Westpac Banking Corporation (WBC) Earnings Call Transcript & Summary

Good afternoon, and welcome to Westpac's 2021 ESG Update in lockdown. My name is Andrew Bowden. I'm Head of Investor Relations. We have 4 presenters today: our CEO, Peter King; Carolyn McCann, Group Executive Customer and Corporate Relations; Siobhan Toohill, Group Head of Sustainability; and Anthony Miller, Chief Executive, Westpac Institutional Bank. We will then open it up for questions. So let me hand over to Peter.

Well, thanks, Andrew, and welcome, everyone. And let me start by acknowledging the traditional owners of the land we are on, the Gadigal people of the Eora Nation, and pay my respects to elders past, present and emerging. The effective management of Environmental, Social and Governance matters is critical to the long-term value of Westpac. And having worked here for over 25 years, I can say that ESG has always been part of this company's culture. We continue to make progress. However, society's expectations are changing fast. In fact, today, it's a much bigger focus for all stakeholders but particularly customers, employees and investors. And we are stepping up, too. Today, we'll focus on some of the key areas of interest, and we'll bring them to life with case studies. We'll also have a panel to take your questions, as Andrew said. In terms of the agenda, I'll start with the discussion on governance, focusing on how we're strengthening risk management and risk culture. Carolyn McCann is covering our work to better protect and support vulnerable customers, while Siobhan Toohill will cover our human rights and modern slavery approach. Finally, Anthony Miller will speak to our climate change plans and the opportunity for the institutional bank. Since we first signed up to the Equator Principles in 2003, climate change has been a focus but the urgency is increasing, and we're working hard to enhance our approach and understanding. Last month, the Board supported renewed plans to lift our capability and firm up targets and timing to reach net zero. We have further work to do before locking down additional targets, particularly in understanding the carbon intensity of our lending book, but we're well underway. We're already committed to exiting thermal coal by 2030 while also lifting investment in climate change solutions and our net-zero plans will complement these targets. Last year, we refreshed our strategy, launched a new purpose and agreed our strategic priorities are fixed, simplified and perform, and we'll report our progress against our priorities of full year in just over a month. What we do focus on all aspects of ESG, we have made one important change to our company priorities, elevating climate change to a CEO priority. And this sends an important message to our stakeholders but particularly to our employees. It's just a few words, but it recognizes our focus on net zero. Now let's turn to governance. At its core, governance is the system by which we operate, make decisions and hold people to account. At Westpac, we think about governance as the relationship between our Board and management and the policies and frameworks throughout the company and includes the systems by which we operate, make decisions, reward performance and apply consequences. Following our issues of recent years, we've made significant changes to strengthen governance foundations, and much of this work is under the fixed priority as we lift our management of risk and improve risk culture. And as with any change, we started at the top. Over the last 18 months, there's been significant change in management and Board with almost 3 quarters new to role. We also adjusted committee structures to improve the oversight of governance and risk matters, and these are highlighted in green on the slide. In particular, the legal, regulatory and compliance committee was created, and this committee focuses on compliance, litigation, conduct, customer remediation and financial crime matters, all areas where improvement is needed. The charters of the Risk and Nominations Committee were also expanded to better capture all risk classes, putting more focus on best practice governance. And with the committees doing a lot of the heavy lifting to close the loop at each Board meeting, our committees report back to the full Board on important matters. And the changes to the Board were also accompanied by a significant shift in how we operate. A critical step has been simplifying where we operate and what we do, exiting wealth and insurance, and focusing on banking in Australia and New Zealand. This is making us a simpler and more focused organization and, therefore, lower risk. We also restructured our operating model around lines of business, and this model improves end-to-end clarity and accountability of our businesses. Mortgages have been our main case study with Anthony Hughes, the Managing Director of that line of business. He's accountable for the end-to-end mortgage process, including origination, risk, pricing and service. With improved oversight of the mortgage process and clear authority, his decisions have been a major contributor to getting mortgages back on track. We're also working hard to strengthen our management of risk, and this is being coordinated through our Customer Outcomes and Risk Excellence program, internally known as CORE. While we have made good progress on lifting standards, there are some matters we still need to address, and this includes acknowledging our errors and working with regulators to resolve a number of investigations and close them as quickly as possible. CORE is an integrated plan for lifting our management of risk and risk culture. The plan was set up in 2020 but expanded in 2021 to address the enforceable undertaking with APRA. It has 19 work streams with 80 deliverables and 327 activities. It is a sizable piece of work that will occupy much of our fixed agenda for the next 2 years, after which it will wind down. The work streams include risk culture and organizational design and our risk management framework. To give a sense of the progress, this chart maps the 200-plus activities currently underway. Each activity is classified as either a design, implement or embed activity within this program of work. In the chart, you can see the design activities will be largely completed by the end of this year, creating a strong foundation for the program. We're now increasingly focused on implementation, and we'll shift to embed throughout the middle of next year. It is at that stage that we'll begin to see value as the program delivers outcomes and becomes more about how we do business. The CORE program's outcomes have been summarized on this slide into 5 categories: firstly, a strong culture, where accountability is clear; secondly, end-to-end risk management for better customer outcomes; thirdly, the 3 lines of defense model, where everyone has to understand their role in identifying and managing risk; fourthly, better data quality linked to better insights; and finally, stronger risk oversight and better execution. Some of the changes in the first bucket include implementing statements of accountability for 600 of our general managers and their direct reports. And these statements are owned by senior leaders and improve role clarity and accountability, which in turn lead to faster decision-making. We've introduced training programs to lift risk awareness and target areas requiring improvement, and almost all employees have participated in at least 1 program, while senior leaders have completed multi-day workshops. Ultimately, the change needs to drive a future focus, employees acting with authority and less issues for customers. And culture changes at the heart of the program. A key finding from the 2020 culture, governance and accountability report was that the group's risk culture was immature and reactive. And so as part of our CORE program, we're focused on shifting risk culture, and this started with a group-wide survey, which mapped the group's culture and then identified the target state. This slide outlines the changes we are seeking in our culture. In essence, removing bureaucracy, providing clarity and accountability, and making it safe to speak up. We have a range of initiatives in training to support this with progress measured through surveys. And while it is still early, we are making progress, and there's been good improvement across our senior ranks, and this is beginning to cascade through the organization. It will take time, but we are heading in the right direction. And one of the more significant changes over the last 18 months was the rebuild of our financial crime area. I started by increasing executive focus through promoting Les Vance to the executive team with specific responsibility for financial crime. We've also boosted capability and resourcing and now have over 1,300 specialists in this area. While there's more work to do, we have materially reduced financial crime risk across the company. I'm particularly pleased that we have closed all the matters referenced in AUSTRAC's statement of claim, including fixing reporting and updating our transaction monitoring processes. This is being accompanied by technology upgrades, uplifting of controls and transaction monitoring, and increasing everyone in the company's understanding of financial crime risk. As with the CORE program, the end goal is to embed financial crime risk management into everything we do. And for those that have followed Westpac over the years, you would be aware of our gender equality progress. We've been a leader in setting policies for women in the workplace. In 1995, we were the first listed company to provide paid parental leave, and in 2008, we set a gender equality target of 50% across management ranks. We've been consistently around that target in recent years, and to maintain gender equality, we have recently launched a new program called Accelerating Women and Equality at Westpac. This initiative has 3 areas of focus. First is the representation of women, and this is our commitment to ensure all voices in the company are equally heard. It's about equal representation across areas such as committees, panels and mentoring. The second is gender pay equality. Now at Westpac, the difference between aggregate male and female pay is relatively small across the company, but that's not always the case in particular functions, and so we're going to fix that. Where there's a pay gap of more than 5% for the same job, it will be eliminated. And finally, we're updating policies and processes to ensure there are no barriers to gender aspirations. We have recently increased paid parental leave for carers and provided further paid leave for pregnancy loss. On gender equality, we're reaffirming our target to maintain 50% women in leadership roles. Today, we're also announcing that we've signed up to the investor-led 40:40 Vision initiative, pledging to achieve gender balance on the executive team. For the ET, we aim to reach this balance by 2027 as we continue to build the pipeline of capable women. On the Board, we are closing in on 40:40, with Audette Exel joining the Board this month and Craig Dunn retiring after our AGM. As a result, we expect to begin 2020 with 36% women on the Board. With that, let me hand over to Carolyn.

