Westpac Banking Corporation (WBC) Earnings Call Transcript & Summary

Good morning, and welcome to Westpac's Sustainability Update. I'm Justin McCarthy, General Manager, Investor Relations. Before we start, I'd like to acknowledge the Traditional Custodians of the land we are on today, being the Gadigal People. I pay my respects to Elders past and present and extend that respect to Aboriginal and Torres Strait Islander People with us today. At our recent full year results, we shared the progress we've made on our sustainability strategy and climate change action plan. Substantial disclosure was provided across our reporting suite. Today, we'll discuss some of the progress and action we're taking. And we'll provide more insight into key aspects of that disclosure. Michael Chen will recap our strategy before providing an overview of progress across climate, nature and human rights. We'll then focus on 3 areas. Alastair Welsh will discuss insights from customer transition plans and engagement. Lisa Pogonoski will discuss the support we provide to customers in hardship and the progress we're making in protecting customers from scams. And Andrew Bowden, hopefully a lot of you are familiar with, will discuss the reporting landscape and our approach to the new climate reporting standards. At the end of the session, there will be an opportunity to ask questions. For those online, instructions to ask questions were provided in your invitation, you'll have to punch that number in. Please ensure you add your name to the question. Over to you, Michael.

Thanks, Justin. Good morning, everyone. It's great to see so many familiar faces in the room. As I reflect on the year, I'm proud to share that we've made great progress on sustainability at Westpac. Our last year's AGM, over 92% of our investors, many of you in the room, voted in favor of our climate strategy. And since then, we've been working really hard on executing upon that strategy. You can see some of our key highlights on the screen, but let me just summarize it in 3 parts. So firstly, we're continuing to support our customers. We've increased engagement with them on key sustainability issues, including over 150 institutional customers on their transition plans, which I will speak on later. Secondly, we've continued to embed sustainability so that it's just become the way that we do business. And we're doing this through, for example, uplifting our banker capability, investing in our ESG data management. And thirdly, we're collaborating with others. Sustainability challenges are often wicked societal systemic issues, which require collaboration, and therefore, we're working with our stakeholders in this regard. This is our sustainability strategy, which we released last year. And as you can see, it aligns with our corporate purpose and our strategy. It centers on our role in creating positive economic, social and environmental impact for our customers and community. Westpac has had a long and proud history in sustainability. In fact, it's one of the reasons I joined the bank and it's one that we're continuing to build on. So for example, we're elevating the Chief Sustainability Officer role and function to report into our CEO-designate Anthony Miller on his day 1 in about 1.5 weeks. And in a couple of months' time, Fiona Wild will join us as our next CSO. Let's dig a bit deeper now. So, I'll be covering, if you look at the objectives, objectives 3, 4, 5; climate, nature and human rights. I will be focusing on objective 3, particularly as it relates to climate transition plans, where Lisa will touch on objectives 1 and 2 and Andrew will wrap up with our key foundation, one of our key foundations, which is reliable data and reporting. So, let's come to climate change and look at firstly, where our emissions lie. As you can see, the bulk of our emissions or actually, our operational emissions is less than 1% of our total emissions. But we still think it's really important to lead by our actions. So, let me talk a bit about that later on. But as you can see, our Scope 3 emissions or our financed emissions, our customers' emissions is where over 99% of our emissions are. And therefore, it's really important that we work with our customers in this regard. Our overarching ambition is to become a net zero climate resilient bank. And we plan to do this in 3 parts, which reflects in our emissions portfolio. Firstly, in our direct emissions. Our Scope 1 and 2 emissions are now 86% lower than our '21 baseline. And we've achieved our 2030 target already, 6 years ahead of schedule. And we've done this through being able to source our electricity needs through 100% renewable energy a couple of years ahead of schedule. As it relates to our upstream Scope 3 emissions, we're now 41% lower compared to our '21 baseline. And the key part of reducing our Scope 3 upstream emissions is through supporting our customers. So for example, in addition to upgrading our fleet to be electric, we've installed EV charging stations in this building in Barangaroo as well as over in Kent Street. We're also offering green power to our employees at no additional cost in partnership with Origin Energy. And we've got a lot of other exciting initiatives to come over the next few months. Let's look at Pillar 2, which is our financed emissions. Our ambition here is to be our customers' transition partner of choice. And we support them through giving them expert insights as well as product. As