrecognizable from the institution described in the inquiry report. While this is very positive, we still have more to do. Our focus in the third and final year of our plan is to embed the hard-won improvements and ensure they're maintained on an ongoing basis. We are also well advanced on implementing the recommendations of the Financial Services Royal Commission. And during the year, we took further action and provisions to remediate customers impacted by past issues. As at the 30th of June, we had delivered refunds to customers of more than $730 million over the time since 2015. Moving now to our remuneration framework, which has worked well in helping to drive a better risk culture and greater accountability and consequence management. We are cognizant, however, of the need to keep evolving the framework. We are, therefore, making changes to ensure that it continues to help the bank to meet the strategic challenges ahead. Our objectives in making these changes include: Attracting and retaining exceptional talent; meeting the spirit of expected regulatory change; and more closely aligning management incentives with shareholders' experience. Information on the framework, which will apply from the 2021 financial year, is provided in the notice of meeting, and I will cover this in more detail when we come to that item on the agenda. Turning now to our commitment to operate both responsibly and sustainably. This includes our commitment to support the responsible global transition to a net zero emissions economy by 2050. This year and 10 years ahead of target, we achieved our goal of sourcing renewable energy for 100% of our Australian electricity needs. This has allowed us to reduce our emissions and to save costs. We have also been helping our customers to make the transition by providing products that incentivize them to reduce emissions and increase their climate resilience. This has included providing sustainability-linked loans that tie the borrower's cost of funding to the achievement of their environmental targets and our green mortgage initiative, which gave cash backs to eligible customers with solar panels installed on their homes. We also helped to arrange almost $9.5 billion of climate bonds. And at the 30th of June, had $4.2 billion of lending exposure to renewable energy. Playing our part in the transition is an increasing priority for the Board. The Board is also focused on having succession plans for directors to ensure that we maintain at all times the relevant mix of skills and experience. So David Higgins retired in December 2019 after 5 years of service to the bank. And Wendy Stops, who has also been an integral member of the Board for more than 5 years, will retire at the conclusion of today's AGM. On behalf of the Board, I thank both Wendy and Sir David for their commitment and contribution. In September, we were joined by Simon Moutter, who will be standing for election today. Simon was previously Managing Director of Spark New Zealand Limited, which is New Zealand's largest telecommunications and digital services company, and he has a background in science and engineering. As such, Simon brings a deep understanding of technology, process effectiveness and business strategy to the Board. Rob Whitfield AM will stand for reelection today. And as Chairman of the Board Risk and Compliance Committee, Rob has played a particularly important role this year given the impact of the coronavirus pandemic. Although the year ahead will involve challenges and uncertainty, the bank faces this environment in a strong position. Our business is performing strongly, and we have a resilient balance sheet, which means we are well placed to continue delivering on our purpose. I would like to thank all those who have contributed to the bank's strengths at this time, including our customers, who trust us to serve their financial needs every day; our people, who have worked so hard to deliver great customer outcomes and a simply better bank; my fellow directors, who have shown resolute commitment to ensuring the bank is well positioned for the future; and finally, our shareholders, thank you for your continuing support for the bank and for trusting in our ability to deliver for you over the long term. I will now ask our CEO, Matt Comyn, to address the meeting.

Thank you, Catherine, and good morning to everyone joining us today virtually. I'd also like to acknowledge the traditional owners of the lands from which we're joining this webcast today, and pay my respects to elders, past, present and emerging. As the Chair mentioned, in the past 12 months, Australians have been challenged by drought, bushfires and the coronavirus pandemic. In my 20 years with the Commonwealth Bank, I can't think of another period that has tested the resilience and resourcefulness of Australians like this year has. As I've spoken with customers and business owners throughout the year about their experiences, I've heard how important it's been that the Commonwealth Bank has been there when we've been needed most. The work we've done over the past 2 years to deliver a simpler, better and stronger bank has given us a solid foundation to support our customers. While there is still more work to do, the actions we've taken and the changes we've made enabled us to move quickly, decisively and prudently to support our customers through the pandemic. This year, we've provided immediate relief to households and businesses by processing over 250,000 home, personal and business loan deferrals. We've approved more than $875 million in loans to 9,400 small and medium-sized businesses through the first phase of the government's Coronavirus SME Guarantee Scheme. We redirected our branch staff into our contact centers and other support areas to ensure customers could get through to us and receive the help they needed on the phone and online very quickly. As part of that, we've responded to up to 1 million request for assistance and supported up to 10.2 million daily log ons on our digital channels. Thousands of families have benefited from these actions. Thousands of businesses have been able to keep their doors open and their people employed. Our people have been essential to this support. While the nation's challenges are far from over, the 42,000 people of the Commonwealth Bank have continued to be there for our customers and communities, even as some work through difficult circumstances themselves. Our people have been energized by our purpose and feel a strong sense of pride and confidence in the bank. Employee engagement is high at 81%, up 9 points since October last year; and 89% of our people say they are proud to work for the Commonwealth Bank, a significant increase in the past 2 years. I'd like to thank all of our people for the care, courage and commitment they show every day. Improving the financial well-being of Australian communities remains central to the bank's purpose. This year, we've been helping people impacted by bushfires and drought. We've also continued to support local community organizations as well as improve financial education and address financial abuse. We were proud to provide up to $10 million in bushfire recovery grants for on-the-ground practical support to help community organizations rebuild after the fires. I saw firsthand the important work the grants are delivering when I visited some recipients on New South Wales' South Coast a few months ago. For more than 5 years, we've been supporting people experiencing domestic and family violence and financial abuse. Over this time, we've committed $30 million to this issue, which has enabled us to better understand what more we can do to help and where we can have the greatest impact. We also launched Next Chapter, our biggest commitment to addressing financial abuse yet. In addition to equipping our frontline teams to help customers, providing direct financial assistance, we also funded the creation of the Financial Independence Hub. Delivered by Good Shepherd, the Hub provides specialist financial coaching and access to suitable and affordable solutions to assist people on a path to long-term financial recovery, no matter who they bank with. Throughout the year, we've continued to pursue our strategic priorities to simplify our business, lead in retail and business banking and be the best in digital banking. These actions have helped us to continue to make a meaningful difference to our customers. By divesting and exiting our wealth management businesses, we've been reducing risk and complexity and supporting reinvestment and increased focus on our core operating businesses in Australia and New Zealand. We have the leading retail bank in Australia and are growing our position in business banking. In our latest DBM net promoter results, which is our measure of customer advocacy, we are, for the first time, #1 across consumer, business and institutional customers. We're also ranked #1 in Net Promoter Score for our Internet banking and our mobile banking app. We're investing in our business and institutional banking experiences through enhancements to our service, data and technology capabilities. These include improving and extending BizExpress, our same-day business lending facility. By quickly deploying BizExpress, we were able to accept applications the day after the government had established the Coronavirus SME Guarantee Scheme. Our continuing investments in digital innovation are setting us apart from our competitors and are helping us deliver richer and more personalized digital banking experiences and services. This includes app features like Benefits Finder, Bill Sense, category budgets and the coronavirus money plan. As well as increasing our own capabilities, we're innovating both within our business and with partners. Through our x15ventures, we're building a portfolio of new digital businesses. This combines the agility of a start-up with the support and reach of the bank, all to better serve our retail and business customers. So far this year, x15 has launched 4 ventures, including Vonto. This innovation saw us named the most innovative banking superannuation and financial services company in the 2020 AFR Most Innovative Companies list. Our financial results this year demonstrate the underlying strengths of our business as well as the impacts of the coronavirus pandemic on our customers and the economy. Across our banking businesses, we've seen strong volume growth, particularly in home lending and deposits. We achieved 25% growth in transaction account balances, our strongest ever transaction volume growth, representing $45 billion in the first half of this calendar year. Our retail bank extended its lead in home lending, supporting customers with over $100 billion in new loans. We also provided $27 billion to business customers with the final quarter for the financial year, seeing the strongest growth in 2 years. The bank's strong capital position means we remain well positioned and well prepared for a range of economic scenarios. As Australia's largest bank, we will play a significant role in Australia's economic recovery over the next few years. We are committed to continuing to work together with federal and state governments, the reserve bank, regulators and the banking industry as we help lift the economy. The federal budget measures to underpin and grow employment should help to provide certainty and confidence for employers and employees so they can plan for the future. We also recognize that some Australians and businesses will continue to require support. Our teams have made more than 300,000 calls to customers with deferred loans to talk with them about their options. Total deferrals are down almost 40% from $67 billion in June to $42 billion in September. But for those customers who are facing financial hardship or need more support, we're offering tailored solutions to their individual needs. 2020 has been a challenging year for Australian households and businesses. In the months and years ahead, Australians will continue to look to us to provide stability, reassurance and confidence at a time when it has never been more important. As the largest bank, our priority is to play a significant leadership role in Australia's recovery, supporting our people, our customers, our community, our shareholders and our country now and into the future. Today, you've seen examples of the Commonwealth Bank's new brand, our first update in almost 30 years. We believe the time is right to refresh our brand to symbolize the work we've done to be better, the work we still have to do and the brighter future we're committed to helping Australia achieve. It also represents our determination to be the bank you want us to be, the bank for all Australians, the bank for businesses and the bank for the country. As always, I want to thank you, our shareholders, the majority of you are long-term investors in our business and, of course, want to continue to see the Commonwealth Bank do well. Thank you for your ongoing support. I'll now pass back to the Chair.