Thanks, Pete. Westpac has always had a really significant social agenda, from our employee policies through to our foundations, which support social ventures and students. We're an early signatory to the UN Global Compact in 2002, and we released our first human rights position statement in 2015. In fact, we're now on to our third action plan. Today, I wanted to concentrate on just a few topics: the next steps in improving cultural diversity and our approach to supporting vulnerable customers. We'll also look at the work we've done to put it right where we've got it wrong on the human rights notion of remedy with our work on safer children, safer communities. Pete spoke about gender diversity. So I'll start with cultural diversity and indigenous parity. With 40,000 people, our footprint is like a small city, and our staff are a microcosm of the broader Australian community. With a customer base of around half the Australian population, it's really important that we attract and retain a diverse workforce. On cultural diversity, 33% of our people identify as having a culturally diverse background. So this does reflect the customers and communities we serve. However, in senior leadership roles, this group is underrepresented at around 9%. So we've got some work to do here. As a result, we've developed a leadership shadowing program. This helps individuals understand what is required of them as a leader, and it gives them increased visibility in our leadership ranks. All our group executives participate in the program. And we have employee action groups to give a voice to diversity. These groups represent youth, culture, women, people with a disability, indigenous people, LGBTIQ+, mature age people, and they're led by our people. It gives like-minded individuals a chance to come together and raise their interests or concerns more broadly across the group. We've also focused on increasing the representation of First Nations people across the company. Over many years, we've been pretty good in hiring with a number of new indigenous employees, broadly in line with the mix of the overall population, but we're still behind on our total employee population. Part of this we'll plan to address in our new RAP to out in early 2022. We're refreshing our training and providing better pathways for indigenous staff. We've also established the indigenous connections team, a specialist call center that helps customers with everyday banking needs and access to translation services, including the many indigenous languages. Recognizing the challenges for indigenous customers in remote locations, this team has come up with some bespoke solutions as well. For example, an identification process for customers without traditional forms of ID; a remote account opening process, where it's difficult to attend a branch; and the ability to get balances over the phone rather than use nonbranded ATMs. These things might seem small, but understanding our customers' context is pretty critical. One of our human rights commitments is to deliver an extra level of care for customers experiencing vulnerability. We first started working in this space in 2016. But the case studies in the Royal Commission really caused us to reflect. We needed to go faster and deeper to understand customer complaints, particularly where somebody could have a vulnerability. So in 2018, we completely revamped our customer complaint process. The first thing we did was to centralize our complaints teams. This combined more than 13 different groups across the business who are working off 9 different systems. At the time, we had more than 1,000 long-dated complaints, some of which hadn't been sold for up to 2 years. And on average, it was taking us 15 days to solve complaints. We immediately made change. We standardized policies across the group and developed a culture of really spotting it, logging it and owning it when it comes to complaints. We made the complaint handlers the decision-makers. Previously, they had to defer to the business for approval. We gave them the authority to rectify complaints in the moment. And we created a complaint screening process to help prioritize customers who may be vulnerable early in the process. And we do that by looking at a range of factors, including whether there's been a death in the family or, for example, with English as a second language. And we launched 1 complaint system. It helps us to better capture and resolve complaints in the moment. And we're seeing results. After starting with 1,000 long-dated complaints, we now solve all standard complaints in 30 days, and it takes us on average 5 days. We have 1 system, which provides automated decisioning for complaint scenarios and online support for questions for our complaint handlers and frontline staff. And as a result, complaints resolved at the first point of resolution have increased from 65% to 86% in just 12 months. That's a much better customer experience. Our people are happier when they can solve things in the moment and it's lower cost. We have really clear metrics on speed, ease, satisfaction and quality, and we track these weekly and share them with the Board monthly. In 2019, we enhanced our support for customers experiencing vulnerability. We now have an extra care flag to help our people identify and record customer needs if they have the customers' consent. We have a specialist team that helps with short-term situations like divorce or losing a loved one or with longer-term situations like domestic and family violence, elder abuse and, more recently, in particular, during COVID, scams, which we've seen a lot of. So far, in 2021, these teams have helped nearly 37,000 customers, tailoring the response to the individual customer need from establishing a silent banking account, separating joint debt or providing emergency support. And more than 2,200 customers have been flagged by our frontline teams as requiring extra care in our system. Given COVID, we've also been looking really closely at our hardship process. This year, we were the first bank to launch a savings buffer of $100 a month as part of our hardship process. That change means that customers in financial difficulty can make smaller repayments to their mortgage and leave some money left over to pay for emergency expenses. Our savings buffer was supported by Financial Counseling Australia, and it's becoming an industry standard now because it's been added to the Australian Banking Association's guidelines. Two things we're really proud of in this space is the work we've done to stop abusive transactions and to address problem gambling. Abusive transactions have been largely a hidden problem that emerged as customers were given the ability to attach comments to their payments. You'll probably be surprised that some customers send threatening or abusive messages to customers with their payments, and their payments can be as little as $0.01. A bank account is no place for abuse. So we have now given our customers the ability to report abusive messages via online and mobile banking. We're screening and blocking inappropriate language from outgoing payments. Up to the 12th of September this year, we've made around 24,000 real-time blocks, requiring a change of language from around 19,000 customers. We've sent warning letters or suspended banking for more than 800 customers and reported more than 70 to the authorities. We're clear. We'll block you from sending inappropriate messages, and we'll block or close your account if you use payments to threaten, harass or intimidate. On problem gambling, we were the first bank to introduce a voluntary block on credit cards that customers could ring our contact center to have applied. This year, we took that one step further. We've made that self-service, a real-time block available online or on your mobile banking app for both credit and debit cards. Since then we've had more than 120,000 hits to the web page, and we blocked 30,000 accounts. These blocks have prevented more than $16 million from being spent on gambling across more than 160,000 transactions since May 2018. And last month, members of Responsible Wagering Australia agreed to stop accepting credit cards for online gambling. That's a really significant achievement that will benefit some of the most vulnerable people in our community. Finally, an important area linked to human rights is the concept of remedy. I'm going to hand over to our Group Head of Sustainability, Siobhan Toohill, to share more on our response here.