it relates to the NZBA, we signed up in 2022. And since then, we've set targets in all 9 emissions-intensive sectors and we're making great progress on each of the targets. I'd like to call out a couple of notable achievements throughout the year. So, a few months ago, we launched our sustainable upgrades home loan. This is where we allow our customers to access a cheaper rate to make energy efficiency upgrades in the home, partnering with the CFC here. Secondly, we invested in an early-stage climate tech fund called Virescent Ventures. And what I love about this partnership is that not only are we supporting emerging technologies that's required for the transition, we are gaining the know-how. We're gaining understanding of the solutions and the technologies that we can then bring back to our customers. And lastly, we've also launched a sustainable equipment finance loan, where we're supporting heavy businesses that are making investments in equipment, for example, electric heavy goods. And lastly, collaborating for impact. As I said, climate change is one of those wicked systemic issues. So, we are taking collective action. We're partnering with governments, industry groups and NGOs for example, through being a co-chair of the UNFI Banking Board, which oversees the principles for responsible banking, which we're a proud signatory of. We are also a member of the NZBA Steering Group, which is essentially the Board, which oversees the NZBA strategy, a lot of late night calls with Europe and North America. And we're also partnering with ASFI, as I'm sure many of you in the room, so taking part in their tax funding work as well as the natural capital work. Coming to natural capital. We released our Natural Capital Position Statement last year. This is an emerging area compared to climate. So, we're really still building our understanding and learning in this area. And one of the ways we're doing this is through developing our geospatial capability. What is geospatial data? Essentially, geospatial gives us information, for example, on objects and events that's happening on the Earth's surface particular to a specific location, particular to a specific time. And why that's interesting is because in climate, as you know, we can measure things such as emissions and temperature levels. When it comes to nature, if we really understand our impact on things such as forests or critical habitats, then we need to understand where the impacts are on a particular location over a period of time. So, this is where geospatial comes in. And we're using this to build a baseline of understanding so that we know where our exposures are exposed in nature from both an opportunities and risk perspective. And this is in line with the TNFD LEAP framework. So for example, this is illustrative. If you look at the diagrams on the right, the top right is the commercial real estate book. We're doing some analysis there. And the dots essentially show the potential impact on our asset values from the physical risks of climate change. But on nature, if you look at the bottom right, this is some analysis we're doing on our agribusiness book. Essentially, we're trying to map where native forest intersect with our customers' land. And over time, what we want to do, we want to take this top-down geospatial data, corroborate with our customers' own bottom-up data because we think this will yield really, really fascinating insights, not just for our own portfolio management, but also to take that back to our customers. And I talked about the insights bit and also support them through products. Coming to human rights. Westpac had a long history in social impact and human rights action dating back to 2015 when we released our first Human Rights Position Statement. The tricky thing about human rights is it's really broad in scope. And therefore, to help us focus on the most material issues for us and the communities, we conducted a deep dive on human rights in relation to our role as both lender and buyer. So, in relation to our role as lender, we've uplifted our ESG risk management tools across the various divisions. And the last year alone, we've escalated 164 transactions that have a human rights element to it for due diligence. In relation to our role of buyer, we've worked with our suppliers to close over 100 priority action areas where any potential gaps were detected in a modern slavery approach. So that's the risk side. In terms of our child safeguarding work, we provided $77 million to over 50 organizations. And the impact it has had is that we've helped protect and educate over 69,000 children, young adults and families. And Lisa will be touching more about our safeguarding work shortly. Now that I've gone through climate, nature and human rights, it's important to add now that we don't look at these things in isolation. In fact, we know they're deeply interrelated. So, we've stood up a team and project to look at the impact on people and on nature related to climate change and the role that we can take to ensure that the transition is just and inclusive. So in summary, we are focused on executing on our sustainability priorities and this has resulted in us making great progress. I'm personally really proud of the achievements that we've made. The bank is well positioned and we will continue to work with our customers and our stakeholders through the transition. Thank you for your ongoing support. I'll now pass you to Al.