Thank you, Matt. There are 5 items of business on today's agenda: Consideration of the 2020 financial statements and reports; reelection of Rob Whitfield and election of Simon Moutter; adoption of the 2020 remuneration report; grant of securities to our CEO, Mr. Matt Comyn; and a resolution as requisition by members to amend the company's constitution. I will introduce each item of business separately and then invite questions for that item. Following discussion on each item, valid direct and proxy votes received prior to the meeting will be displayed on your screen and read aloud for those attending via telephone. I will then ask the shareholders and proxy holders to vote on the item. The voting exclusions for items 3 and 4 are set out in the notice of meeting. If you wish to leave the meeting early, please ensure you've submitted your votes. Voting on all resolutions can be done in advance online now. Link Market Services will oversee the poll; and Mr. Matthew Lunn of PwC will act as scrutineer. As the results of the poll will not be available before the meeting closes, they will be released to the ASX and made available on our website later today. We will now move to the first item of business, which is the consideration of the financial report, the directors' report and the auditor's report of the company for the financial year ended 30 June 2020. While there is no resolution for this item, shareholders are welcome to ask questions on the reports, on management and the operations of the bank generally as well as on the audit. I now invite shareholders and proxy holders who wish to ask a question on this item to do so either by submitting your question online or by pressing star 1 on your keypad if you're attending via telephone. I will now move to the first question.

Chairman, a number of shareholders have asked questions about the dividend. Here are the first 2. I am unhappy the dividend for the second half was reduced. Why did you have to adopt APRA's guidance when it was just that, guidance? Will the other 50% of the dividend that you withheld be paid once the coronavirus pandemic is over and APRA changes its guidance?

Well, thank you, shareholders, for those questions. I will assure you and always have that we take the interest of shareholders in our dividends very seriously. We understand how important they are to you. Again, as I noted in my remarks, we did pay an interim dividend of $2, fully franked, and that was consistent with the interim dividends of previous years. When we came to the final dividend, we were very well capitalized and able to pay a dividend. But we did have to comply with APRA's guidance, and it was an expectation that we comply to limit our dividend to 50% of our statutory earnings for that second half of the year, and that limited us to the $0.98. In terms of future dividends, of course, we look at dividends every 6 months when we consider our half year and full year results. And at each time, we take into account our capital position at that time and the economic circumstances facing the country. So our next consideration of dividends will be in February with our half year results.

Chairman, this is a comment submitted by the ASA, the Australian Shareholders Association, put by Lewis Gomes, the ASA representative. The ASA wishes to pass on the concerns of many of our members that the notice of meeting was only available by downloading from CBA's website and that voting had to be done online. The ASA understands the special circumstances caused by COVID-19, but as a widely held stock, CBA could be more mindful of the needs of shareholders who are not comfortable with or do not have access to the Internet.

Well, thank you, Mr. Gomes. I think we all agree that it's been very challenging times, no matter what our roles as we've been through the last 6 months. For those of us inside the company, of course, we've had to come to grips with remote working and changes in technology and routines. We've tried to work with our customers. For example, our passbook customers, we've issued over 130,000 debit cards so that our customers who couldn't get to a branch could still bank. And then, of course, for you, our shareholders and the need for us to hold a virtual meeting, we really have tried to provide all of the options that we can in the circumstances to make this experience as seamless as possible. But I think we're all learning as we go through. And any feedback on this meeting, which will help us next time, if there is a next time, would be very well appreciated.

Chairman, another comment from the ASA, again, put by Lewis Gomes. The ASA notes that both CBA and Telstra have arranged to hold their AGMs at identical times. As probably the 2 most widely held companies in Australia, it would have seemed reasonable that the 2 companies coordinate the timing of their AGMs to avoid such a clash. It's noted that both companies use Link Market Services, LMS, to manage their share registries. So this clash should have been obvious to LMS.

Well, thank you, Mr. Gomes. And I do understand your frustration. Of course, we set these dates at least 2 years in advance. But we'll take your comment and hope that we'll do a better job of coordinating next year.

Chairman, this is a question from the Australian Shareholders Association put by Lewis Gomes, their representative. Could the Chairman elaborate on the benefits and expected returns of the Klarna investment, given that the buy now, pay later market appears to now be overpriced and has attracted many entrants?

Well, thank you, Mr. Gomes. As you know, we made our minor investment in Klarna last year before the more recent increase in valuations. The Klarna investment to us is more than just the buy now, pay later. It's more of a strategic nature, so that we can bring additional benefits to our customers, not just on that single product. But perhaps I'll get our CEO, Matt Comyn, to comment on the benefit of the relationship.

Thank you, Chair. And look, just to add to that, that's absolutely the intention is for us to -- and we have entered into a long-term and exclusive partnership with Klarna in both Australia and New Zealand. We see payments as being critical, of course, to our customers as well as for us as a financial institution strategically. And we want to be able to bring increased innovation to this market, and we saw Klarna as an important partner to be able to do so over the long term.

Chairman, there is a question from a shareholder, again, on the dividend. When will the dividend payments return to the levels they were last year?

Well, as I've mentioned, we obviously look at our dividend payments every 6 months. We have a long-term dividend policy of paying between 70% and 80% of cash net profit after tax. And our hope would be that we would continue with that policy. But as I've said, the decision on dividends are made every 6 months in the context of the circumstances at that time.

Chairman, there are additional questions on the dividend from shareholders. Why didn't the directors and executives take a pay cut at the same time that shareholders had to take a cut to their dividend? Why are shareholders the only ones paying for the impact of coronavirus?

I can assure you that we have all been affected by the results of the year. So if you look at the remuneration of executives, and you can see from the CEO scorecard, which is in the annual report that, for example, Matt's potential short-term variable remuneration was immediately reduced by 23% because of the impact of the financial results, and that's predominantly the $1.5 billion provision we had to take, and that impact flowed through to all executives. And of course, you'll see from the report that we are all shareholders, and there is a mandatory shareholding for both executives and for directors. And if you take Matt himself, you'll see that he has over 70,000 shares on which dividends are paid. And you can see the list of shareholdings by directors as well. So I can assure you, we have all felt the consequence of the lower dividend and the lower results.