Thanks, Carolyn. Our human rights approach has been guided by the UN guiding principles on business and human rights and understanding its most salient themes. One of the more pressing human rights issues is modern slavery. We have an obligation to both report the risks and use our scale to help address the problem. We have a role to address this problem through supply chains, and we are doing this through prioritizing areas of risks. For Westpac, that's primarily in the areas of labor hire, IT hardware and business process outsourcing. While we have previously released 4 statements under the U.K. Modern Slavery Act, the new Australian requirements required a shift up in our reporting, and we launched our first Australian report earlier this year. Over the past 2 years, we've taken a number of steps. We've improved our supplier screening processes, including refreshing our responsible sourcing assessment tool. And we're introducing third-party validation of industry risk profiles to capture supply chain risks more accurately. We've increased our sourcing and procurement training to better identify when one [ slaving ] may exist in our supply chain. And in lending, we've substantially refreshed our ESG credit risk policy, including a specific focus on modern slavery risk. A case study of the devastating impact we could have on human rights was our AUSTRAC issue. Our Lite-Pay product was developed to facilitate low-cost payments to specific countries. Our intent was right, but the channel was exploited and our filters weren't strong enough to detect it. Given the nature of the issue, it was not only important to fix the problem but also contribute to a remedy. So we initiated and I have personally led and am accountable for delivering the Safer Children, Safer Communities work program, which aims to protect children. We approach this program through the lens of human rights and the principle of remedy and not as a one-off act. Our focus has been to partner to drive long-term impact. We invited a range of experts in human rights, child safety, online safety and law enforcement to guide our response and work with us to raise awareness of online sexual exploitation of children and to protect children most at risk in Australia and in certain APAC countries. In 2019, we committed $24 million to Save the Children Australia and International Justice Mission to support their teams working in the Philippines. In addition, over the past 2 years, $18 million has been committed to more than 50 grassroots child safeguarding organizations. Guided by our codesigned program, our partners have used the funding to deliver real impact. This includes supporting Save the Children to train over 3,000 children and parents in the Philippines on issues relating to online exploitation, more than 2,500 students in public schools in Davao City participating in campaigns relating to online safety and policy discussions, which have been initiated with 8 government agencies. By the end of this year, emergency grants will have been given to 200 families. This also includes our support for International Justice Mission, which over the past year has enabled them to rescue over 100 children at risk, train more than 400 law enforcement officers and create a support center for survivors. And as part of our program, we've supported a 3-year impact campaign in association with The Children in the Pictures documentary, which aims to increase public awareness and to educate parents and caregivers to protect their children. While we may never know the individuals impacted by our serious compliance fail, we do know the work our partners are doing is delivering significant impact in the rescue of children, contributing to the training of law enforcement in the Philippines and increasing the capacity of child safeguarding organizations in Australia. I'll hand over to Anthony to talk more about environment.

