Elaine Chuah’s conversations with clients are changing.
Increasingly, the first topic isn’t loan products or interest rates – it’s ESG (or environmental, social and governance) issues.
“Our clients are initiating conversations on this topic,” says Chuah, a relationship manager with Westpac Institutional Bank.
“While (they) may not all be at the same stage when it comes to ESG, it’s front of mind for all of them. So, it’s important to be well-versed in ESG and build the skills and knowledge to enable us to be part of these continuing conversations.”
To build on her expertise, Chuah seized an opportunity to be one of the first to participate in a new ESG training program being offered to 800 Westpac employees, developed by the bank in collaboration with Monash Sustainable Development Institute and ClimateWorks Australia at Monash University.
The program provides “practical take-aways for bankers” which translate the knowledge and insights built up by Monash Sustainable Development Institute, according to its Director Education Associate Professor Annette Bos. The aim is to improve participants’ capability in engaging with the bank’s commercial and institutional customers on emerging ESG issues, and commercial opportunities to help them in the transition to a net-zero future.
It comes after Westpac chief executive Peter King in September called out climate change as a strategic priority within the bank’s “fix, simplify, perform” agenda, and follows a year of intense focus on ESG and climate impact culminating in the COP26 Climate Change Conference in Glasgow in November 2021.
COP26 highlighted the critical role of the finance sector in helping facilitate the transition to net-zero, according to Westpac institutional bank chief executive Anthony Miller, who says ESG capability is quickly becoming “a prerequisite to doing business”.
“We’re seeing the increasing importance of companies having robust ESG strategies to get funding from investors,” Miller says.
“Within the decade, we can anticipate this being a must-have.”
He adds that ESG can’t be something that just a few people at the bank “do on the side”.
“We have to make sure every banker understands it and is immersed in it – that they have the language, the science and the intellect not just to help clients, but to do so by debating and testing them,” Miller says.
It’s an area in which the bank has been active for more than a decade, having been involved as a major financier to climate solutions such as renewable energy projects including $1.9 billion of new lending last year, and in the fast growing field of sustainable finance such as sustainability-linked loans and bonds.
Most recently, the bank joint-led a sustainability-linked loan as part of last month’s $1.4bn debt refinancing deal for Treasury Wine Estates – believed to be a first for the wine industry in the Asia Pacific. Through margin adjustment, the sustainability-linked loan incentivises the owner of wine brands including Penfolds, Wynns and Wolf Blass, to hit sustainability targets, including achieving 100 per cent renewable electricity use by 2024, and having an even gender balance in senior leadership and 42 per cent female representation overall by 2025.
Sustainable finance instruments like these are increasingly sought-after by organisations looking to align their financing and sustainability goals, which in turn attract investors looking to invest in companies with robust sustainability strategies.
Indeed, total sustainable debt issuance through 2021 exceeded US$4 trillion according to research company BloombergNEF, a market it estimates could swell to US$11 trillion by 2025.
Another early participant in Westpac’s new ESG training program, Jody Mitchelmore, says he is seeing a shift in the way businesses are approaching ESG and that it was more than just the “E”.
“This training gave a good overview on the way climate change impacts customers, but it also took a broader view – it brought in the social impacts too,” says Mitchelmore, the bank’s head of institutional and corporate credit.
“For instance, a company which builds solar farms aligns with our climate change ambitions, but you need to look a little deeper and consider ESG impacts relating to the construction, operation and supply chain.”
Miller agrees social and human rights risks are also becoming increasingly important, even with the world’s massive task to combat climate change and transition to net-zero.
“Companies will need to change the composition of their portfolios, and adopt new business models to support net-zero, particularly for emission intensive sectors – for example, those in the energy, industrial and agricultural sectors,” Miller says.
“But ESG is a broad and growing space – and we have a significant role to play, which is also an opportunity.”
By Ben Young
Head of Fraud and Financial Crime Insights