Thanks very much, Michael. Last year, I shared with you our previous 2 years' experience on our ESG journey and our approach to transition plans. Today, I'd like to update you on our progress and share feedback and insights from our discussions with our clients. I've worked for Westpac for 32 years, mainly in relationship banking in both institutional bank and business bank. And we know we're at our best when we are proactive and matching our banking skills and industry understanding to help support our clients. In WIB, we run 4 industry teams. They will report through to me. All our relationship bankers are aligned to industries and we understand sectors, drivers and risks. Our focus on sustainability and supporting clients in their transition is led by our bankers and supported by our internal ESG specialists, selectively with the help of external experts. Our aim is to partner with our clients to help create better futures together. We are embedding sustainability into how we run our business. Understanding our clients' transition plans is key to our aspiration to being the leading relationship bank. Our focus is to understand our clients' business, sector, strategy, risks and opportunities and how we can help and support them going forward. We are integrating sustainability into our strategy, decision-making, lending and risk management. For us, this represents good business and enables us to grow safely and sustainably. Every day, our bankers have conversations with our clients. And increasingly, those conversations are focused on ESG. This year, we had 150 deeper transition conversations with our larger emitters to assess the maturity of their climate transition plans. Over 60 bankers had detailed discussions to better understand their plans. Our framework has 5 core elements; foundations, implementation strategy, engagement strategy, metrics and governance. Now we've received overwhelmingly positive feedback on our transition plan engagement. Our clients have appreciated our efforts to understand where they are in the journey and found the engagement to be useful to gain insights into their positioning on the maturity of their transition plans. Our discussions have helped them uplift their transition plans, enhanced future disclosures and improved engagement with their stakeholders. Now to bring this in life, a manufacturer client added clarity about a specific decarbonization initiative and explicitly linked this to their performance KPIs. A mining client enhanced disclosures on Board governance and provided more detail on capital allocation for their projects. And a real estate client has increased transparency on the scale and timing of their emission reduction initiatives. Now a few points on this slide. Firstly, 84% of our clients assessed had a public climate transition plan. Most of the 16% of clients without transition plans were private companies. For the 2030 interim targets, 92% of the public climate transition plans had interim Scope 1 and 2 targets. Approximately 40% had set an interim Scope 3 target. For the longer-term targets, the 2050 targets, 66% of clients had longer-term targets covering at least Scope 1 and 2, but Scope 3 targets dropped to 28%. So, a few insights. To achieve Scope 1 and 2 targets, our clients indicate there are a range of challenges. They have shared 4 key enhancements. The first, clearer strategic direction and policy and regulation, particularly for energy supply and affordability to underpin the energy transition; significant investment for infrastructure; research and development to accelerate breakthrough technologies and better cross-industry collaboration. Where our clients have not yet set Scope 3 targets, there are 2 main reasons. The first, the challenge on data accuracy and methodology to determine Scope 3 boundaries. The second, challenges on achieving Scope 3 emission reductions based on where their clients are in their value chain, which require better industry collaboration. Now turning to the setting longer-term targets, the 2 main challenges there. The first is uncertainty around decarbonization of the electricity grid. This requires clear policy direction, incentives and investments. Heavy industry and hard to abate sectors have specific requirements such as the development of alternative fuels. Now a couple of observations from my experience of talking with our clients over the last year. Firstly, the discussions are increasingly with senior leaders, CEOs, CFOs, Chief Operating Officers and not just the ESG subject matter experts or the technical experts. To me, this indicates that management is committed to transition. It demonstrates the company is thinking about the energy transition and it profiles the strategy that they are adopting for the future. Now the energy transition also has strategic opportunities and risk. In the last year, the number, depth and thoughtfulness of our discussions has increased substantially and has been far more strategic. Now businesses tell me focusing on energy efficiency just makes good business sense. Many of our companies have been focused on this for many years. However, they do require help. They want better alignment on policy across jurisdictions, investors and financiers aligned to supporting progress and industry collaboration again within regulations. Another thing is Australia requires low-cost and reliable energy supply to be economically viable. For example, when I speak with manufacturers, they often say Australia produces a significant amount of gas. However, most of it is exported. They would like the policy to be used to shore up domestic supply as a transition fuel to support domestic manufacturing in Australia. We are committed to supporting energy transition. This year, we will be continuing to engage with our clients and to better understand the progress they made and to support their transition. We will continue to support our clients by funding investments in renewables, technologies and solutions required to decarbonize. Thank you, and I'll now pass to Lisa.