Thank you, Siobhan. I'm delighted to be sharing with you our approach on the environment. At Westpac, we recognize that climate change is one of the most significant issues that will impact the global and domestic economies and our way of life. Westpac has committed to managing its business in line with the Paris Agreement and the need to transition to a net zero emissions economy by 2050. We were the first Australian bank to release our climate change position statement in 2008, and we were the first Australian bank to commit to the goals of Paris in 2015. The key priority is to continue to embed the management of climate risks and how we measure and manage our business, risk management and business strategy with regular reporting to the Board. Westpac's commitment to the challenge and opportunity presented by the need to address climate change is captured in our climate change position statement where we outline the following key principles. Our transition to net zero emissions economy is required by 2050. Economic growth and emission reductions are complementary goals. Addressing climate change creates opportunities. Climate-related risk is a financial risk. Collective action, transparency and disclosure do matter. So when talking about our action on climate change and the need to transition, it's important to address 2 key questions: what are our commitments and what have we achieved? We're taking concrete actions across 3 broad areas. While this is a busy slide, let me highlight some key examples. 75% of our lending to the electricity generation sector is to renewables. We have grown our lending to climate change solutions to $10 billion of total committed exposure. We have designed, delivered and led the structuring of innovative, sustainable finance products, including sustainability-linked loans and bonds and the world's first certified wholesale green tailored deposit. We have reduced our Scope 1, Scope 2 emissions by 50% and Scope 3 supply chain emissions by 15% since FY '16. We've also committed to sourcing 100% of our global electricity consumption from renewables by 2025. We have added specialist resources to our institutional and business banking ESG teams and are combining that with uplifting the capability of all our bankers through training. We are rolling out ESG foundational training across the bank next month and more advanced training for our client-facing and credit risk teams in partnership with Monash University. This will build deeper knowledge, expertise and technical capability for all of our frontline staff, allowing us to assist clients to manage the risks and realize the opportunities from climate change. As you can see from this next slide, the transition to net zero. Our portfolio has and will continue to evolve as the economy and our clients transition to net zero. We have increased lending to climate change solutions. In the critical electricity generation sector, we have increased lending to renewables while reducing non-renewables lending. Similarly, our mining exposure has both declined and changed in its mix. Westpac's total community exposure to mining was around 0.75% of TCE as at 31 March 2021 or approximately $8 billion. Our coal mining exposure was around 0.05% of TCE or just under $500 million. Looking forward, we plan to continue to grow lending to climate change solutions by 2030. We are committed to ensuring that our financing of the electricity sector aligns with Paris-aligned targets of 0.23 tonnes of carbon per megawatt hour by 2025 and 0.18 tonnes of carbon per megawatt hour by 2030. On this slide, we look at how we will ensure our lending portfolio is aligned with Paris. In partnership with our clients, we are working to identify key criteria and strategies needed to transition to a net zero economy. We have prioritized for now our most emissions-intensive sectors, thermal coal, oil and gas, and electricity generation, and made the following commitments around how our portfolio is managed. We will reduce lending to thermal coal mining clients to zero by 2030. Any lending to electricity generation will be based on Paris-aligned analysis. Any new oil and gas client must have Paris-aligned goals, and we are working with existing clients on transition strategies. We are currently mapping and measuring the financed emissions across our loan portfolio. We intend to release the results of that work as part of our FY '21 reporting suite. Looking forward, the level of maturity across sectors in identifying what it will take to transition to Paris-aligned pathways does vary. As we work with clients and gain a better understanding of these pathways, including through better data, we will refine our approach. This is a dynamic and rapidly evolving area. So what does this all mean for how we work with our clients and how we will manage our business going forward? There is a significant opportunity to work with customers to understand the alternative pathways available to them and to assist with the finance and risk management of the investment they will need. This will take time and it will evolve. However, our approach is anchored around the following key disciplines. First, we will work constructively with clients to understand their climate strategies and where we can share our insights. This requires a partnership approach to help our clients transition. Second, we accept there will be instances where our clients do not meet our ESG standards. However, we are committed to working with them and help them establish a transition path. Third, this is not all about risk and what we won't do, but rather we recognize the exciting new opportunities, and we'll need to understand and support those to help the economy reach net zero by 2050. So let me bring to light some of what we are doing. We are the largest financier to greenfield renewable projects. We have funded 24 projects since November 2016, representing more than 5.1 gigawatts of new capacity, enough to power 2.7 million households. This will continue to grow. Our support for renewables is not only critical for the transition of household power consumption, it is vital for our many institutional and corporate clients with power purchase agreements. These agreements are important to support clients from hard-to-abate sectors like mining, fuel retailing, steel manufacturing and telecommunications. We're also leading the path in sustainability-linked financing to incentivize clients to achieve ambitious emissions-based targets. Some of our examples are on this slide. Assisting the transition of our clients is a significant opportunity to both support them and grow our business. We have already an attractive pipeline of green and transition financing opportunities across sectors, including mining, transport packaging, recycling and waste management. We are positioning our team with training, investment in expertise and allocation of priorities, along with focusing on our risk appetite and risk management capability to ensure we can partner with our clients to help them identify and execute the right pathway to net zero. You can expect our focus to grow beyond climate change. Through our agri business, we've been clear on our commitment to biodiversity, and we recognize that the task force on nature-related financial disclosures will provide further guidance for financial institutions to better account for nature-related risks and impacts. Finally, linking in with climate change and biodiversity, we're also improving our understanding of the opportunity in how we manage natural resources and the potential of the circular economy. Now let me hand back to Andrew.

Okay. Thanks. Actually, right at this moment, we haven't got anyone put their hand up for questions.

[Operator Instructions] I might take a question from Andrew Triggs, please.

Just a couple of questions. Firstly, 10 years ago, I think Westpac used to have a dedicated Sustainability Board Committee. Just interested in -- I don't think ANZ does have such a committee today. Just interested in the pros and cons of a dedicated ESG board. I appreciate it's all sort of melded in with other parts of the structure, but just some thoughts on that approach there.

Yes. Thanks, Andrew. I'll take that one. So we -- at the executive level, we have a Strategy and Sustainability Committee. So we spend a lot of time at the executive level. When we get to the Board level, we roll it up through the Risk Committee and then into the Board. So we feel like it's both an opportunity and a risk, and it gets very much a lot of focus through that risk committee and then in the full Board itself. So one of the challenges is to do the work in a committee, which not often has all Board members in it. So we think the best approach is to do committee and Board.

I'll take a question...

And a second question just around the CORE program. Perhaps you'd referenced to Slide 7. Look, a big part of the savings embedded in the group cost target is automation of regulatory uplift on elements such as financial crime. Just interested, given quite a useful slide around the time frame of delivery of activities, when do you start to think that automation becomes a part of the overall regulatory uplift?

From now. So we can't wait. And I think interestingly, you saw some of the examples of automation in helping customers through complaints through gambling, in particular. So we've just got to increase particularly the use of the digital phone for all aspects of our business but collecting data digitally and then moving it through the company in a well-orchestrated and controlled way will be material to improving risk as well. So what we're trying to do with that slide is to give you a sense of those 3 phases: design, implement and embed. That's how we're thinking about it, and technology is going to be used all the way through, not only in the CORE program, but everything we're doing in the business as well.

I'll take a question from Brian Johnson, please.

Peter, I had a question on Slide 7 as well. Just when we have a look at where we're up to at the moment, you've seemed to have done most of the design. But I'm just wondering, could you give us a feeling about have you already gone through the peak period as far as the operating costs go? Can we just get a feeling about when we start to see these go through the P&L? Or has it already happened? And then I have a second question.

Brian, it's hard to say exact peak, but I'd just say there's still significant work to do in 2022. So design, in a sense, there's probably less people involved in design. Now we've got embed, implement, which hits the whole company. So that's why I said there's still a lot of activity going in 2022. It's '23 and '24 where it tails off. So we still see '22 as a big year for this program.

