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As a major lender to corporations globally, we take environmental and social sustainability issues seriously. We are all custodians for future generations, and increasingly, the ability of any company to manage sustainability issues is linked to its financial success.
Managing environmental risk
The National implemented environmental risk assessment policies and procedures in 1992. These guidelines (the Group Environmental Risk policies) were reviewed in 1995, 1998 and most recently in 2003. The policies and procedures apply the same standard to all of our business lending operations globally.
The National imposed standard goes beyond legislative compliance. Our policy requires the consideration of a number of factors including:
- addressing the link between environmental performance and economic viability of the borrower;
- considering communities' values and concerns as a legitimate risk assessment criteria;
- supporting the adoption of best available proven technology above minimum compliance with regulation;
- requiring specific loan covenants on performance monitoring of environmental licence conditions; and
- annual environmental management plans of sensitive environmental issues.
Our approach to Project Finance
Increasingly, community stakeholder groups are developing new benchmark standards that call for greater transparency and accountability of financial institutions globally in regard to the indirect impacts of their lending. Some of these standards include The Global Compact and Collevecchio Declaration.
The main concerns of community stakeholders are in regard to large financial institutions that finance or invest in projects in developing or emerging countries, where the environmental and social risk assessment can be below acceptable standards.
In 1998, the World Bank and International Finance Corporation (IFC) developed a series of Safeguard Policies to serve as the baseline environment and social consideration for awarding of funding to projects in developing countries. Some of these guidelines form the foundation for the Equator Principles, a set of environmental and social risk guidelines that some banks have adopted for project financing in excess of $US50 million. Under these Principles it is possible to comply with the World Bank and IFC Safeguard Policies but not comply with the compendium standards of the Pollutants Prevention and Abatement Handbook. Importantly, our requirement for an Environmental Impact Assessment also applies to all projects, not just Category A projects (defined as significant environmental impacts that are irreversible) under the IFC and World Bank Standard.
During 2004, the Project Finance team at the National reviewed the Group Environmental Risk assessment policies and procedures against the IFC and World Bank Safeguard Policies as an example of one international benchmark. This analysis showed that the National's risk assessment policies and procedures applied the same standards to all project finance regardless of the loan value.
Our approach to assessing and managing environmental and social risk in project financing is based on independent expert due diligence, active risk management and continual review of policy specifically applicable to Project Finance. Current Project Finance policy on environmental and social issues requires projects to incorporate:
- engineering design that meets current environmental standards and practices, and employs appropriate technology with the ability to adapt to improving environmental standards;
- specific environmental guidelines for total emission load and concentrations;
- consideration of stakeholder requirements on social and heritage issues;
- known environmental impacts on land use with appropriate mitigation measures;
- high standard environmental impact studies with quality baseline data and full impact assessment;
- environmental performance measurement on a regular basis with demonstrated mitigation and improvement measures.
We have had, and will continue to have, discussions with a range of external stakeholder groups on the National's approach to environmental and social risk assessment in Project Finance.
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Total Project Finance exposure and Project Finance lending exposures based on World Bank classification of economies (www.worldbank.org)
As at 30 September 2004, [99.7%] of the National's global project finance loan exposures were in High Income-OECD countries (as classified by the World Bank). The Project Finance loan portfolio accounts for less than 1% of the Group's total loans and acceptances. |
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Commitment to international environmental and social benchmarks for Project Finance
The National commits to the application of the IFC and World Bank Safeguard Policies in developing nations as a minimum standard. Specifically, where there are concerns that environmental habitats, indigenous peoples and communities' rights may not be protected, the National will apply these standards, regardless of the monetary value of the project.
We also commit to the ongoing review of our environmental and social risk assessment policies for Project Finance in light of new and emerging best practice of global standards. These reviews will continue to be informed by global dialogue with all interested stakeholder groups. We recognise that our performance on environmental and social issues in Project Finance will continue to be monitored and judged by our external stakeholders.
The future and renewable energy
Increasing evidence of climate change and its detrimental impacts on communities is driving innovation and commercialisation of many forms of renewable energy sources. We are delighted to be involved with many projects that will deliver alternate energy from projects such as windfarms and engineered landfills.
This year, our Corporate & Institutional Banking Division financed the construction of Cathedral Rocks Wind Farm near Port Lincoln in South Australia. The Cathedral Rocks site is a remote coastal area located near the southern tip on the Eyre Peninsula. A joint venture project between Hydro Tasmania (Hydro) and the Spanish renewable energy group Corporacion Energia Hideoelectricia de Navarra, through their local subsidiary EHN (Oceana) Pty Ltd, the farm output will link to the South Australian electricity grid early in 2005. It will have the capacity to generate 66 megawatts of renewable energy, supplying green energy sufficient for 25,000 homes per year. Erection of the 33 two megawatt Vesta wind turbines is expected to be completed in 2005.
Both joint venture parties have track records in renewable energy. Hydro Tasmania is producing 60 per cent of Australia's renewable energy from wind and hydro power. Corporacion Energia Hideoelectricia de Navarra installs and operates wind farms around the world, and is currently responsible for six per cent of the world's wind energy generation.
At the opening ceremony held on 30 September, Hydro CEO Geoff Willis said, "The project involved extensive environmental and cultural surveys and studies to assess impacts to the Barngarla and Nauo people, cultural heritage, local flora and fauna and a public consultation program involving key stakeholders and community groups to ensure their interests in the area were considered and respected."
Furthermore, Paul Orton, Head of Corporate Banking Australia said, "A critical consideration from the National Australia Bank's perspective was the importance that the joint venture partners placed on consultation with local community groups."
Click here to download a PDF of the Corporate Social Reponsibility Report 2004 (388KB)
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