Chairman, this is the first of a few questions from the Finance Sector Union of Australia. The question is, between 2010 to 2019, CBA entered into thousands of individual arrangements in largely identical terms with persons prior to their employment. The terms were never substantively negotiated. Each time this occurred, CBA contravenes the relevant provisions of the EA. By virtue of this, CBA contravened Section 50 of the Fair Work Act, a civil remedy provision. A court, if satisfied, could require penalties of up to $63,000 for each breach. This occurred thousands of times. Who were the responsible Board members?

So what I can say -- so first of all, let's look at where we are currently, and we're negotiating the enterprise agreement and working with the Financial Sector Union and negotiating in good faith across literally hundreds of elements in that agreement. And hopefully, we'll come to a resolution fairly soon. We absolutely understand the importance of making sure that we comply with regulations at all times. And to the extent that we don't, we work with the relevant regulator and remediate the issue.

Chairman, another question from the Finance Sector Union of Australia. To the previous question about IFAs, when did the Audit Risk and Loss Committee first report this issue to the Board? Can the bank confirm whether the Audit Risk and Loss Committee has calculated the potential liability to the bank arising from the above contraventions? If yes, what was the quantum of the potential liability? And when was the Board informed of this potential liability? If no, why not? And who is responsible for calculating the potential liability?

As I've said, if there are any circumstances where we believe we haven't complied with regulation, we take that very seriously, and we work with the appropriate regulator. Beyond that, I'm not going to comment on individual issues.

Chairman, a question from [ Ella Cofield ]. It's a fact of corporate life that thousands of times a year, CBA, unfortunately, has to take customers, small businesses and farmers to court to repossess their home. The community understands this is legal, even when it is unfair. Why does CBA seek reposition under summary judgment, where the owner is not notified of these court hearings? Why has CBA issued home reposition court proceedings after strenuously refusing mediation and farm debt mediation, in fact, any mediation? Shouldn't banks act fairly?

[ Ms. Cofield ], I can assure you that our intention is to act fairly at all times. And we work with individual customers to the maximum extent possible to resolve their issues in terms of their relationship with us. There are times when more difficult decisions have to be taken. But we do seek, and it's part of our purpose, to look to the maximum financial well-being of our customers and their individual circumstances. And we've certainly taken on board the learnings out of the Royal Commission in terms of working with vulnerable customers and our compliance with the banking code of conduct, which also highlights the importance of working with vulnerable customers. But perhaps I'll ask Matt to comment.

Just echoing what you've already said, Chair. We certainly agree with the sentiment of the question. Of course, fairness is absolutely central to the way we want to deal with our customers at any set of circumstance. As part of that ongoing commitment, we published the model litigant principles onto our website, which are available. They're based on the overall Commonwealth model litigant principles. One of those is to avoid court action, and that's absolutely our intention. We participate wherever we possibly can in any form of mediation process to get a satisfactory outcome. And then lastly, I think it's very important at this particular junction in the economy where we intend to work very closely with our -- all of our customers and keep as many as possible in their homes. We recognize the very difficult financial circumstances that are facing our customers and the broader economy. And we've worked very closely with customers, particularly over the last few months in making sure that we're able to support them through the pandemic.

Chairman, a question from shareholder, [ Henrik Kay ]. In light of the number of unemployed, amongst those age between 55 and 64, has increased by 7.8%, and lack of employment opportunities for people with disabilities, what is the bank going to do to help those in these 2 groups who are the highest cohort group on JobSeeker, get employment with the bank?

Mr. Kay, we've actually, in the last period, over the time of the pandemic, we've actually taken on extra people, including people who have been stood down from other large organizations, in particular, and can bring skills to the bank. So we would estimate that we've taken on an extra 1,000 people over the last 6 months. And many of these people have gone into the groups working with our customers, as Matt said. Because we're working with individual customers on their individual circumstances, we've needed more people to be able to execute that objective of ours to work on a one-on-one basis. So yes, we have been fortunate that we've been able to employ extra people, and that is across all age groups. In terms of disability, we clearly have an objective in terms of exclusivity -- inclusive -- sorry, inclusivity in our employment practices, and that includes disability.

Chairman, this is a question from shareholder, [ K Wengel ]. Last year, Macquarie Bank unveiled plans to invest in 20 gigawatts of renewable energy over the next 5 years. I understand that Commonwealth Bank has another $10 billion of low-carbon investments still to make to 2025 to satisfy our existing commitment. Now that our own commitments to invest in what is clearly a sector that needs to undertake rapid growth are being left for dust by the likes of Macquarie Group, can shareholders expect Commonwealth Bank to up its game?

Well, certainly, [ Mr. Wengel ], we're very focused, as I said in my remarks, in supporting the transition to net zero emissions economy. And yes, we have about the $5 billion investment in renewable lending at the moment, and our target is $15 billion. What I would say is that if you look at our strategy in terms of sustainability, we're now entering our fourth phase, which is to incorporate our sustainability goals into our business model. This might mean a broader set of targets and not just necessarily the single few that we have at the moment. But again, the lending opportunities to the extent that they're there, we will certainly undertake them. I'd note that we've issued in the year about [ $ 9 billion ] of climate bonds. So whereas these may not be directly to renewable energy, they are also linked to sustainability targets, and bonds themselves are accredited under the Climate Bond Initiative. So I think there might be a mix of objectives as we move forward so that we can satisfy our overall intent under our policy.

Chairman, a question from shareholder, [ Lee Norton ]. Page 40 of the annual report, re: grains, livestock, dairy egg; and Page 59 of the 2019 annual report, shows declines in productivity and profitability of 40% to 50% out to 2060 from climate change impacts, including heat stress, lack of water, absent mitigating steps. It says able to estimate how climate change could affect credit risk metrics of existing agricultural customers, but there's no figures. If climate risks modeled have unmitigated losses of productivity and profitability, what's the anticipated change in the default rate of our ag loan book?

Well, thank you. That's a very important question. And as you know, as part of our evolving policy on climate change. We undertook scenario analysis and -- analyses, and one of those was on the agricultural sector. We're using that in a very detailed way with all of our ag customers for them to understand the potential impacts on their business of climate change. And working with them, we would hope that they can actually adapt their practices. And therefore, these significant negative outcomes can be prevented. And there are certainly many different practices, as you know, emerging in the ag sector, which are very suitable for sustainability, notwithstanding the increasing incidence of drought years, which will certainly affect Southern Australia. So in working with our customers with the knowledge that we gained from that scenario analysis, which you referred to in last year's report, we found a very positive way of engaging with our customers, and they appreciate that we're bringing that data to them to inform their practices.

Chairman, another question from shareholder, [ K Wengal ]. And the question is, I note that according to NAB's half year investor presentation, Commonwealth Bank's lending to renewable energy is less than our direct competitors, NAB, Westpac and ANZ. Wouldn't our company do well to set our sights higher than or at least equal to our competitors, if we want to be part of an industry that has a massive job to replace old and polluting power in the next decade?

Well, certainly. As I've said, the -- our response in terms of moving to renewable energy and sustainability and reduced emissions has multiple targets. And in that context, I've mentioned the climate bonds. So it is not just pure lending. And in fact, the nature of our institutional lending business is moving to, in fact, facilitate the distribution of products as much as the lending of products. So that's why I said we'll be looking at our targets as we go through this current year, and we'll update them. But I think the renewable energy sector has no shortage of access to funds.

Chairman, this is a question via phone from shareholder, [ Christine Carlisle ]. The question is, it is a Jeckyll and Hyde situation that we are funding climate change scientists leading the Paris Agreement, but we are also rapidly expanding the global gas industry. Does CBA accept that expansion of the gas industry poses a major threat to achieving the climate goals of the Paris Agreement?