Great. Okay. Peter, the second one is just the very last slide where we've got the power purchase agreements, the corporate PPA. Does Westpac actually facilitate the -- facilitate structuring those? Or do you basically guide someone to do that through third party?

Well, I'll let Andrew -- sorry, Anthony talk about the customer angle. But in the case of the bank's arrangement, that's certainly something that we've negotiated with the particular provider to provide electricity to us. Anthony, do you want to talk about...

Look, we're very much focused on helping the clients design the power purchase agreement, designing the structure so that we can finance that particular opportunity. So we're very much involved in the design as well as the financing of those particular structures.

And Anthony, just if I may, ANZ did a similar presentation the other day. But when they talk about their carbon exposures, it's got more to do with the lending book than rather their derivatives position. You guys have got quite a big institutional bank. Can we just find what basically the approach is with carbon exposure that you effectively get through the derivatives and through the institutional bank, which may not necessarily be lending?

Certainly happy to take that offline, but our institutional derivative exposure is one. The other is clearly the corporate derivative exposure, which, I would say, as it sits here today, is smaller than what we want, and it's an area that we want to grow. And it will be, obviously, key for us to also measure what we are contributing to or facilitating through those derivatives in terms of emissions outcomes, emissions intensity, et cetera. So it's part of the work we're doing in terms of making sure we can measure what we're doing really accurately and then we'll be making those decisions around the portfolio going forward, which will include the exposure we have via a derivative.

Yes. Brian, I'll just add. When we think about exposure, we look at committed -- drawn and uncommitted, including limits and derivatives, Brian. So we don't...

I'll take a question from Rob Koh from Morgan Stanley, please.

Can I ask a question in relation to the gender performance? And I guess there's a chart on Slide 11. So the exec team, the GM team in the last couple of years seems to have been heading down. Maybe if I could just get you to talk about some of the background to that and, I guess, the pipeline of candidates coming through.

Well, if I talk about the executive team, so the population is 11. So we can see an increase in that number through a couple of changes just to give you a sense, Rob. In terms of the significant change in the executive team that I spoke about, we've had about 3/4 change in roles and situational. It's been males for that. But as we look forward, I think -- and as we're committing to today, we'll get that back up. So I wouldn't -- I think that's a small population. On the GM piece, again, we want to provide transparency on where we're at. We're at 50% for women in leadership sort of the big picture, and then we'll get that GM and executive team numbers back up.

Yes. So you're comfortable with your kind of pipeline and initiatives on that front.

I hate to call it pipeline. I think we've got some fantastic opportunities internally as well as we'll always look at external appointments as well.

Yes. Okay. Understand. All right. If I can change area of questioning to automation or some people call it AI. I think there was a reference to automated complaint handling. I'm sure your credit scoring involves a lot of automation as well. Can you talk to how you're looking at inadvertent bias in these processes?

I would say, not so much the complaints piece, but certainly, we're using AI in some of our bots internally to answer questions. So learning about the answers monitoring what comes out and seeing internally that it makes sense. So I wouldn't say we're wholesale using AI externally at the moment. But certainly, we do look at -- look back and see the outcomes from these processes is how we look at it.

Yes. Okay. Sounds good. And then just a last question, if I can, on sustainable finance. I guess a 2-part question. Some of your competitors have put out some kind of market share numbers. So I wonder if you could give us your sense of where you are versus the market? And then I guess, if you could just maybe give us a sense of what your competitive advantage is in the field of sustainable finance, a kind of why Westpac question.

I'll hand off to Anthony. But I think on the market share question, I think there isn't any real good reporting at the moment. That's why we've given you the absolute movement in the portfolio. And you can see that we've made a fair bit of progress up to now with the $10 billion portfolio, but it's very hard to get a sense of market share. So we'll report it as it is. Anthony, do you want to talk about...

Look, I think we acknowledge that it's an emerging area that is obviously very competitive as well. But our track record of solving problems for clients and having a real solution, level of excellence in terms of how we approach things for our clients is something that we would say stands us apart, and then we, as I demonstrated in the materials I spoke to, have done a number of firsts in sustainability-linked bonds and loans. So I think it's our history and our culture around solution style approach to supporting our clients that, I think, sets us apart from our competitors. And there's obviously a long track record that we've had in this space, which also, again, I think, contributes to what we have that differentiates us from others.

Okay. I'll just remind people, this is an analyst call, but we're also taking some media questions as well. [Operator Instructions] I'll take a question from Jonathan Mott, please.

It's Jon Mott here. Just got a question on 2 areas, if I could. The first one, you've talked a lot about gender and racism, but one area that is becoming increasingly important is ages and especially given that we've got an aging population, people living for a lot longer and needing to save a lot more money for their own retirement, but being probably disproportionately represented in recruitment. So can you just talk about how you avoid an unconscious bias in ages? And the second area is Papa New Guinea. Part of the simplification area is exiting PNG. And one of the options that you've talked about is running down the portfolio. Can you just talk about the impact that you think that, that option may have on Papa New Guinea and, in particular, any impact it may have on the people, ESG and any geopolitical impact it may have as well?

Well, thanks, Jon, and welcome back. In terms of the age question, so Carolyn didn't touch on it, but one of our employee action groups is -- I mean that group now is over 50s. So Prime of Life we used to call it in terms of EAG. And so that is one of the ways that we keep connected with our people. We're also looking all the time at the experience of -- or our statistics on our age and experience, young and old. So we look at it both from recruiting a proportion of the workforce and what we're offering is how we think about that. On PNG, I'd just say, obviously, the competition authority in PNG is not approved to sell to Kina. We haven't made any decisions on what that means at this point. But as you rightly point out, there are a number of perspectives we need to think through in terms of what we might do as a next step, not that we've made a decision yet, so not appropriate to comment on it today.

I'll take a question from Alison Ewings from Regnan, please.

Thanks, Andrew, and thanks to the panel. Not unexpectedly, you spoke about the broader risk and diversity work quite separately. However, the role of an inclusive culture and comfort with speaking up is important to success in each of these areas. I wondered to what extent inclusion is being considered with respect to what it offers, both risk and diversity objectives. Could you share details of the type of indicators monitored in this area and whether there's any specific objectives in place? I have a further question on climate. I wondered in addition to the partnership approach you described, could you provide more detail of the types of criteria you're planning to use when assessing that the Paris goals made by clients are both credible and well supported?

