NAB has formally responded to our financed deforestation resolutions, confirming their Board is not supporting either of our proposals, despite them ensuring the bank can better manage deforestation risk.
NAB also provided an update on how they’re approaching deforestation in their annual report. We note some progress has been made in improving the bank’s ability to investigate cases of illegal deforestation, including those raised by ACF, through use of publicly available tools and geospatial mapping. Given all the steps bankers must now take to identify illegal deforestation, we think NAB is well positioned to provide the disclosures requested in the proposals.
However, NAB has failed to satisfy any of these asks in their updated reporting: on disclosing a deforestation exposure assessment and a strategy to eliminate financed deforestation.
Almost every single risk posed to NAB and its customers from deforestation, exists whether clearing is conducted legally or not (the only exception being fines and remediation costs arising from customers engaging in illegal activity). NAB has not provided any rationale as to why their approach shouldn’t address all deforestation.
We’ve provided the facts in response to their rationale below, with more information on these misconceptions provided in our Investor Briefing. We encourage shareholders to scrutinise the “challenges” the bank has claimed it has in its notice of meeting, and to support these proposals to ensure nature-related risks can be managed effectively.
Resolution 5(a): Disclosure of financed deforestation
We’ve asked NAB to assess and publicly disclose its deforestation exposure through provision of finance to its agriculture sector customers. They provided the following reasons why they won't.
NAB's rationale: "Complexity, breadth and variability of nature-related risks and what it means for customers."
OUR RESPONSE
The resolution focuses on a single nature-related risk - deforestation - which NAB is already committed to managing, stating in its notice of meeting that ‘deforestation may present commercial and environmental risks to customers’.
An assessment of deforestation exposure would enable NAB to understand its exposure to high-risk regions and high-risk commodities and channel its efforts to address risk.
NAB's rationale: "Data availability, quality and accessibility."
OUR RESPONSE
There is high-quality, publicly available data on forest-extent in Australia, such as the VMAP Tool from the Australian National University which NAB references in its annual report.
NAB is also currently trialing a third-party geospatial tool, which is one of a multitude available to financial institutions in Australia. The bank has already geolocated its agribusiness customers with this tool for climate risk purposes. It therefore has the internal data available to complete a deforestation risk assessment.
While we leave it to the discretion of management to decide how a risk assessment could be disclosed, it could be as simple as portfolio exposure e.g. exposure at default to customers in high-risk deforestation regions within Australia and those producing high-risk deforestation commodities. ING are one of the banks that have already disclosed this.
NAB's rationale: "Building internal capacity to consider nature within financial decisions."
OUR RESPONSE
In our engagement with NAB over multiple years we have gained confidence that it has the internal capability and capacity to complete this assessment. The insights from such an assessment would allow NAB to focus its resources on addressing the customer segments with the highest risk.
Resolution 5(b): Strategy to eliminate financed deforestation
We’ve asked NAB to disclose a strategy to eliminate financed deforestation in line with credible frameworks such as the Accountability Framework initiative. They provided the following reasons why they won't.
NAB's rationale: "data limitations"
OUR RESPONSE
Publicly available, high-quality data is already available as mentioned above.
Given NAB's significant investment in geospatial tools and utilisation of public tools, broad statements like 'data limitations' do not provide adequate insight into the perceived limitations.
Even where there is a perception that data is not available, disclosure of a strategy to eliminate financed deforestation could include a plan to address any perceived data limitations.
NAB's rationale: "definitional uncertainty"
OUR RESPONSE
Globally, companies and reporting initiatives like CDP and SBTi have converged around the definition and principles from the Accountability Framework initiative (AFi). Under the AFi guidance, companies can use the UN Food and Agriculture definition of forest (also used by the EU and SBTi) or adopt a credible national definition of forest thresholds.
This means there is no uncertainty on the ability for NAB to apply the Australian national definition of forest. Large companies like Coles have adopted this approach and are progressing with the integration of their deforestation-free beef commitment, for example.
NAB's rationale: "a complex state and federal regulatory landscape"
OUR RESPONSE
Deforestation is the conversion of forest to another use, regardless of legality. A strategy to eliminate deforestation must extend beyond compliance with legislation given the associated risks. Verifying that customers are not engaging in illegal activity is the minimum shareholders should expect of the bank.
To address the risks posed by deforestation and to ensure customers protect natural capital, NAB should set clear expectations for customers to cease deforestation.