As we've said, and it's part of our policy that we support gas as a transition fuel. I mean, clearly, the hope is that we can eventually move to renewables or power that's generated with net zero emissions. In our lending, and we have our ESG tool, so we look at all of our lending through that lens initially before it goes near a credit group. What we seek to see is that the consequence of that lending will result in a net reduction of emissions. So taking gas as a transition fuel, if gas is replacing coal, then overall, there is a net reduction in emissions. But as I've said, through our initiatives on the renewable side, we would hope to be helping our customers make the overall transition to a net zero emissions economy.

Chairman, this is a question from Market Forces submitted by Edoardo Riario Sforza. The question is, Page 43 of the annual report shows declines in CBA's total committed exposure to coal and gas. However, there were increases in exposure to oil. Page 43, stating that it's due to foreign exchange movements in derivative hedging exposure for a single existing client. Does this mean there was an increase in oil exposure net of those foreign exchange movements? And if so, what increase? Does CBA intend to lower oil exposures moving forward? Does CBA intend to lower oil exposures moving forward as it has done to coal and gas?

Yes. Our intention is to reduce our overall exposures to oil. And as you point out, that increase in exposure was the result of 1 particular individual transaction. But absolutely, our overall intention is to reduce our exposures to oil.

Chairman, this is a question from [ Judy Jap ]. Qantas grounded its planes and are making their operations smaller. The Commonwealth Bank has $92 million impairment loss in the aviation sector. What are the impacts? Will it -- what impacts will it have on bank's other business like home loans, commercial property, business lending and hospitality? Will this mean more restrictive lending?

No. In fact, we are very much open for business and lending, but clearly, all of our credit criteria are still in place. But the fact that we've had to take provisions and impairments on certain parts of our portfolio does not mean that we will restrict overall lending. But perhaps I'll get Matt to comment.

Sure. I mean, as part of your question, I recognize that, of course, some industries have been very severely impacted by the pandemic. Aviation is clearly one of those. As you mentioned, we did record a loan impairment expense for aviation. We also disclosed our concentration or lending to those sectors, including airports. And so as we think about it, we need to think both, in the context of the pandemic, we took a, as the Chair said, a $1.5 billion forward-looking adjustment, which is for future loan losses that are likely to arise from the pandemic. But then similarly, we see a critical part of our role as providing financial stability and facilitating economic growth in Australia. And as part of that, we need to be open for business and supporting our customers. As I mentioned, we lend $100 billion to our personal customers for home lending last financial year. We started the year again strongly. And similarly, in business lending, it was $27 billion. We have, as you would imagine, a lot of focus on individual sectors. We're certainly supporting those sectors very closely, and some of those are long-standing customers, very successful businesses, but which have been adversely impacted over the last 6 months. And so we're taking a cautious and prudent approach. But we also recognize it's absolutely critical that we're there to support our customers for future investment and growth and to recover, and we want to be playing a leadership role in Australia's recovery over the next few years.

Chairman, another question from Market Forces via Edoardo Sforza. An article in The Australian on September 9 says that CBA is believed to have exited its relationship with Whitehaven Coal 5 years ago and not participated in the refinancing deal for Whitehaven in February this year. CBA was also not named as a lender to New Hope Coal in its $900 million deal signed in 2018. Given CBA will exit thermal coal by 2030 and have no exposure to these companies, can you confirm CBA has no intention to fund these companies in future?

What I can confirm, and we don't comment on individual customers, but I can confirm our undertaking to exit thermal coal by 2030. So that's part of our formal ESG policy.

Chairman, a question from shareholder, Jack Bertolus from Market Forces. According to analysis from Market Forces, from 2016 to '19, CBA loaned $1.8 billion to a group of 9 ASX 300 companies whose business plans rely on the failure of the Paris Agreement. Given there's no room to expand the fossil fuel industry in a Paris-aligned decarbonization pathway, how does the bank justify funding companies whose business plans are consistent with the failure of the Paris Agreement?

As I've said, every single lending proposal is subject to application of our ESG policy, which looks across all aspects of the transaction that might relate to sustainability, including carbon and energy. So from -- on an individual basis, we determine whether that lending is consistent with our overall ESG policy. And if it is, and I've said that we look at the net reduction in emissions that, that particular lending might enable, and that's part of enabling our customers to make the transition, then the judgment is exercised that the proposal can go through to evaluation by the credit committee. But we do look at every individual proposal, and it does go through our ESG policy.

Chairman, a question from [ Judy Jap ]. The question is, further to [ Ms. Cofield's ] question about court action and repossession, what more can the bank do to spot vulnerable customers and reduce the bank's risk of nonrepayment of loans, bad debts and reduce the cost of court fees and bad debts?

Well, I think, as Matt has said, particularly at the moment, we're working with individual customers, and there are hundreds of thousands of calls being made to follow up customers who've had loan deferrals or where we can see that there might be some degree of stress. So that's at the moment. More generally, we have, obviously, on the bank side, we have relationship managers on the banking side who work with customers. And on the retail side, we can increasingly use data analytics to understand if we can see signs of stress and then work with individual customers on that basis.

Chairman, this is a question from shareholder, Rita Mazalevskis, and it's a question to the Chair and CEO. Speak Up, what was the outcome of investigations re: Deloitte's involvement on behalf of CBA as I raised at last year's AGM? The annual report shows the Speak Up program, the cases were 284, whistleblower cases were 103. As sought last year, is this a total of 387? Or the 284 minus the 103? You said you would make this clearer for this year. The significant increase in whistleblower cases, what is the main area of complaints of those given this huge increase, irrespective of who lodged the cases?

Well, Ms. Mazalevskis, I hope we have made it clearer. The whistleblower cases are included in the total of the Speak Up cases. There has been an increase in whistleblower cases, partly because we actually have made sure that people understand the policy and how it can be accessed. So we feel that actually, it's a good outcome that more people are using the whistleblower process as part of the whole Speak Up program. I can't go into individual reasons for the whistleblowing notifications, but I can say that the audit committee on behalf of the Board, we look at all of the serious Speak Up cases, including whistleblowing cases every meeting. And certainly, all of the ones that relate to more senior managers and look at the outcome of all cases, including less senior cases that have come through the management misconduct committee. So we are very focused on conduct and misconduct.

Chairman, this is a question via phone from shareholder [ Guy Abraham ]. The Guardian reported in June that recent loans by CBA expand the gas sector. How does CBA assess whether a project is consistent with the Paris Agreement? What are the steps in the assessment process? And who's responsible for each step? If you can't provide this information now, will you do so after the meeting?

Well, Mr. Abraham, I think I've covered that in earlier responses. So we do look at every single proposal for lending. We apply our ESG policy and the lens that goes through the various factors, including compliance with the Paris Agreement. And to the extent that we believe the proposal will result in a net reduction of emissions, then from that perspective, it satisfies our policy and can go forward for assessment by the credit committee. What we're seeking to do is to enable the transition reducing emissions so that we actually get to a net zero emissions by 2050.

Chairman, another phone question from [ Christine Carlisle ]. The question is, you have claimed that funding of gas is a transitional fuel. Surely, this cannot include funding new or expanded gas project or infrastructure. Our climate does not care if the carbon emissions are from coal or gas or other fossil fuels. Can CommBank please state that we will not fund any new or expanded gas projects or infrastructure anywhere in the world? I refer particularly to Santos' Narrabri gas project.

Well, Ms. Carlisle, I think, again, we don't comment on individual customers. But we're -- and we do look very closely at any new gas proposal. But where we believe that proposal will actually substitute for a higher emitting source of energy, then we do believe, as I said, that it satisfies our perspective that gas is a transition fuel. And moving from a higher emitting energy source to a lower one, eventually moves us just a bit closer to coming down to a net zero emissions outcome.

Chairman, I'm just checking if there are any further questions on this item. There are no further questions for this item of business.