Yes. So on the ability to speak up and culture, it's more how we look at the information coming through. So we don't try and -- one of the issues that we're working through with our EAGs is actually having confidence for people to identify their culture and be confident that they can report and that information is used in the right way within company. So that's an example where we're engaging our EAGs to work through with us, those identifying first so that you can feel safe. And then in terms of the feedback from the different groups, one of the ways we use our EAGs is to get that feedback. But I might -- Carolyn touched on EAGs before, so I might just get Carolyn to touch on that. And then Anthony, did you want to do the second question?

Yes. Thanks, Alison, for the question. On those questions you're asking, we actually do quite a detailed quarterly survey as well called our OHI survey, which asks people a range of questions through to is it safe to speak up in the company, in your division? Are things done when you speak up? Do you feel included? So there's a whole range of questions, and we're able to look at those down to team levels. So that gives us a really good idea about where the benchmark is and how people are going in that. And we ask a particular question, is your experience here staying the same, getting better or worse? And then a range of items will come through with those questions. So we look at that very closely and that sort of gives us a bit of a finger on the pulse about how people are feeling, about being part of the organization. And we do run campaigns quite a lot in the organization, and the one that we're running at the moment is called We're Off Mute, which is one of the things that people have been saying very regularly over these past 6 to 12 months with COVID. And we're using that to say, we're off mute, we want to hear from you, speak up, and we're going to act on that. So it's a really important topic that we look at. And we also have a lot of measures on risk culture, which I think Pete alluded to, which are also very important.

Just in relation to your second question, I mean, we're very focused on, first of all, accurately measuring what the clients do today and what risks follow from that. And the second thing we're doing is then understanding, okay, what's your plan in terms of the transition over the next 10, 20, 30 years? What does that involve? And those plans are then obviously the focus point for us in understanding, are they plans that are executable or incredible? And some involve, well, I'm going to sell assets and reduce my exposure. Others involve, we're going to buy new assets and try and reduce as a proportion of my portfolio. And then others will talk about let's change the way we operate and reinvent the way we might do something to reduce our emissions intensity. And so each of those invites a different layer of analysis and interrogation. And then -- and so that's what we spend our time on is working through those transition plans and asking, are they doable, how credible they are? And it's also relevant in terms of, can I get an expert in? Can I have these second guests? Can I have these assured? And so it is very much through that analysis and that risk that we are interrogating these pathways that people are proposing. And then of course, we then test those against the scenarios that are being promoted. And we put all of that together and then say, well, okay, is this therefore credible? Is this therefore credible in terms of something that we want to support? And so that's how we're attacking or at least solving that issue in terms of helping people on the transition and acting as you use the word and I use the word, which is as their partner and helping them think that through in working out the solution.

I'll take a question from [ David Humphreys ], please.

A quick question on, obviously, complaints management investment. The statistics last year that were published in, I think, it was November, highlighted a significant step up in the number of complaints recorded. Indeed, it was 61,000 in 2019 and increased to 155,000 in 2020. You put that down to, I guess, a change in the requirement of complaints to actually be recorded even if they're resolved within 5 days. Can you comment on how that trend has evolved since then, given that was, I guess, an incredible uplift in customer complaints being recorded?

David, I might get Carolyn to touch on that, given Carolyn runs the complaints team.

Yes, look, I think we did make quite a lot of change from about 2018. But the first and probably most important thing we did was really focus on the culture. So what we were finding is that there were pockets of the organization that probably were recording complaints in different areas. And so we started with a whole program called spot it, log it, own it, and really got the organization behind, complaints being a second chance to win the customer and complaints being a gift in that sense. So the first thing we had to do was really change the culture. The second thing we did was change the things that we were tracking because we had sort of had this psyche of we need to reduce complaints, and actually, what we decided was that, that was driving the wrong behavior. What we needed to do is embrace those complaints and start tracking different things, start tracking the speed at which we were dealing with them, how quickly we were getting vulnerable customers to the right team. So I think really looking at the metrics and what we were doing there drive -- started to drive the right behavior. And then thirdly, some of the systems were quite difficult to log complaints in. So creating the one system that's very intuitive and simple to use has really helped us drive the ability to spot it, log it, own it very, very quickly. We are, at the moment, getting about 20,000 complaints a month. Now that goes up and down depending on whether or not there's been an outage or COVID and people are asking [ for help ] or feedback or waiving of fees. So it does go up and down each month. But the main focus for us is making sure that we capture those complaints that we deal with them quickly. And then we're really staring deep into the root cause of those complaints and working very closely with our lines of business to remove the top 5 pain points per product. So that's something we track really closely.

We'll take a question from Lou Capparelli, please.

Thanks, Andrew, and thank you for the presentation. My question relates to your sustainability-linked financing and just curious about these recent transactions where the trend seems to be a -- some sort of sustainability link in terms of a target, either emissions profile or some other metric that gets measured and the company essentially agrees to be penalized if it misses it. And I'm just curious, particularly in the case of a company like Incitec Pivot, where they do operate in a hard-to-abate sector. I'm just curious about the thinking that goes into it and, I guess, balancing the objective of stretching the company to hit a particular target and also the imposition of a cost on them. So I'm just curious as to thinking behind that, please.

Anthony, are you happy to take that up?

Look, I want to talk about the specific [ sustainability-linked bonds ], but what's critical when we put together these sustainability-linked financings is that we deal to a material sustainability -- sustainable point or issue, okay? So that's point #1. And then the second point is that there must be ambition in the targets that are set for that particular bond or loan as the case may be. And if those 2 then -- those 2 criteria solve for, then we obviously start to have the foundations of saying this is a sustainably-linked bond or loan. And clearly, it's still an area where I think we can acknowledge that it's evolving and there's a need to bring more consistency and more unanimity in how we use the terms and how we define what's being utilized. But those are the 2 foundations which we look at and which we focus on when we design a sustainability-linked bond or loan.

Can I just ask as a follow-up? And given I acknowledge that the process is evolving in its early days, but if you had situations yet where in an effort to strive for that ambition, companies have actually missed the target and copped an increase in the coupon that they've had to pay?

