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OUR APPROACH TO SECTORAL PATHWAYS.
Financed portfolio emissions.
This section explains how our financing1 is responding to the impacts of climate change. It includes our progress towards transitioning nine of our highest emitting sectors in line with the goals of the Paris Agreement, how we engage with customers to help them in their transition towards net zero, and our work to asse...
This year, we are disclosing our progress against our existing pathways in six key sectors and setting four new pathways and targets in two more sectors: the thermal coal sector and for the transport sector, within three sub-sectors: auto manufacturing, aviation and shipping.
We aim to progressively expand our coverage of key sectors up to end 2024, in line with our NZBA commitment and the evolution of globally recognised standards and methodologies. We expect that by end 2024 we will have established pathways and targets for up to nine sectors representing at least 75% of our financed emis...
Actions to achieve our targets.
We discuss our sectoral pathways customers’ progress as part of our large emitters engagement program, outlined on pages 22-24 of this report. The achievement of our targets will partly depend on our success in engaging with these customers to seek improved transition plans, including seeking “Paris-aligned” targets an...
We acknowledge that in some cases, supporting customers’ transition plans may mean the emissions intensity of our portfolio goes up for a period. We consider this is the appropriate step for us to take to support real-world reductions in emissions over the longer term, provided those customers have, or are in the proce...
As our customers gradually electrify, retrofit or bring online lower emissions production assets, and switch to alternate fuels, we expect to see the emissions intensity of our portfolios (for relevant targets) decline towards our 2030 targets. In Australia, the Government’s Safeguard Mechanism is intended to assist in...
Finally, each sector will have different challenges and opportunities, which we have outlined in more detail in the ‘actions to achieve targets’ of each of the sectors below.
Key elements of our approach to sectoral pathways.
In building our approach to our portfolio financed emissions, and their associated targets and pathways, we considered the following important key elements:
Science-based targets.
Decision useful metrics.
Best available data.
Science-based targets.
In setting our sectoral pathways and targets, we have referenced the International Energy Agency’s (IEA) Net Zero Emissions by 2050 World Scenario (NZE 2050) for power generation, oil and gas, steel and cement, along with other relevant sectorspecific, science-based scenarios in other sectors (details provided in the d...
We are also guided by the Global GHG Accounting and Reporting Standard for the Financial Industry published by the Partnership for Carbon Accounting Financials (PCAF) to assess data quality, and for calculation methods. The use of science-based scenarios and methodologies ensures our targets are, at a minimum, aligned ...
1. Our pathways are based on our lending portfolio, which does not include facilitated emissions eg. debt capital markets facilitation. As at October 2023, suitable standards to allow financial institutions to calculate facilitated emissions are still under development.
Overview.
Governance.
Strategy.
Risk Management.
Metrics and Targets.
Sectoral metrics and targets.
Sector exposures.
Our approach to sectoral pathways.
Pathways performance dashboard.
Energy sector.
Transport sector.
Manufacturing sector.
Buildings sector.
Large Institutional Agribusiness Customers.
Total lending portfolio.
Appendix.
Assurance opinion.
ANZ 2023 Climate-related Financial Disclosures 46
Decision useful metrics.
For each sector, we have defined a relevant metric and set specific targets and pathways, disclosed below. These targets and pathways will help provide guidance for our business teams who make decisions on how we finance customers in these sectors. These pathways are providing an important input to our decision making ...
Our choice of an emissions intensity target recognises that for relevant sectors, such as aluminium, cement and steel they are likely to be key materials that will be used in technologies essential for the transition to net zero emissions.
For some sectors, we have disclosed additional, or complementary metrics, that we consider useful to inform our decision making.
Best available data.
Developing and reporting metrics is a new and evolving practice, which depends on good quality data. We aim to source the highest quality data available, recognising that data limitations exist even in sectors with well-established reporting protocols. To maximise the quality of the data we used to calculate our financ...
Use of Exposure at Default (EAD)
ANZ has taken a conservative approach in calculating our financed emissions by using EAD instead of the outstanding amount of loans and investments. EAD represents the Group's exposure to each sector based on APRA’s calculation formula which includes total committed loans (drawn plus a proportion of off-balance sheet e...
This is a departure from the PCAF recommended approach, which recommends including the outstanding amount of loans and investments ie. excluding undrawn amounts.
While this approach means that we are attributing a higher proportion of our customers’ emissions, we consider this provides a more accurate representation of our support to our customers and the transition risks that we are potentially exposed to. The choice of the committed loan amount, rather than the outstanding am...
APRA’s capital reforms.
In January 2023, ANZ implemented the Australian Prudential Regulatory Authority’s (APRA) Basel IV rules for the calculation of capital. The implementation of these rule changes the way EAD is calculated. The actual impact will vary from sector to sector depending on product mix. For example, for the power generation po...
In general the explanation above about the materiality of the rule changes on EAD is applicable to the sectors in respect of which we have set emissions intensity metrics. For our oil and gas sector there are specific impacts from APRA’s capital reforms, which are explained in more detail on page 54.
Overview.
Governance.
Strategy.
Risk Management.
Metrics and Targets.
Sectoral metrics and targets.
Sector exposures.
Our approach to sectoral pathways.
Pathways performance dashboard.
Energy sector.
Transport sector.
Manufacturing sector.
Buildings sector.
Large Institutional Agribusiness Customers.
Total lending portfolio.
Appendix.
Assurance opinion.
ANZ 2023 Climate-related Financial Disclosures 47
Sectoral value chain activity coverage.
Our sectoral pathways and targets cover eight sectors, including three sub sectors, in the chart below, which also highlights the part of each sector's value chain on which we focus.
Power Generation Generation Distribution Electric Off-takers.
Oil and Gas Upstream Mid and Downstream (integrated companies only) Trading.
Thermal Coal Mining Transport Power generation.
Transport – Auto Manufacturing Suppliers Auto manufacturers Auto services.
Transport – Aviation Suppliers Airplane manufacturers Airline services.
Transport – Shipping Suppliers Ship manufacturers Shipping operator / owners Recycling.
Aluminium Bauxite mining Alumina refining Aluminium smelting Processing, rolling and extrusion Manufacture of products Recycling.
Cement Suppliers Production Concrete bagging, ready mix and precast Recycling.
Steel Mining iron and metallurgical coal Transport Production End-users Recycling.
Large-scale Commercial Real Estate Suppliers Construction Owners Tenants Maintenance Recycling.
Part of value chain within target scope Not in scope.
Overview.
Governance.
Strategy.
Risk Management.
Metrics and Targets.
Sectoral metrics and targets.
Sector exposures.
Our approach to sectoral pathways.
Pathways performance dashboard.
Energy sector.
Transport sector.
Manufacturing sector.
Buildings sector.
Large Institutional Agribusiness Customers.
Total lending portfolio.