Thank you. Thank you, shareholders. So I'll now move to the next item of business. And Item 2 relates to the reelection of Rob Whitfield and the election of Simon Moutter. The Board considers that both directors standing for reelection or election are independent. Rob and Simon will briefly address the meeting regarding their candidacy. So moving to Item 2A, which is for the reelection of Mr. Rob Whitfield AM, who, in accordance with the bank's constitution, retires as a director and offers himself for reelection. Rob has been a director since 4 September 2017, and he's made a significant contribution to the Board since his appointment, including as Chair of the Risk and Compliance Committee since November last year. The Board, with the exception of Rob in relation to his own reelection, recommends the reelection of Mr. Rob Whitfield as a director. I now invite Rob to address the meeting.

Thank you, Chairman. Ladies and gentlemen, my appointment as a Nonexecutive Director to the CBA Board was announced on the 4th of September 2017. I was elected by our shareholders at the 2017 AGM. I'm the current Chair of the Risk and Compliance Committee, a member of the Audit Committee and the Nominations Committee. I am seeking your support for my reelection as a Director of the CBA Board for a further term. I'm a dedicated career banker. I have over 30 years leadership experience across banking, finance and risk in both the private and public sectors. I've been Chairman and a Director of New South Wales Treasury Corporation. I was Treasury Secretary for the New South Wales Government and Secretary for Industrial Relations. I've also been the Deputy Chair of the Australian Financial Markets Association. I spent most of my executive career at Westpac Banking Corporation in various senior leadership roles where I've further developed my deep knowledge of equity and capital markets. I was the Chief Executive Officer of the Institutional Bank; Chief Risk Officer, Group Treasurer and Chairman of the Asia Advisory Board. As Chair of CBA's Risk and Compliance Committee, I have led the committee in its strengthening of the bank's holistic risk focus, including our risk culture road map. We have renewed the group's risk frameworks and the policies and significantly increased our focus on nonfinancial risks. As an experienced Nonexecutive director, my skills, deep understanding of the banking sector and the broader economy, equip me well to continue to contribute to the future success of CBA. I look forward to continuing to serve you as a Director of CBA and as Chair of the Risk and Compliance Committee, should you support my reelection. Thank you.

Thank you, Rob. I now invite shareholders and proxy holders who wish to ask a question on this item to do so either by submitting your question online or by pressing star 1 on your keypad if you're attending via telephone. I will now move to the first question.

Chairman, the first question comes from the Australian Shareholders' Association, submitted by Lewis Gomes of the ASA. And it's part question, part comment. The ASA supports the reelection of Mr. Whitfield on the basis of his considerable relevant experience in banking and finance in both the private and public sectors. However, the ASA notes his relatively low shareholding and would like to hear a commitment from him that he will meet or exceed the required minimum shareholding for nonexecutive directors within the allocated time frame.

Thank you, Mr. Gomes. Well, as you know, we have a mandatory shareholding of 100% of our nonexecutive director fees to be accumulated over 5 years from the date of appointment. And you'll see that Rob is on track to do that. He has more than 50% of his required holding as at the end of June and is a participant in the nonexecutive director share acquisition program, which means that every 6 months, there is a further acquisition of shares on his behalf. So Rob is absolutely on track to meet his requirement.

Chairman, this is a question that has come via the phone from shareholder, [ Peter Star ]. Mr. Whitfield was with Westpac and the debacle that happened there. Should he not resign from CBA?

Thank you, [ Mr. Star ]. I have full confidence in Rob and his performance and his ability to contribute to the bank. Rob left Westpac over 5 years ago. And has confirmed to me that he was unaware of any of the failings raised in AUSTRAC's Statement of Claim. Beyond that, it wouldn't be appropriate for me to comment. But I have confidence in Rob's ability, his contribution and in the assurance that he's given me.

Chairman, I'm just checking if there are no further questions on this item. I can confirm there are no further questions on Item 2A.

Thank you. Shareholders, I now put the resolution to the meeting for you to cast your vote. Displayed on your screen are details of the direct and proxy votes received prior to the meeting for this resolution. For those of you on the phone, the slide confirms that we have received 98.41% of votes for the resolution. I will now move to the next item. Item 2B is for the election of Mr. Simon Moutter, who, in accordance with the bank's constitution, retires as a director and offers himself for election. Simon was appointed to the Board with effect from the 1st of September 2020, and he brings a deep understanding of technology, process effectiveness and business strategy to the Board. The Board, with the exception of Simon in relation to his own election, recommends the election of Mr. Simon Moutter as a Director. Simon is based in New Zealand and is joining us via video conference today. I now invite Simon to address the meeting.

Thank you, Chairman. Ladies and gentlemen, I seek to spend my working days on companies that really matter, companies which make a significant contribution to the economy, our society and the overall success of their customers. Few companies could credibly claim to make a bigger contribution to Australia and New Zealand than Commonwealth Bank does. For that reason, I am very honored to put myself forward for election to the Board. Given your support, I will commit to bringing to the CBA Board table the best of my experience gained as CEO leading the transformation of 2 of New Zealand's largest listed businesses: Spark, a telecommunications company; and Auckland Airport, the success of which was recognized when I was named New Zealand's CEO of the year in 2017. With an engineering and technology background and having served big banks as clients of Spark, I'm confident I can leverage my knowledge and experience to offer CBA valuable perspectives on transformational ways of working, response to market disruption, technology replatforming, process digitization, risk management and operating efficiency improvement. In this somewhat uncertain era of the pandemic, strong leadership from both the Board and management of Commonwealth Bank can make a real difference to the resilience of our business clients and the well-being of our residential customers. I am looking forward to playing my part and making that difference come to life.

Thank you, Simon. I now invite shareholders and proxy holders who wish to ask a question on this item to do so either by submitting your question online or pressing Star 1 on your keypad if you are attending by telephone. I will now move to the first question.

Chairman, this is a question from the Australian Shareholders' Association, submitted by Lewis Gomes, their representative. The ASA supports the election of Simon Moutter on the basis that he brings complementary skills and experience to the Board. The ASA would appreciate hearing from Simon as to what he feels he brings to the Board.

Well, thank you, Mr. Gomes. I hope that Simon's covered that in his address to the meeting. But just to reinforce the point, as you know, CommBank has a very important digitization strategy to really be a truly digital platform, and Simon's knowledge of technology and business processes in a very high-technology environment will be very valuable to us. He also noted his experience in terms of digital disruption. And I think shareholders, as you would know, we're facing a lot of new entrants into the financial services sector. And Simon's experience will be very valuable as we consider our approach to those. I'd also note that Simon, being based in New Zealand, is important for us to get a perspective into the Board on the New Zealand economy. Our New Zealand business is now over 10% of the bank. So it's become a very material part of our business. And Simon, being based in New Zealand, is very helpful from that regard.

Chairman, I confirm there are no further questions at this stage on this item.