No doubt that, that has occurred, albeit I can't recall just in terms of my tenure here at Westpac, just under 12 months, of that having occurred. But it's very important that we acknowledge that it's still early days. There's still a number of these products that are being developed and refined. So we haven't -- well, I can't recall, as I said in my 12 months here, that occurring, but we need to acknowledge that -- and you would expect if the definition of ambitious is properly applied in the criteria, there must be instances where people will not meet that criteria and, therefore, suffer the penalty. But at the moment, I can't point one out.

I'll take a question for Richard Wiles.

It's pleasing to hear some of the progress you're making on dealing with customer complaints. I'm also interested to hear about the progress you're making with your own staff. At ANZ ESG briefing last week, they revealed that 81% of their staff feel like they belong. They also said their overall engagement score had improved from 73% in 2018 to 86% in 2020. So if there's one outcome of the Royal Commission, it's that there's a greater awareness on how customers and staff feeling about an organization. So Peter, I'm wondering if you could share some of your recent data on employee engagement. It's particularly important given that you're going to be relying on your staff to execute on the transformation program over the next few years.

And I think that's right, Richard. We are heavily reliant on our people. Just in terms of engagement scores, we all use different methodology. So ours is around 79%. It's been around that level this year despite all the changes. I can't give you a number from a couple of years ago because we've actually changed the methodology. But just to give you a sense on that particular methodology, high-performing norm globally, I think it's about 4 percentage points above it. So in the low -- about 84%, I think it is. So we're going okay, we're holding, but we want to lift over time. One of the particular focuses for this year is actually strategic alignment, so getting everyone understanding purpose and where we're going. And the pleasing piece there is it's much higher, it's in the high 80s in terms of that alignment. So we feel like people have engaged with the new purpose, engaged with the strategy in terms of banking in Australia and New Zealand. Engagement overall is okay. We're seeing better engagement at the high levels of the company. So a couple of levels below me and the focus we have at the moment is now to roll it down the company and get real alignment in purpose and role clarity as we go down. So that's -- so I feel like it's solid. I feel like we've made progress, and now it's about rolling it down through the company.

Peter, can you give us any figures on turnover and particularly regretted turnover?

It's actually low, which is probably not a surprise given what is a COVID impact. So we would normally be 12% to 15%, and I think we've been below that. So right now it's not really a good indicator of health because, I think, everyone's staying put, if you like, in terms of sort of new starters. The trend that I've seen is pretty consistent with the last couple of years. I can't remember exactly the name, but it hasn't -- number, but it hasn't moved too much. So it's -- people are sort of sitting tight at the moment. Where we are seeing competition is in bankers, both mortgage originators and business bankers, and that's a particular -- in some areas like cybersecurity and whatnot. So there's parts of the market that are very hot that we've had to compete hard in to retain and win people.

I'll take a question from Charlotte Grieve. [Operator Instructions]

I've just got 2, if I can. The first one is, what is included in elevating this issue of climate change to a CEO level? And the second is around the government's inquiry into export financing. I'm just wondering, Peter, what you think are some of the issues that have been raised in that inquiry of, A, forcing banks to possibly finance coal, and B, excusing the banks as Westpac of [ bending ] to pressure from international investors like BlackRock on climate change?

Yes. Well, Anthony actually appeared at that inquiry, so I might get Anthony to answer the second question. I'll give him a bit of notice. In terms of the first one, of course, what the priority is for the company set by CEO really gets everyone focused? So what we're saying is particularly climate would have -- a lot of people would have thought about it as, well, that's something that's managed centrally, actually. It's now mainstream. It's got to be thought about in all our businesses. If you take Anthony's business in the institutional bank, you think about the 6 sectors that he called out, but then we're going to have to do a lot of work in our business bank and in our mortgage portfolio, so if we think about the physical risk of higher temperatures on mortgages. So if I step back, what I'm saying to the company is, this is an area that we all have a role in and we will need to engage with customers because it is an area that needs us all involved in. So it's a little bit different, I would say, in the past where it's mainly been a corporate institutional focus. It's now got to go across the bank more broadly. Anthony, did you want to...

And just before you head to Anthony, I just wanted to ask what's the main sort of motivations driving that CEO accountability now? Is it coming from customers, investors or purely a calculation of sort of economic and financial risk?

Well, I think Westpac -- a great slide that Anthony put up. It's a -- this is the next lift in the journey in climate for Westpac. It's one we've been on. It's broad-based. In terms of what's driving it, we're responsible for the bank, and it's both a risk and an opportunity. So we've got to manage the risk, and we've got to take -- get after the opportunity. So it's definitely for us to get after. Obviously, there's a lot of focus from investors. There's also investor -- regulator interest. I think, in time, we will have debt investors. They're very focused on it now in terms of global capital markets. So it's just increasing across the board. Employees are also interested in it and customers as well. Anthony?

Just in relation to your second question. So I had the privilege of appearing before the inquiry. Pretty much the focus was around the potential withdrawal of funding for the export sectors, in particular, in this case and much of the questioning and much of the focus is around coal mining, in particular, thermal coal. And there was a concern that due to pressure from activists, pressure from others that the banks were pulling back from their support of coal mining, in particular, thermal coal. And so there was concerns that, therefore, there was a gap in the funding opportunity or the funding available for them or coal miners. And so those were the lines of inquiry that were explored in that session. I think what we emphasize, and I speak only on behalf of Westpac here, is clearly that we've always examined what is the risk we're taking in supporting and financing thermal coal mining activity. We've always had a very, very small proportion of our book -- loan book allocated to that particular risk class. So our decision and our thinking around what risk exposure we wanted to have exposure to in the future was through a risk lens. And we very much made a decision around exiting thermal coal from 2030 on the basis that it was not the risk we want to be part of at that point in time in the future. So it was an inquiry where, obviously, the members apparently were very concerned about the risk that there will not be funding available for thermal coal mining activity in Australia, and we also can highlight that there's large amounts of capital in the capital markets, both internationally and domestically, that will also potentially and is supporting thermal coal activity. So that sector will -- if it has the right opportunity and the right risk and pays the right price does have access to alternative forms of capital.

And if I can, just while I've got you both here, I'm just trying to get your -- gauge your outlook on gas and oil. I know you've touched on that briefly in the presentation. But in terms of comparing it to thermal coal and the outlook there, how long or what lifespan do you say the oil and gas sector is playing in Australia but also abroad?