Good morning. In my role as General Manager for Customer Solutions, I lead approximately 1,400 professionals dedicating to helping customers through life challenges such as hardship, fraud, scams, complaints and mistakes. Our team's purpose is to be there for customers in moments that matter and I've been proud to lead this approach for the past 6 years. One of these moments is helping customers navigate through the rising cost of living. While most customers are managing their expenses and adjusting their spending, some still need our support. And this slide shows a monthly view of customer calls to Assist since September 2019. You'll also see key external events like COVID and natural disasters for additional context. Customer Assist is a service we provide to help customers who are facing financial difficulties. Many of the calls we receive are opportunities for us to educate customers on the options available to them. As a result, we're able to assist most customers without the need to start a formal hardship application. We often see customers call us to understand their financial options and commitments when they experience a sudden change in circumstances like divorce or unemployment. And this chart is helpful because it shows that our current call volumes is lower than recent averages, which speaks to our customers' resilience and our prudent lending practices. Regardless of the customer situation, the Assist team caters to each customer's financial situation using our 100% toolkit. We call it 100% as we tailor our support to each individual customer to find a solution that works for them. And we provided a steady number of hardship packages this year. The solutions on this slide help 3 and 4 customers in hardship get back on their feet within 3 months. And at the end of FY '24, we were supporting 19,000 accounts in hardship. So, we know that hard time can fall on anyone and which is why we encourage customers to contact us sooner rather than later to speak to our team about what support is available. Another area we're focused on is combating financial abuse. Safety by Design principles aim to minimize threats and enhance security features in financial products to protect vulnerable customers. Last month, Westpac launched the Safety by Design toolkit with the ABA, a resource developed over 2 years. Inspired by the eSafety Commissioner's work, this toolkit builds capability and confidence in adopting Safety by Design principles through our product and service design with new features to stop abuse. We conducted over 50 hours of interviews with vulnerable customers and staff to develop a range of customer personas, which are essentially profiles that represent the different experiences of vulnerability. To bring these to life, we created videos for staff and collaborated with leading peak bodies like Legal Aid and Financial Counselling Australia. Our Safety by Design learning module, co-designed with the eSafety Commissioner has been rolled out to all product managers and will be expanding to other teams. And so far, around 1,200 of our people have completed this training. And the goal of Safety by Design is to ensure our products are not weaponized to harm customers. Some of the ways we're doing this is stopping abusive transaction descriptions. And since 2021, we've reviewed over 140,000 payment messages for abuse and issued over 7,000 warning letters. And some other examples are adding parental controls to used accounts or rolling out power of attorney monitoring. Finally, the third area I wanted to cover, which is causing concern across the industry and is the presence and sophistication of scams. We've been a leading advocate in this space, collaborating with government, regulators, telcos and social media platforms to make Australia harder target. We've invested more than $100 million in scam prevention measures over the past 2 years, and we recently increased our fraud and scam support team by 10% to 550 people. Our efforts have seen reported customer losses come down 29% over the past year. However, scammers are constantly evolving their tactics, so we'll continue to come up with new ways to help protect our customers. This year, we announced 3 new scam defenses; Westpac Verify, Westpac SaferPay and Westpac SafeCall. Westpac Verify alerts customers when an account name doesn't match the BSB and account number when they're adding a new pay. This system checks account names against the database of all accounts where money has flowed being sent to or from Westpac. It presents around 400 mistake in payments each day and has prompted customers to rescind $1.7 million in payments. And for example, one customer was saved from a house deposit scam after receiving a name mismatch notification, which led her to verify the details and discover that the real estate agent's e-mail had been hacked. Our second key innovation is Westpac SaferPay, an Australian-first. SaferPay uses AI to present customers with tailored questions to payments we believe may have a high scam risk. For instance, if someone is buying investment bonds online and mentions they found the opportunity on social media, it may raise a red flag, prompting us to hold the payment and investigate further. And this is what happened to 2 of our long-time customers, Elaine and Ricky. After selling an investment property, they found an online opportunity to invest in corporate bonds, promising a 10% annual return. They received what appeared to be legitimate documents and decided to invest $350,000. Fortunately, SaferPay intervened. The payment triggered SaferPay questions, resulting in a 24-hour hold of the funds. The next morning, they spoke with our fraud and scam operations team, and we were able to confirm the investment was a scam. We terminated the payment and safely returned the $350,000 to their account. And the third innovation, which we have recently piloted is another Australian-first, Westpac SafeCall. With SafeCall, we can call customers directly through their banking app and display the reason for the call, giving customers peace of mind that's actually us calling them, not a scammer. And this will be incredibly helpful for customers like Elizabeth, who recently received a call from a scammer pretending to be from Westpac. The scammer convinced her to download remote access software on her computer resulting in a loss of nearly $5,000. And it's devastating to hear about instances like this and that's why I'm pleased to announce that when we formally launch SafeCall early next year, we'll be able to call customers like Elizabeth through the Westpac app, providing more peace of mind and helping us to stamp up banking personation scams. With initiatives like Verify, SaferPay and SafeCall, we're making good progress in the fight against scammers and helping customers in a critical moment. And as one of Australia's largest banks, we understand our critical role in supporting and protecting our customers. We remain committed to taking every possible measure to reduce scan losses. But this is not a challenge we can solve ourselves. We'll continue working with government and other organizations to stop scams at the source and make Australia safer. Thank you. And I'd now like to hand to Andrew Bowden.

