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Westpac NZ has become the first bank in New Zealand to release a report detailing its exposure to climate-related financial risks.
The report is consistent with Taskforce for Climate-Related Financial Disclosure standards, and has been published ahead of changes by the Government that will require large organisations to provide disclosure of this type.
Westpac NZ Customer Experience Hub General Manager Karen Silk says a team has been working on the analysis for more than a year.
“Climate change is the biggest environmental threat we face. It will have profound economic and social impacts on New Zealand in the decades to come. Simply put, climate risk is financial risk.
“That’s why we put this report out and why we support mandatory disclosure of climate risks to customers, staff, shareholders and the public.”
Westpac NZ identifies in the report that between 2% and 3% of its residential mortgage lending, commercial property mortgage lending and agricultural mortgage lending portfolios are potentially subject to heightened risk from coastal erosion and flooding as a result of sea level rise.
“Through risk-based pricing we anticipate that over the coming years many of these properties will see insurance premiums increase,” says Ms Silk.
“In some cases insurance may become unaffordable or unobtainable.
“When and how insurers adjust pricing is uncertain, but it is a key risk factor for the bank as we require the houses we lend on to be adequately insured.
“The wide range of possible scenarios in relation to these risk factors limit Westpac NZ’s ability to accurately estimate future financial impacts, but we expect this information to improve over time.”
Building on the work of Westpac NZ’s 2018 Climate Change Impact Report, the new research also lists the bank’s lending exposure to key industries subject to climate-related risks: agriculture, oil and gas, transport and electricity generation.
Ms Silk says Westpac NZ has been talking to its commercial customers about ways to decarbonise their operations for several years.
“We’ve seen a real shift in attitudes, and have noticed sectors like agriculture becoming really engaged in these conversations.”
Westpac NZ became New Zealand’s first Toitū carbonzero certified bank in March and further reduced its own operational carbon emissions by 19% in the year to 30 June 2020.
It has pledged to electrify all of its vehicle fleet by 2025.
“While we’re hugely proud of our own emissions reduction activity, we know our true power to effect change arises from our status as a lender,” says Ms Silk.
“That’s why we’ve been increasing our lending to climate change solutions, while also reducing our lending to fossil fuel mining and production. Since 2012 we’ve reduced our lending to fossil fuel mining and production by around 60% and we’ve stopped lending for coal mining altogether and have no plans to start again.
“We’re also trying to offer our consumer customers solutions that address climate change. Our Westpac Warm Up programme provides a $10,000 interest-free loan to customers with mortgages, so they can make their home more energy-efficient through heating, ventilation, insulation, double glazing or solar power.
“It was released this year and we have already received more than 2700 applications and had over $16.9m drawn down.”
Ms Silk says reporting on climate risk will become even more valuable in future years as the quantity and quality of information increases.
“We really encourage our customers to think about their climate-related risks, actively manage and disclose those. It is better that New Zealanders start understanding climate risk now and using the available information to make good decisions, instead of waiting to think about it in future years.”