We're doing more analysis now on it. But I think, as Anthony touched on in the presentation, we expect customers to have Paris-aligned goals. And we know that gas is affirming capability in the electricity network. So it will have some role to play. It will depend on technology advancements in terms of renewables and storage and whatnot. So we'll have to continue to review it and look at it and work with customers on transition. So very hard for us to put a time frame on it, but that will be an area that we watch pretty closely and model different scenarios on.

I'll take a question from Joyce Moullakis, please.

Peter, probably one for you. The RBA released an analysis last week sort of looking at climate risk across specific pockets of the housing market. Can you talk to or provide some color around the granular level of analysis that Westpac is doing on that front? And then I've also got a second question as well.

Sure. So in terms of our analysis of the physical risk of climate change on mortgages using sort of a 4-degree change, we think 2% of the portfolio under a modeled assumption could be impacted. So not out of whack, I think, with the RBA analysis, and you sort of draw the same conclusion, I think that the bank balance sheets are likely to be able to handle that from a system perspective. But we continue to do location based and you go down and down and look at it. I think the information we provide publicly is probably more summarized, but we look at it at quite a low level as we're modeling, Joyce.

Okay. And secondly, just the targets -- the gender diversity targets around the executive team. I think you said 2027 there for the 40:40 target. Is that right? And if it is right, that's a pretty long lead time when a lot of companies are really pushing towards that and have better metrics from where we stand today? I know you've mentioned turnover being an issue there, but obviously, you're giving yourself a lot of time to get to that target.

Well, I'll do it as quick as I can is sort of the short answer to that, Joyce. But we've just had a lot of people join the team, so not likely to have lots of change in the short term, but we'll do it as quick as we can. 2023 or 2027 is what you've got to put out your targets for and that's how I think about it. I'll do it as quick as I can.

I'm going to take a final question from Brian Johnson, please.

Peter, I had 2 very quick ones or 3. Just the first one is Charlotte Grieve had written a story talking about AML and speaking that a lot of staff that have joined Westpac in the AML function from CBA lamented the fact that there was no single customer view. Could we just get some clarification on where Westpac is up to on that? And what would be the required system spend to actually get there? And I have 2 other very quick ones.

Look, Brian, for me, what we've done is we've looked at the business. We're looking at it end-to-end is the big change. So I'm really thinking about customer acquisition end-to-end. So probably a lot of process and manual controls at the moment, increasing the technology in terms of transaction monitoring and improving the Know Your Customer. The second phase that I spoke about today was about, well, how do we use technology now that we've got our processes to improve it. And that's what we're into. It will be part of our cost base that we planned for that we get that technology, but also know that there's emerging risk, so you're going to have to continue to refresh the plan. So we've allowed for it within our forecast rather than calling out the spend as such, Brian.

Okay. The next one, Peter, it's really interesting this call versus the ANZ one the other day because the ANZ really came down to housing and equality. We haven't heard too much from your [ good fellows ] on that today. Have you got any comments that you can make on that? And then I've got one very quick last one.

Yes, I think -- so we wanted to give a sense of the areas that we've been having discussions with a broad range of investors and others on in terms of ESG. So -- and it's a broad landscape when you're covering it. So hopefully, you've got a sense of we've got quite a big agenda, and we are making progress. In relation to housing affordability, I think it's stretched. Our economics team produces an affordability chart that says, right now we're getting up to peaks that we saw last in '17, '18, early 2000s, late '80s, and their preferred measure is how long does it take to save a deposit and pay off a loan in terms of -- sorry, how much income is required over 5 years to save a deposit and then pay for a loan over 5 years. So it is very much a sort of a first home buyer-type lens, and it's stretched. Can -- what's the response? It's got to be supply. It's got to be the transfer pricing within the government processes because low interest rates had pushed prices up. So it's a very complex situation in my view that needs a lot of response across the economy in terms of managing it.

I would observe a piece that is interesting, low interest rates obviously hurt first homebuyers, ultimately, at the same time as it hurts pensioners. Just a final one, if I may. And this would be the biggest long-term challenge, I think, into this space, which is that we're trying to kind of address these imbalances that we see on a gender basis in business by trying to fix it up now whereas this is really a problem that's been created over the very longer term by not being able to retain basically females, perhaps not having them represented in the same intakes in the graduate programs. And this is a problem that will basically long outlast you as a CEO. Can you talk about what you're doing on fixing up the funnel and the retention of basically female staff coming in as opposed to how we're now scrambling to try and solve the solution in the conflict of having a meritocracy as well? Can we just get a feeling about what you're doing on the pipeline?

So I hate the word pipeline. I think what we're doing to develop women and men is, it starts at recruiting is what you said. So if you look at the graduate intake, we look at the proportion of men and women and want it equal. If you take areas like technology or STEM, it's very skewed the other way. So that's an area that is hard and would be in the longer burn, but we've got to get people going into [ unit ], then come out of the [ unit ] courses and want to join the bank. We've got to have confidence in the policies, so we talked about the policies. One of the particular areas is how do you manage supporting kids. It still does fall a little bit more on women than men, but encouraging as many men to take paternity leaves as obviously women are and then how do we get them back into the workforce, how do we give them experience along the way. So I think you're partially right in that it's a long burn, but it did start. One of the other challenges is men put up their hand for jobs, not knowing how they're going to do them sometimes, they're not generalized and women are sometimes a little bit more cautious, so getting the bias out of recruiting is another particular area that we're focused on. But I might ask Carolyn as a group executive also to share her thoughts on this area.

Yes. Brian, one thing I would say, having joined Westpac 7 or 8 years ago is there's a lot of programs in place to support women. So as Pete says, there's a big focus on grads and the balance in the last couple of years has been more women coming into the grad program, which is fabulous. The challenge then becomes promoting women through the ranks as they move through the different areas of employment. Our women in Westpac EAG Group is one of the largest EAGs we have, and it's very active and really quite a good support network. And I think you've seen us really do some things in terms of that maternity leave policies, the return-to-work policies, the flexibility that the company offers for all of its people. So I think it's, historically, had a very good reputation and capability in this space.

Well, thank you for that question, Brian. And we might finish up there. Thank you for your time today. I hope that you've got a sense of ESG at Westpac, and we brought it to life for you in some of the areas and look forward to picking it up when we meet on the video or, hopefully, meet in person later in the year. Thank you very much.