Thanks, Lisa, and good morning, everyone. It's nice to be back. Sustainability and climate reporting has been evolving for some time with most large companies using frameworks such as the GRI, SASB and/or the TCFD to shape the reporting. Up until last year, disclosure was voluntary that is now fundamentally shifted. With the influx of new and more standard data, it will give this audience a much better access to information allowed to assess how climate affects company value and improve decision-making. It's really important. A significant work ahead for all reporting companies over the next 18 months. And today, I'd like to share with you some of the things to look out for and how we're approaching that challenge. Sustainability is often being called alphabet soup of acronyms standards and frameworks, and I certainly found that when I started doing this job. And climate reporting is no different. There's a lot of things that have fed into the recent standards, but the TCFD has been the benchmark with their 2017 recommendations establishing the 4 pillars of sustainability reporting has become the benchmark, not just for climate but for sustainability reporting. That of course, it's governance, strategy, it's risk management, its metrics and targets. Last year, of course, the TCFD was dissolved and rolled into the ISB standards because its work effectively been done and more specifically it was rolled into IFRS S2. Our focus is, of course, the Australian standards, but we have to monitor all those that the potential will apply to us. In Europe, for example, because of our Frankfurt office, the Corporate Sustainability Reporting Directive or CSRD will likely apply to us. It's a slightly broader standard. It covers climate as well as more other sustainability issues, but it's certainly -- but we've got plenty of time. It doesn't kick in until FY '29 for us. Some larger companies in Europe are already starting that process and they will actually be helpful for us in the future. In the SEC -- sorry, in the U.S., we're the only Australian bank that's SEC registered. And so theoretically, the CDR rules that have been released will apply to us. Unfortunately, as soon as they are released, they were legally challenged. And of course, with the change in the U.S. administration, I can't see this happening now for some time. In New Zealand, just this week, we -- the New Zealand standards are slightly ahead of the Australian standard. So in FY '24, they now apply to the New Zealand market. They only apply to New Zealand, so not to the broader framework. And in fact, we released our New Zealand climate report just yesterday. And so the team over there have done a fantastic job to put the first -- one of our first compliant reports out in that market. In Australia, of course, it's AASB S2 and our requirement is FY '26, and we're getting into that. So while the TCFD has been wound up, it's still useful to get an idea about where we sit. The IFRS foundation just a couple of weeks ago did a global assessment of the TCFD looking at 3,000 companies came up with this assessment. And so you can see that it's been a bit inconsistent. The governance is okay, the metrics and targets are okay, a little bit behind on strategy and risk management. If I map the same requirement to just the banking sector globally, it's actually a little worse. So, it's stronger -- weaker in governance and strategy, but it's actually a little bit better in risk management. And so -- but if I look at the average alignment, it's about 38% and it was up from 33% in the prior year as companies start to get involved and prepare for those standards. For Westpac, if I go to 2023, we were around 50% compliant. So, not doing relatively well on both relative to our international peers and that was up from about 1/3 in 2022. If I apply my FY '24 standards to the reporting, we're above 60%. But of course, now the focus is AASB S2, so let me flip to that. So, AASB S2 aligns the 4 pillars of the TCFD, but it expands its recommendations in important areas. If I step back and look at the main change, it's really about transparency. So in the past, we might have disclosed a target or an opportunity or a risk, but now we have to take a step back and look at how do we get to that assessment. And so that's a little bit more work we need to do in the background. For the governance pillar, they're broadly the same, the TCFD and the new standards are broadly the same. There's a little bit more on the flows of information between management and board. For strategy, there's more again on scenario analysis, climate resilience and also looking at individual company circumstances. So, something doesn't necessarily apply to you, you can consider how you want to apply that. There's also a fair bit of work on time horizon, I'll touch on that in a second. On the risk management, again, very similar, but we have to look at explain how the risks and opportunities are identified and managed. And finally, on metrics and targets, there's a bit more detail on emissions and carbon credits. We have to look at the basis for how we set targets. So for example, what was the scenario or the science that was used to set that target in the first place. And finally, we also have to report mandatory finance emissions. Now the banking sector have been reporting finance emissions for some time but we need to go to the next level. So, we need to disclose it for both our funded balance sheet, unfunded balance sheet as well as by industries and the whole matrix of how that plays out. I think that the standard is actually important because all the banks today are reporting it slightly differently using different metrics. And this change will actually -- it will help standardize that and make it much easier for this audience to identify. If I look at the bigger picture of the big features, it is designed for this audience, the primary uses of general purpose of financial reports, the same as our financial accounting. So that's pretty important. If I look the at the time horizon is probably one of the biggest parts of change with this. Now the time horizons over the short, medium and long term, we now apply what the strategic and the financial impact of climate change over those horizons. That's a big change. In the past, we've never had to really look forward whether it be financial reporting. We don't provide forward-looking statements, but now we're effectively required to do that. It is not sector specific, but we need to. So, there are some things that are a bit more challenged for the banking sector. We also have to apply mandatory assurance requirements. So that again, steps it up. We have to do the work that's underpinning that. So, when the audit is coming, they can make the same sort of assessment. So, how we are going with the overall standards -- next slide, please. So, if I look at where we sit today, if I make an assessment of the actual clauses within S2 that we need to comply with, we've done about 42% of completed. We've got 46% with partially reported and the 12% we haven't really started. And some of that work we've done today is probably the low-hanging fruit. Work has begun on some of the new requirements. I talked a bit before about the short, medium and long term. In our climate report this year, we've mapped that out and explained how we've come up with those horizons and how they feed back into our planning processes. So that's been important development. But we've got to go to the next step. Those [indiscernible] used within our scenario plans and explain how they're being affected with how they're affecting our strategy and how they're affecting our financial position. And from this perspective, scenario analysis is really, really important. It is also vital to up governance in line with the financial reporting. We do a lot of that today, but there's more work to do to really improve the oversight to help directors and put more oversight under our -- meet our sustainability reporting. But what's really important from this change is it is making climate change far more tangible. Data can now be confidently -- or not quite yet, but as it comes live, data can be confidently integrated into financial models going forward. The scenario analysis is pivotal. And there's 2 parts to that. Firstly, you'll see the scenarios in which we provide the information and the outcomes from those and how we got to that. But the flip side is when you get that information on the scenario analysis, you'll be able to do your own analysis on scenarios, apply scenarios to different companies based on the information that the inputs and the outputs that we're providing to you. I think that's really important. You have to run bespoke scenarios in effect. Unfortunately, there is a precedent for this. There's no model of best practice and we can expect variability over time. We've spoken to a number of experts in the market and no one gives us a direct steer on this is the way it needs to be done. I think we'll get a bit more information as the reporting starts to come out and Europe will be really important for us. So, '24 was the first reporting we'll start to see some stuff coming out in '25, that's really important. It's really exciting period and I'm really looking forward to sharing our progress with you. With that, thank you very much, and I'll get Justin up here again.