Thank you, shareholders. So I now put the resolution to the meeting for you to cast your vote. Displayed on your screen are details of the direct and proxy votes received prior to the meeting for this resolution. For those of you on the phone, the slide confirms we have received 99.29% of votes for the resolution. I will now move to the next item. Item 3 is a resolution for the adoption of the bank's remuneration report for the financial year ended 30 June 2020. The remuneration report is included in the bank's 2020 annual report, which is available under the Related Documents button on your screen for those attending online or on our website. The 2020 financial year has been challenging for the bank with unprecedented economic health and environmental issues. The bank was well positioned as we entered this volatile environment with capable and prudent management, resilient balance sheet settings and strong performance in our core business. It's a key principle of the Board that executive remuneration outcomes must link strongly to performance outcomes. Individual executive remuneration outcomes this year reflect performance against both financial and nonfinancial measures. All individual remuneration outcomes were also subject to a risk and values assessment. Overall, our executive leadership team has led a concentrated effort by our people over the past 2 years and delivered a significant cultural and business transformation of the bank, together with strong underlying performance and market-leading positions. As a result of delivering these outcomes, average short-term variable remuneration for those executives considered key management personnel was 60% of maximum opportunity. This includes downward risk adjustments applied to in-year short-term variable remuneration outcomes for 2 of the 11 executives considered as key management personnel. In relation to the CEO short-term variable remuneration outcome, further to the assessed performance on the scorecard result, the Board determined to apply an additional upward discretion of 10% on the CEO's remuneration outcome to recognize Matt's exemplary personal leadership and contribution at the industry and national level during the early months of the pandemic impact in Australia. The 2017 long-term variable remuneration award reached the end of its 4-year performance period on the 30th of June 2020. The award partially vested at 84.04%, reflecting the outcomes of the relevant performance hurdles underpinning the award. Over the course of the last financial year, we have completed a full review of the executive remuneration framework. Our observation was that the framework has served us well, helping to achieve better risk culture and accountability and applying consequences for risk and reputational matters where appropriate. Despite this, we're committed to evolving the framework to ensure that it remains fit-for-purpose for the future, including taking proactive steps to meet expected regulatory changes. We're, therefore, intending to make changes to the executive remuneration framework for the 2021 financial year. Our objectives are: To ensure that CBA attracts and retains exceptional talent; to support focus and long-term outcomes; to meet anticipated regulatory changes; and to more closely align management incentives with shareholders' experience. The main changes to the framework include: A significant reduction in the maximum total remuneration of 19% for the CEO and members of the senior management team; an overall reduction of the variable remuneration opportunities with the short-term variable remuneration component opportunity being reduced from 150% to 94% of fixed remuneration; and the long-term variable remuneration reduced from 180% of fixed remuneration to 140%. The previous long-term variable remuneration component has been divided into 2 equally weighted components, one of which will become known as long-term alignment remuneration, or LTAR. And the LTAR component will be delivered as restricted share units and subject to a pre-grant performance assessment. The assessment for the CEO's 2021 financial year LTAR award has considered future financial factors and the CEO's past performance in the areas of leadership and strategy execution. For the long-term variable remuneration component, the performance will be assessed entirely on relative total shareholder returns across 2 equally weighted peer groups -- that is the current ASX 20 peer group and a new financial services peer group, rewarding only for superior long-term shareholder value. Further, overall long-term remuneration vesting time lines have been extended from 4 years to up to 7 years, in line with anticipated regulatory changes, thereby better reflecting performance and risk time horizons. And finally, enhanced MELAS and new clawback requirements have been introduced and will be applicable to all variable remuneration. The Board and I strongly believe that the changes will enable the framework to be fit-for-purpose for the years ahead and will support the delivery of better outcomes for all of the group's stakeholders. Detailed information on these changes is provided in the notice of meeting. I now invite shareholders and proxy holders who wish to ask a question on this item to do so either by submitting your question online or by pressing Star 1 on your keypad if you're attending via telephone. I will now move to the first question.

Chairman, this is a comment from the Australian Shareholders' Association, submitted by Lewis Gomes, their representative. The ASA notes the significant leadership and cultural change achieved by the CEO executive team over recent years and particularly during this current year with the effects of severe droughts, bushfires and then COVID-19. The ASA also notes the solid financial performance of the bank and payment of dividends well ahead of its peers. The ASA, therefore, votes in favor of the remuneration report for 2020.

Thank you. Thank you, Mr. Gomes, for that and for acknowledging the very strong operating performance that our leadership team has delivered in this past year.

Chairman, this is another question from a shareholder. Is the Board willing to allow a binding vote on the remuneration report?

We take the vote on the remuneration report extremely seriously, notwithstanding that it's not binding. And you might remember that when we had real concerns with shareholders in the vote in 2016, we took the concerns of shareholders into account. And recognizing that we probably hadn't done as good a job at that time in terms of designing our remuneration framework, we sought to completely redesign the framework for 2017, and we extended deferral times and deferred into equity and reduced long-term variable rem at that time. So we do take the feedback into account and do respond to it. From that experience in 2016, I would say we understood that we have to be very thoughtful about any future changes to our remuneration framework, and we have spent many months, probably 8 months, of Board and management time working through the design principles for the new framework, which is an evolution of the existing one. But the important aspect of it is that it really does align the shareholder experience with the management experience. So having more equity deferred and for longer time frames means that executives, if they perform, they can see the outcome in the share price, and that is equivalent to the experience of shareholders. If they don't perform, the opposite is, of course, true. But I can assure you that any feedback that we receive in the vote for the remuneration report is taken very seriously.

Chairman, this is a question from [ Anke Gosalacop ]. The question is, in EA negotiations with the FSU, CBA are offering staff much lower pay increases than in the last few years citing CPI contraction and slow wage growth. How does the Board reconcile this position with regard to employee remuneration in contrast with the remuneration reports emphasis on improved employee engagement and favorable comparison with CBA's competitors? These are outcomes that the hard work of CBA employees has enabled. Why aren't our contributions worthy of the same 3% increases paid last year?

So as I mentioned earlier, we are still in the process of our negotiations on the enterprise agreement. And that agreement covers not just remuneration, but literally hundreds of other elements. So it's certainly our intention that there would be a remuneration increase for predominantly customer-facing roles because of -- we'd all recognize the extraordinary effort that they have made over the past year and the contribution to the outcomes for the bank. There won't, however, be remuneration, fixed remuneration increases for others in the bank. Other than you will note for the senior executive team, there is to be an increase in fixed remuneration, but that is part of a 19% overall reduction in remuneration and a 12% reduction in the maximum cash possible remuneration for senior executives. So it's -- the increase in fixed remuneration is very much part of that overall reduction.

Chairman, we have received a number of questions on this issue, questions from employees. This one from [ Veronica Cibra ]. CBA's strength, resilience and reputational recovery is enabled primarily by people like me. I work for the Commonwealth Bank, and as a staff member and a shareholder, I support the remuneration report, but I would like to know why the Board does not think I deserve a modest 3% increase in line with what our competitors have paid their employees after what's been a very difficult year?

Well, thank you. And just to recognize, as I said, the extraordinary effort that our customer-facing teams have put in, particularly over the last 6 months. And as I've said, our negotiations with the -- on the enterprise agreement are not yet concluded. So I can't really make any other comments at this time.

Chairman, another question from shareholder, [ Natasha Michelle Lee ]. The question is, I have concerns that the clawback provisions proposed will not come into effect until 2021. This is not acceptable and seems to give executives involved in previous actions a free pass where shareholders have had to shoulder the bulk of the costs in reduced dividends. Why hasn't clawback been backdated?

Thank you. And if I can just clarify there that the formalization of the clawback policy is part of the new remuneration framework, but we did actually have the principle of clawback in our overall remuneration framework, and we have had for a number of years. What we believe is actually more effective is to apply malus, malus adjustments for material issues that might arise. And for that reason, increasing the deferral means that we have a greater number of years over which to apply any malus adjustment should it occur. And again, we have demonstrated that the Board is willing to exercise malus adjustments in the past. And the very public ones were in 2017, 2018 when there were adjustments of over $100 million to employee remuneration. But over and above all of that, the Board has discretion, has compete discretion at any time to adjust remuneration. So regardless of a clawback or a malus policy, which we -- as I say, we formalized in the new remuneration framework, we've nonetheless continue to have complete Board discretion.

Chairman, this is a question from [ Judy Jap ]. With STVR under risk scorecard result, how come there's not a CET ratio included in the annual report 2020, and will it, in future, include that in the annual report? And in the target of the CET, will CommBank go above what is required and by how much?

Well, I think we can see -- if you're referring to the CET1 ratio, that's what your question relates to. You can see that in fact, we've had a very strong performance in this year and ended the year at a CET1 ratio of 11.6%. The capital related to the achievement of results is actually factored in to one of our financial metrics, which is the profit after capital charge metric, which you can see in the CEO scorecard, and that adjusts the total profit for the capital used in achieving that profit. So that's the way we factor it into the KPIs in the STVR.

Chairman, I'm just confirming if there are any further questions on this item at this time. There are no further questions. There are no further questions on this item at this time.