Thanks, Andrew. A lot of content we've gone through. So hopefully, some good questions coming. We might start in the room first. For those online, just bear in mind, vevox.com. Please make sure you enter the ID number that was in the invitation. We'll start with the room and for the benefit of those online as well, if you could state your name and affiliation, hopefully, we've got a microphone in the room.

Jon Mott from Barrenjoey. I've got a question on sustainability more financial inclusion. And I think it's a really important bit that doesn't get enough talk about. If you look at the Westpac result and there's a presentation slide that just shows the amount of credit that gets lent by income graphic, Slide 62, if you remember it. But some of the data on there, 60% of credit is going to people earning more than $200,000, 14% of credit is going to people who earn more than $500,000, but only 12% of the credit Westpac lends goes to people earning less than $125,000. Now, $125,000 is about the 60th decile percentile when you look it up. So, the top 0.5% of people in Australia get more credit than the bottom 60%. Now when you think about that, the cost of living and housing availability is such an important issue. And when you look at Westpac, I think you've got 120, 150 houses which are in possession at the moment going through that foreclosure. Has the pendulum gone too far so that younger people, lower income people can't get access to credit? Credit is now for the rich and financial inclusion has been completely sideswiped and leaving a huge amount of Australians unable to access the housing market?

Jon, I might start with that question and then hand over to Al and Lisa. Affordability is clearly an issue. Our view is pretty clear on that, that it's supply and a lot needs to be done on the supply side to free that up. So, from a lending perspective and working with the corporate sector, Al and his team are doing a bit of work with that. And then Lisa's team obviously deal with people that are getting into trouble. Al, we want to start with you.

You want me to comment on...

Yes, on the work we're doing to help with the supply situation.

Well, obviously, I'm an institutional bank. So Jon, I think the question was more to the consumer side. But from an institutional bank and business banking providing credit is critical. And small businesses say that all the time that they can't get access to credit. And that's why we've made a lot of changes in our SME business on being able to have much more transparent processes and being able to have much more online applications because a lot of it is lacking clarity of information. But I'm strongly of the view that Australia will prosper when you have good access to credit and when you have an even playing field. And I think that there's been good progress over the last period on that. And I would continue to expect to see that in business. So, I think it's less of an issue in business because the bigger issue of whether people can afford to pay it back and businesses are pretty wise. There's not too many out there that want to gear up on debt at the moment without a really clear strategy and plan going forward. So, on the business side, I'm pretty confident that it's in a pretty good balance with. Obviously, I'd like more demand, but I don't get to control that.

And some of the work we're doing with the residential developers and our strategy there. Any comments?

Well, housing affordability is critical. And we and our institutional bank are partnering with a range of people to look at options to provide better affordable housing. Again, it's a pretty complex one because a lot of it is long-dated, long-dated commitments and matching cash flows. But we've been really pleased with the project progress that government has made and some of the initiatives that they have in place to help really springboard more housing affordability.

Yes. I think what I can comment on is what our customers are telling us and what the financial counseling sector that we work with is telling us as well. And what we're finding is customers who we may regard as affluent being impacted by both the rising cost of living, but also particularly by the cost of renting. And so that's had a significant impact on their ability to save and knowing that the ability to save is really important to be able to get credit and have that funding for a deposit. So that is one we're working through really financial counselors are telling us that our customers are really trying to realign their spending patterns and their saving patterns and the feedback is that the tax cuts that have recently come through. So, customers who don't already have a loan, a lot of that is going into saving to help them get further towards that deposit to be able to get into the housing market if the supply is there.

Andrew?

Andrew Triggs from JPMorgan. I had a couple of questions. The first one on the natural capital position. As part of that, I think there's a commitment around native forest land clearing in the farming community. Could you -- given that I think Westpac has gone ahead of the competitors in that area, could you talk to the action from your customers so far within the agri bank?

Let me first clarify. So, we've got an NZBA target as it relates to finance commissions for the agri sector for both dairy, beef and sheep and we've used the reference part where we use the SBTi FLAG scenario and in that scenario, it assumes no deforestation. And therefore, given that's our reference scenario, we thought it was sensible for us to also adopt a similar approach. That commitment takes, kicks into effect end of next year. So, what we've been doing since releasing the target about a year or so ago is that we've been deep engagement with our customers on this. And look, no doubt, it's no secret that sort of if you look on the media and politically, there has been a bit of noise in this area. But with our customers, surprising, it's been really positive in the sense that they're committed to doing the right thing. They understand that's where the markets are going. So, we've seen retailers take similar positions. We've seen buyers overseas take similar positions. So as I said, they're all committed to doing the right thing. They know that's where the market is moving. And therefore, the fact that we've gone there first allows us to talk about the work, the geospatial work that I talked about and they come and talk to us about the work that they're already doing underway. So, it's been quite positive.

And second question was just around Slide 16 on the Westpac Assisted programs. There were 2 mentioned that were newly introduced solutions. One was called Reconnect with Purpose, the other one Pathway programs. Could you just elaborate, please, on what those 2 new solutions are?

Yes, of course. Reconnect with Purpose is where we actually -- we have a customer who may be deep in arrears with the bank, moving into enforcement action, but has not been in contact with the bank for quite a period. So in that instance, we look to send a partner out to actually have a face-to-face conversation with the customer to reconnect. And the reason that's really important is for -- if a customer hasn't been speaking to the bank about their circumstances, there might be circumstances going on for the customer that we're not aware of that we absolutely need to be aware of. We make sure that from a vulnerability and ethical checklist perspective that we have all of that information on the customer and that field agent visit is an opportunity for us to, to just make sure that we're taking the right course of action. The second piece around the Pathway program is once again, when a customer is in deeper in that arrears cycle, it's actually having a conversation with the customer. They want all of the options on the table at that point around being able to support the customer. Often, it's incredibly difficult that it's obvious that a customer cannot afford the property, but it's difficult to get them to the decision to be able to leave the property. And in a pathways instance, it may be that it's appropriate for the bank to provide an amount of money to the customer to reestablish themselves, which then allows them to vacate the property before we need to get to the point of [indiscernible] position.

Matt Dunger from Bank of America. I was wondering if I could follow-up on the geospatial capabilities and noting one of APRA's noted priorities is around climate stress testing. Are you expecting to see any change in underwriting processes? Areas like Lismore, would we see more restrictions around where you're lending because of these geospatial capabilities?

Sure. So, we've been engaged with that APRA stress testing piece of work for a number of years. And as Andrew touched on also in reporting, that's where AASB requires us to go as well. So, it's not a new area for us. It's one that we've been engaging in terms of stress testing our portfolios, running various scenarios, et cetera. In terms of that geospatial work, as I mentioned, it's early days. We're using it to build a knowledge base. And as I also said, we want corroborate this with the customer over data. So over time, in a couple of years' time, it may lead to changes in underwriting standards, but we want to make sure that we understand our portfolios and our customers and the risk that it presents before making such a decision.

Great. And just a second, if I could. You talked earlier about some differential pricing on mortgages for customers who are exploring different energy options. I was wondering if that would proliferate across WIB and whether or not you'd look at pricing options for around customers who are closing in on climate targets, how far away from a sort of pricing-led action are we?

So, we already do that through the sustainable-linked loans. So, it's a very clear program, but that's a broad church of ESG. So -- and they both have incentives and penalties if they don't achieve their KPIs and we typically work with clients to build up programs on that and we've tracked pretty well on that over the last period. So, that already occurs. That's probably the main initiatives. My personal view going forward is that links a bit to my earlier comments, climate change is going to be so embedded into what people do. It's part of their risk, it's part of how they run their business. So, I think that's probably more heading towards being sunset at some point in time because rightly so, climate change will be so important into their strategy, into their structure, into their capital, into the liquidity, but believe that pricing into it risk as it is. And that's where I see things going.

This is Moana Nottage from Alphinity. I was interested in sort of the materiality from the transition plans that were assessed within the 150 companies that were engaged. What proportion of the finance commissions did those companies make up?

Actually, a good question. I'll take that on notice. They were our large measures and -- but I don't know the answer to that one. Good question.

And another one. I was just interested in the reason why the transition plan requirements were targeted at the upstream oil and gas customers in terms of sort of the test for these assessments to be credible to receive financing? And if there's any intention or what is the bank's appetite to extend that requirement to other high needing sectors like metals, manufacturing or other?

Michael?

Sure. Thanks, Moana. I think there's 2 parts to that question. So, the first one was around the oil and gas part and why we've got that commitment. So, like my answer around the agri business target, the oil and gas NZBA target, we've used the IEA-NZE 1.5-degree scenario. So, implicit in that -- there's a number of assumptions that's implicit in that. For example, our customers -- oil and gas companies to be 1.5-degree aligned. And that's why we got a commitment because it's in line with our reference scenario, which is the IEA-NZE as I said. Now the second part of your question is, are we looking to expand this to other sectors? Well, firstly, as part of what Al mentioned, our customer engagement program transition plans is cut by -- we're targeting the top emitters essentially. So by definition, you can deduce that we are already engaging with companies in the fossil fuel sector, fossil fuel sectors essentially. So that's number one. Number 2, as I mentioned, we've got targets in all of the emissions intensive sectors under the NZBA, 1.5-degree targets. And thirdly, we've got additional supplementary policy commitments as it relates to a number of fossil fuel sectors. So for example, around thermal coal, we've got commitment to be up by [ '25 ] and our exposure to [indiscernible] I think is around [ $25 million ]. So, negligible, anytime to us. We've also got commitments around the power generation sector and metallurgical sector. So, I'm speaking a lot here, but what I'm trying to point to is we think that our suite of policy and science-based targets is appropriate for this point in time.

Rob Koh here from Morgan Stanley. I've got 2 questions, one on capital and the other one on governance. The first question on capital. Can you give us an update or any color on where the dialogue with regulators is at and what is the direction of travel for capital provision for climate risk? And then also maybe a sense of where Westpac is positioned relative to peers given that there's a wide dispersion of readiness out there.

So as part of the standards, we're expecting to include the capital allocation within our ICAP, our Internal Capital Assessment Process. We do that today. So -- but it's one of those things that we dial up our scenario plans move forward, but there's obviously, a lot that fits into our ICAP and we've already got significant capital above our minimums at the moment. So, it's already in that assessment process. Now that's not a public document, but it does go to APRA, they get to see how we've assessed our various positions and they can give us feedback on that. But it's an area that will continue to improve as we go forward.

Yes. I guess I'm asking, will banks need to provision more capital as the recognition of the risk gets clearer or what's the...

I think there's 2 parts to it. So, we already have significant buffers in our capital, which factor in a whole range of things, which could include that. And then there's actually on the financial side. So, we have in the past for major floods, for example, so events which would fit within our 12-month horizon, for example, where we see risks, we sometimes put money aside for that. If I look today at the financial impact of climate change on our balance sheet today, there's a statement in our climate report that says it's not material. So, we've done that material assessment. There's a document to that, 55 pages, that we've done that underpins that, that work. But the next stage on the standards is then taking that to the -- from today to the 1 year -- the 1 to 5 year and then 5 year beyond as part of those horizon but that work is not really mature yet. So, I think it's certainly possible. But the impact today is not there, but I think in the future, we'll start to see that.