So thank you. Thank you, shareholders. So I now put the resolution to the meeting for you to cast your vote. Displayed on your screen are the details of the direct and proxy votes received prior to the meeting for this resolution. For those of you on the phone, the slide confirms that we have received 78.68% of votes for the resolution and 20.81% of votes against the resolution. I will now move to the next item. Item 4 is a resolution for the grant of securities to the CEO, Matt Comyn. The grant of securities is in respect of the long-term alignment remuneration award and the long-term variable remuneration award to the CEO and reflects the element of the CEO's remuneration that supports a focus on long-term performance and provides long-term shareholder alignment. The grant will be in the form of restricted share units for the long-term alignment remuneration award and performance rights for the long-term variable remuneration award. Shareholder approval is sought to grant a maximum of 23,394 restricted share units to Matt as his 2021 financial year long-term alignment remuneration award at a maximum of 23,394 performance rights as his 2021 financial year long-term variable remuneration award. The value of Matt's long-term alignment remuneration award has been subject to a pre grant assessment by the Board as described earlier, and the Board approved the full grant of restricted share units. As a result, if shareholders approve this item today, Matt will be granted 23,394 restricted share units. Matt will only receive value from this grant after the restriction period. The restricted share units will be granted in 2 tranches, with 50% restricted for 4 years to 30 June 2024 and 50% restricted for 5 years to 30 June 2025. The performance rights will be subject to performance measures over the period 1 July 2020 to 30 June 2024. These measures are described in detail in your notice of meeting. However, in summary, 50% of the award is subject to a relative total shareholder return measure compared with the peer group of the 20 largest companies by market capitalization on the ASX on 1 July 2020, excluding the bank and resources companies, and 50% of the award is subject to a relative total shareholder return measure compared with the financial services peer group. Following the end of the 4-year performance period, the number of performance rights will be adjusted to reflect the outcomes of the performance tests. Any rights remaining on foot after the test will be subject to a further holding period of 2 years to 30 June 2026 for 50% of the remaining performance rights, and 3 years to 30 June 2027 for the other 50% of the remaining performance rights. Vesting of the restricted share units and performance rights following the end of the restriction periods and holding periods will be subject to malus consideration of whether there were any serious and material matters and may be reduced by the Board as a result, including to nil, prior to vesting or vested subject to clawback. This ensures that the outcomes appropriately consider risk accountabilities and reputation outcomes. Restricted share units and performance rights do not carry any voting rights. As part of the approach to alignment with the shareholder experience, Matt will receive dividend equivalent payments in respect of restricted share units. And in respect of performance rights, dividend equivalent payments will only be made on the rights that ultimately vest and then only in relation to the holding period. Full details are set out in the Notice of Meeting. [Operator Instructions] I will now move to the first question.

Chairman, this is a comment from the ASA, Australian Shareholders' Association, submitted by Lewis Gomes, their representative. While the ASA prefers that all long-term incentive award be subject to measurable financial hurdles, it acknowledges the significant changes proposed for the FY '21 remuneration framework with reduced maximum opportunities and longer vesting and holding periods. The ASA, therefore, votes in favor of Resolution 4.

Ms. Gomes, thank you very much for your comment. As I said, one of the aspects in terms of the design of this framework is that it will comply with what we anticipate to be APRA's new regulations in relation to remuneration. And that's called CPS 511. And in the draft, CPS 511, it was clear that APRA favored 50% financial and 50% nonfinancial mix for measures in relation to variable remuneration. And that's been part of our design criteria to make sure that we can meet that if that is the ultimate outcome in the final CPS 511. And that's why with the long-term alignment rights, we have put in place a pre-grant assessment, and that assessment responds to nonfinancial factors, which are the leadership and the strategy aspects of performance over time. So we do a look back over a number of years, because they are the 2 elements that actually are required to execute our strategy over the long term, and that's what we look to in terms of the capability of individuals. So we think that those nonfinancial indicators of capability on the part of executives actually translates ultimately into longer-term positive financial outcomes for shareholders.

Chairman, a question from a shareholder. CBA staff worked hard for their pay and get offered 1.5% pay increase. Surely, the staff deserve more. Consider decreasing the CEO's share grant to be in line with what general staff get, $1,000 share grant if profit increases and only off a 1.5% increase in his remuneration.

Thank you. Well, in fact, the CEO's potential remuneration has actually been reduced by 19% as part of this overall framework. So I think it's a very significant change, and management accepts that change in the context of the revised framework. There is a greater degree of line of sight in the framework to long-term outcomes. But the trade-off for that better line of sight has been that overall reduction in remuneration, in maximum potential remuneration.

Chairman, this is a question from shareholder, [ Justin Kuhl ]. The question is, the bank's current negotiating position with the FSU on the enterprise agreement is that it is unable to award staff a pay rise, where they earn more than $110,000 a year. Why is this logic not being extended to all staff, including executives and the CEO who are remunerated above this threshold?

Well, as I've just said, in fact, the senior executives and the CEO are now going to have a reduction in their total potential remuneration of 19%. And I think we've shown as a Board that we are committed to restraint in Executive remuneration. I would note that Matt is the second lowest paid of the bank's CEO peers. And when he was appointed, he was appointed at a significant 17% lower fixed remuneration than his predecessor. So we have shown restraint at the senior executive level.

Chairman, a question from shareholder, [ Cameron Patton ]. Having the CEO take a 14% pay rise on his $4 million plus salary while only offering the rest of employees 1.5% is unconscionable. As an employee, this makes me feel worthless. Why did the Board direct the unnecessary 14% and pay rises through for execs and why not to staff who've worked very hard tirelessly, endlessly through COVID-19 on their training budgets, fair pay increases and bonuses, staff who are nowhere near $4 million plus per year?

So first of all, I again would recognize the -- really the incredible contribution that our staff have played this year and particularly those customer-facing staff who have worked tirelessly to make sure that we can have the best possible outcomes for our customers. But I'd reiterate again, if you look at the overall outcome for senior executives, it is, in fact, a 19% reduction in the maximum potential remuneration, and included in that is a 12% reduction in the maximum cash remuneration. And that remuneration is deferred for up to 7 years. So every year, part of that remuneration is deferred, so in year 2, 3, 4, 5, 6 and 7. And that remuneration is subject to malus review at any time and clawback if that is necessary. So just to reinforce the point that the overall outcome for the CEO and senior executives is a 19% reduction in potential remuneration.

Chairman, I can confirm there are no more questions on this resolution.

Thank you, shareholders. So I now put the resolution to the meeting for you to cast your vote. Displayed on your screen are details of the direct and proxy votes received prior to the meeting for this resolution. For those of you on the phone, the slide confirms that we have received 78.54% of votes for the resolution.

So I will now move to the final item of business, which is a resolution requisition by 100 members to amend the company's constitution. This resolution was proposed by notice to the company under the Corporations Act in 2019, but after the deadline for submission of shareholder requisition dilutions had passed. So while the Board respects the rights of shareholders to submit resolutions to the AGM, we do not consider the resolution submitted to the meeting to be in the best interest of the bank. CBA is a strong supporter of the Australian Business Growth Fund and believes it can make a difference to the businesses it invest in. The fund can provide unique and incremental capital for small and medium enterprises, who might otherwise experience challenges accessing growth capital. On 27th November 2019, the bank announced an initial commitment of $100 million to the fund. For those reasons, as outlined in the Notice of Meeting, the Board recommends that shareholders vote against the resolution. [Operator Instructions] I will now move to the first question.

Chairman, the first question comes from shareholder, [ Ben Bucknell ]. The question is, does the BGF shareholders agreement or investment mandate contain any material provisions, which have not been disclosed to shareholders? If yes, please explain how shareholders can cast an informed vote without seeing it. If no, will the Board undertake to lodge the BGF shareholders agreement and investment mandate with the ASX when signed? If not, how does CBA reconcile this with its continuous disclosure obligations in light of it being sufficiently material to shareholders to be the subject of a shareholders' resolution?