All right. And then my second question, I guess, in relation to governance. You set out your strategy as being a partner of choice for customers. Can you give us a sense of how you're measuring that? Is it external surveys? And then also a sense of how you incentivize your team? Your relationship bankers have, I presume they've got revenue and cross-sell targets, but do they also have targets for climate measures.

So, for the Institutional Bank, we -- I'll start with the bankers first. Our targets for bankers are obviously across a balance scorecard where you'll have shareholder measures, you'll have risk measures, you'll have customer measures and you'll also factor in behavior. So, it's a very balanced approach and we've worked pretty hard over that over the years. In terms of customer measures, we have a range of customer measures. We have our own customer advocacy program where we'll talk to about 200 clients every month and get feedback and I can track that by every sector and we'll get an advocacy rating and we get really rich feedback from them. For example, we'll just use that feedback on some work that we're doing on our online platforms and digital approach. So, we'll use those clients to get rich feedback. We get about a 25% hit rate on [ PLI ] which is really good. So that's our internal measure. And then our CEO, Nell Hutton has just announced that we'll be using [ PE ] in the future. A number of years ago, we came out from PE. Our competitors use PE at the institutional end. But if you want to be the leading institutional bank, my personal view is that PE is the key survey that measures that and we're not the leading institutional bank now. But good news is we're making good momentum. At the early stages, remuneration at a high level, some of the number of transition plans we conducted was actually in our scorecards as well as achieving the full [ 9 ] targets that we've got against the NZBA targets. So, the targets are obviously in place. And clearly, we've got to make sure we're aligned to those as well.

As well as our progress against our sustainable finance targets.

Yes.

Lucy Grech from Australian Retirement Trust. I'm just curious, you're talking about a customer engagement program. How are you tracking any changes and improvement?

In what areas. Just expand on that a little bit.

So, you're engaging with 150 top customers. How are you tracking any changes that they're making? You kind of made a point that they're making these changes due to the banker's engagement. How you then track that engagement?

So firstly, the job of the bank is to engage with their client. It's the #1 thing they do and that's where we create value. We don't create value sitting in the office. So, getting out and talking to clients and having a reason to talk about with them and work them is really important. Typically, it's through feedback on where they've made enhancements. Usually when we're having the more formal structure that I talked to was typically be with the CFOs, sometimes CEOs got operational people and we'll work with them. Often, it's feedback, the examples I gave drew out where clients have come back and say, gee, thanks for that question based on where some of your questions we've uplifted this part. So, it's more ad hoc and it's not something we're sort of ticking for our own success. But what we're doing is as we've gone back to our clients and explained where we see them rating and we let them know where their rating is compared to others and the end is since there is dialogue. Most important thing, I think, with climate change is continue dialogue both for us learning and also clients because a lot of the clients don't know where they are compared with sectors and because they've got sector bankers, we can provide insights, obviously without breaching confidentiality or privacy that can help them understand where they should take their plans.

Anita Stanley from Macquarie. Just a question around the human rights and you talked about how you've -- the ESG tools have led to 164 customer escalations. I was just curious if you could provide after those escalations, how many potential transactions were refused? Are you able to provide any color on what types of issues that you were seeing that caused the escalation?

I might start and Al may add to it as well. So, we've got -- as it relates to our role as a lender, we've identified around 10 issues that are most valiant to us. Issues such as modern slavery, land grabbing, financial inclusion, issues such as that. So, having identified what those key issues are, we did a scan of our book. And we've got an ESG digital tool in all our lines of business that screens essentially customers and transactions. And what was really interesting is in the first year where we scanned our entire lending book, particularly the [indiscernible] bank, the #1 issue that came up, we thought was going to be climate related, but it's actually people related, human rights related, whether it's in the supply chain or directly in the business. So, what happens then, that ESG team will make an assessment in terms of are these material -- are these issues that we should be digging deeper on and should we be escalating it. And if we were to escalate it, then it goes to a customer transaction risk escalation committee that we've got again in all our divisions to look at that a bit further. I can't give you sort of details as to what -- how many we pass or decline, but let's just say they're very well debated. It could be issues related to dissent or it could be issues related to fair pay, for example, and as I said, issues related to the supply chain. Al, did you want to add to that?

So, WIB has run what we call [ CEC ] which is the Customer Escalation Committee for over 3 years now. And I think we had over 200 -- we had over 250 clients that have gone through that. Range of things, as Michael mentioned, ESG, financial crime, conflicts, for example. Typically, it will be a 2- or 3-page paper. The sole decision maker is Nell Hutton, the CEO, and we will work through our frameworks. We'll check that we're okay with our policies and how that works and we'll make decisions. The amounts that we decline are small. Typically, you -- and I always say that because I often get feedback from our risk colleagues to say, you want to put more people up, but I expect my bankers to screen out deals really early. So, they shouldn't be just putting everything up so the CEO declines because that's not great use of Nell's time. But anything that's contentious should -- or we see this contentious would bring up for a discussion around a set framework where we'll have people like Michael, if it's ESG related, if it's complex, we'll have our compliance people that will be there, and we'll work through that to make a decision. And it also provides really good documentation of our decision to progress the client selection because in banking, it's the most important thing you do is your client selection and you get certain triggers to do that and you've got to make sure that you do it really well.