Thank you, Mr. [ Bucknell ]. I think as you know, the final arrangements for the Business Growth Fund have not yet been announced by the government. And when there has been, I'm sure they will be public and available for shareholders to see as well.

Chairman, I've received a second question from shareholder, [ Ben Bucknell ], but we have received multiple questions on this. With the APRA concession allowing CBA to gear its investment to 75%, what return must BGF earn on its investments for CBA to meet CBA shareholders' current return on equity? Will the BGF pass its lower cost of capital from the APRA treatment to SMEs in the form of paying higher prices to buy shares in SMEs? Or will BGF retain benefits from its lower WACC to extract higher profits? The Australian government said it expects the BGF to replicate the GBP 2.5 billion U.K. BGF. What size does CBA expect the Australian BGF to grow?

Thank you, again, Mr. [ Bucknell ]. As you know, we've committed $100 million. That's a limit of our commitment at this stage. And the final arrangements and investment mandate for the BGF are yet to be announced. I would also note that in terms of the $100 million investment that the bank has made, this is in the context of our philosophy that government programs, and as you said, there have been successful programs in Canada and the U.K., those programs that can help our small business sector just at the moment, in particular, are very valuable. And we are happy to contribute to that government initiative, and as I say, particularly at this time.

Chairman, just checking if there are any further questions on this resolution. I can confirm there are no further questions on this resolution.

Thank you, shareholders. So I now put the resolution to the meeting for you to cast your vote. Displayed on your screen are details of the direct and proxy votes received prior to the meeting for this resolution. This resolution, as we've said, is not supported or endorsed by the Board. This resolution requires a special resolution to be passed, that is it must be passed by at least 75% of the votes cast by shareholders entitled to vote on the resolution. For those of you on the phone, the slide confirms that we have received 98.66% of votes against the resolution. I think this concludes the final item of business on today's agenda. Helen, are there any additional questions that we've received during the course of the meeting for any items of business that we can address now?

Chairman, we are just checking that there are no further questions. There is -- there are a couple of further questions, Chairman. The Finance Sector Union of Australia has asked, the rem of CBA employees is required by Clause 10 of the CBA EA to be compared yearly to that which they have received under the award. If these yearly reconciliations find course, a top-up payment is required. CBA failed to conduct these reviews on a number of occasions with the result that employees were paid below their minimum employment. What years did the bank conduct these reviews? What years did the bank fail to conduct these reviews?

I think I've indicated in my earlier responses that to the extent that we find, we haven't complied with any regulation, we do a detailed investigation and work with the appropriate regulator. And in this case, to the extent that there were any issues, we are working with the Ombudsman, and we've also kept the FSU fully informed as we progressed on that work.

Chairman, there is a follow-up question from the Finance Sector Union of Australia. The question is regarding the question about Clause 10, who were the responsible Board members? When did the Audit, Risk and Loss committee first report this issue to the Board? Can CBA confirm whether the Audit, Risk and Loss Committee has calculated the potential liability to the bank arising from the above contraventions? If yes, what was the quantum of the potential liability, and when was the Board informed of this liability? If no, why not? And who's responsible for calculating the potential liability?

I think the substance of that question has already been submitted to the meeting and I have responded.

Chairman, there is another question from [ Rita Mazelesky ] on Resolution 4. Why should the CEO, Matt Comyn, be awarded anything when as the CEO of the bank and under CBA's risk priorities under financial crime, CBA states in not detecting or preventing financial crimes can have a significant impact on our customers and the community and can result in the material fines and penalties for the bank? CBA has not provided a particular person farm debt mediation to address the financial crimes throughout his CBA loan documents.

So in relation to our financial crime compliance, I think, as you know, there was material consequence for all of our senior executives 2 and 3 years ago. And since that time, we put in place extensive programs under what we call a program of action to significantly improve our financial crime compliance. And we've worked on all of that detail with AUSTRAC. And AUSTRAC has, in fact, acknowledged publicly that we have made significant progress and that we do have a constructive working relationship with the regulator and to the extent that we've put in place new processes that is pervasive across all aspects of our business.

Chairman, there is another question from shareholder, [ Mohamad Kazim ]. The question is a toxic organizational culture was identified as the principal cause for CBA's dysfunction. What measures have been taken to address the problem? What progress has been made, and how is the bank measuring that progress?

Well, I think the main public evidence of the progress that's been made is through our remedial action plan. And one of the major themes -- there are 9 themes in that plan. One of the major ones is -- it relates to culture. And when we talk about culture, we talk about at the risk culture level, at the organizational level and then at the strategic level. And on the risk culture level, we look at what we call enablers, and that relates to policies and procedures and our IT systems. And we also look at behaviors such as leadership, such as doing the right thing, such as being accountable. And once a year, at the Board, we stand back away from the detail that we work at every meeting on risk culture, and we stand back with management, and we make an assessment on all of those elements, and there are 10 of them, as to the progress that we've made. And we're pretty rigorous in terms of self-assessment on that. And our particular focus at the moment is on our IT systems and also on our policy frameworks to keep making them more robust. But I would come back to the Promontory report, so they're the independent reviewer as at the end of June and the fact that they felt that we had made very significant progress in terms of our overall culture, and governance and risk management frameworks and that we were unrecognizable from the organization that they came in 2 years ago. So I think I'd urge you to read that Promontory report because that -- we make that public, so you can access it on our website, and that provides the best evidence of the progress that we've made in quite a lot of detail.

Chairman, a further question from shareholder, [ Rita Mazelesky ] regarding CBA regulatory and compliance update. The 2018 APRA Prudential Inquiry, CBA states, "We have made significant progress." How much is significant progress? In the Remedial Action Plan, CBA states, "Submitted more than 3/4 of the milestones." How much is 3/4 of the milestones? And in the financial services Royal Commission, CBA states, and I quote, "We are also well advanced on implementing the recommendations." How many are well advanced?

Thank you, Ms. [ Mazelesky ]. So coming back to the Remedial Action Plan. I mean if you go in numbers, there are 176 milestones, and we're over 140 submitted. But standing back from that, the plan is divided into 3 main phases. One is the design phase, then there's an implement phase and then an embedding phase for all -- each of the 176 milestones. So we have fully completed the design phase on all milestones, virtually fully completed the implement stage on all milestones. And therefore, we're now in the process of making sure that the work that has been done and the improvements that have been implemented have now been sustainably embedded in our business processes. So the work has been done. We've just got to make sure that it stays and is sustainable, and we can rely on that consistency and repeatability of processes going forward. So it's a very significant level of progress. And in terms of the Royal Commission recommendations, there are some that don't apply to us. Approximately 1/3 -- approximately 1/3 that really require government legislation and 1/3, which is just over [ 20 ], which really require implementation by us. And we're well progressed on all of those. Some, of course, are actually pending the government legislation to come through, and that has been delayed to some extent as a result of the pandemic, but we would expect that to come through next year.

Chairman, we're just checking if there are any further questions.

Well, thank you, shareholders. I think that concludes the discussion on all items of business for the 2020 Annual General Meeting. The poll will close 10 minutes after the close of the meeting. If you are yet to cast your vote, please do so now. If you're experiencing technical difficulties, please contact the share registry by calling 1-300-554-474. I'll repeat that number, 1-300-554-474. Shareholders who joined today's meeting via telephone will now receive instructions from the call moderator on how to vote. As mentioned earlier, the results of the poll will be released to the ASX and our website later today. Thank you all very much for attending and participating in our first virtual AGM and for your continued support of the Commonwealth Bank of Australia. I encourage you to provide us with your feedback on your experience today by contacting us via the Investor Center or our website. Thank you, again, ladies and gentlemen for attending, and I now declare the meeting closed.