Roadmap Case Studies

The AICD has developed a guide to help directors identify and elevate key stakeholder voices to the board.

The guide explores:

• The board’s role in stakeholder governance
• Directors’ legal duties in relation to stakeholders
• Principles boards should apply to ensure effective stakeholder governance
• How boards can balance the interests of stakeholders when making decisions
• The hallmarks of good stakeholder governance

The guide incorporates advice from Australian stakeholder groups representing customers, employees, suppliers, Aboriginal and Torres Strait Islander peoples, as well as activists and community groups on matters such as climate change, human rights and environmental issues. The focus is on non-shareholder stakeholders.

The guide also offers:

• Insights from prominent directors, stakeholder groups, subject matter experts and board advisers
• Key questions the board should be asking
• Case studies demonstrating effective stakeholder governance
• Links to practical tools and other relevant resources

This guide will lead boards through the process of identifying and proactively engaging with key stakeholders and determining how best to balance the interests of stakeholders in decision making.

It can be used by directors of all organisations. Even the smallest organisation will have important stakeholder relationships and can benefit from applying the principles outlined in the guide.

AustralianSuper identifies climate change in the Terms of Reference of its Investment Committee, which has responsibility for investment portfolio management on delegation from the Fund’s board.

AustralianSuper has a multi-disciplinary Climate Change Committee comprising representatives from the investment, risk, policy and corporate affairs teams. The Committee is responsible for developing and overseeing the Fund’s climate change strategy from an investment and organisational perspective.

An Australian Sustainable Finance Learning Committee is in the process of being established by UTS’ Institute for Sustainable Futures. The aim is to provide a collaborative mechanism for exchange to communicate, co-design and implement learning across Australia’s financial system.

The Committee will operate as a Community of Practice and will comprise of university practitioners, finance sector organisations (including banks, insurers, superannuation funds, investment managers and service providers), government representatives, financial sector regulators and stakeholders. The Committee will focus on the establishment of a learning ecosystem that supports learning for sustainability across Australia’s financial system through:

• Formal education courses of study that provide a mechanism for an individual to acquire skills
• Continuing professional development (CPD) that ensures that skills are continuously updated to support practitioners in their evolving roles
• New knowledge generated through research projects which is then communicated to individuals through CPD programs

A Net Zero Masterclass is also being piloted to build the skills of employees across Australia’s financial system.

Australian Council of Superannuation Investors (ACSI) and the Church of England Pensions Board has partnered with a group of 64 international investors representing US$10.2 trillion in assets under management to write to investee companies around the world to understand their approach to consultation with Traditional Owners and Indigenous stakeholders, in particular in relation to free, prior and informed consent. The investor group aims to examine the approach taken to date and how standards have been applied and monitored across the sector.

The ASFI Roadmap recommendation focuses on the provision of finance. The ongoing stewardship in relation to investee companies is vital to promote sustainability and therefore, our work program is ongoing. Investors are seeking to understand and promote better practice to manage this material investment risk. The work program will include engagement with Traditional Owners, Indigenous stakeholders, companies and investors.

The work will promote a better understanding by investors of the risks associated with failure appropriately protect Indigenous cultural heritage. We want to understand how companies across the industry are managing these risks and working to ensure that a disaster like the Juukan Gorge never happens again. Good practice exists within the sector and the investor group is seeking to better understand the practices of companies to ensure best practice becomes the minimum operating standard. This is the beginning of a long process, aimed at more sustainable financial outcomes over the long-term.

Australian Prudential Regulatory Authority (APRA) launches prudential practice guidance for all APRA regulated entities on remuneration practices, including non-financial measures

CPS511 requires an entity to maintain a remuneration framework that sets out the key policies and processes needed to meet CPS 511 requirements. This includes the structure and terms of remuneration arrangements, the process for managing risks from the remuneration practices of any third-party service providers, and operational systems and processes.

In incorporating non-financial measures into the design of variable remuneration arrangements, the guidance notes that good practice would be to ensure that:

a) the impact of non-financial measures on individual variable remuneration can be easily understood, particularly in complex methodologies;

b) remuneration outcomes are sensitive to the assessment of non-financial measures, as there is otherwise limited scope to impact behaviours;

c) non-financial measures can impact each and all components of variable remuneration, including any long-term and short-term incentive plans; and

d) the impact of non-financial measures is not merely considered in cases of significant events, such as misconduct or adverse risk outcomes.

Defining non-financial measures

APRA notes that the purpose of applying a material weight to non-financial measures is to promote a balanced approach to incentives, encourage the prudent management of risk, and limit financial performance measures so that they are not the only or predominate driver of remuneration outcomes.

APRA expects an entity to define non-financial measures that best suit their particular strategy and risk objectives, and reflect their specific risk profile. The selection of non- financial measures is critical in articulating, shaping and promoting the goals and incentives for employees. A prudent entity would be able to demonstrate how non- financial measures support their desired risk culture, and promotes the prudent management of key risks.

Illustrative examples of non-financial measures used domestically and internationally include:

• Risk management objectives and initiatives, including remediation activities, control effectiveness, regulatory and audit findings, and risk culture surveys;
• Best interests of beneficiaries (RSE licensee), including fund performance and member returns;
• Conduct risk, such as breaches, incidents, event reports and customer complaints; and
• Broader indicators, such as strategic goals, employee engagement, customer satisfaction, and environmental, social and governance criteria.

A prudent entity would be able to demonstrate how non-financial measures incentivise risk management, and would not rely only on metrics such as strategic goals. It is important that the use of broader indicators do not lead to the exclusion of risk management indicators.

National Australia Bank (NAB) is building a team of climate experts to support the low carbon transition plans of its biggest greenhouse gas-emitting customers.

Over the next two years, a group of corporate and institutional bankers will complete a new course developed for NAB with Melbourne Business School (MBS).

Bankers will be trained in identifying climate-related financial risks and transition planning so they can better work with customers.

Over the next four years the training program will involve more than 30,000 colleagues refining the skills needed to serve customers and communities well, including the environmental impacts of business operations and sustainable business practises.

NAB starts the training program with Melbourne Business School (MBS) in May 2021.

NAB also trains its bankers through its Career Qualified in Banking Program, where all employees will undertake a professional qualification that’s been developed in partnership with the Financial Services Institute of Australia (FINSIA).

https://news.nab.com.au/news_room_posts/nab-skilling-bankers-to-support-big-carbon-emitters-transition/

Teachers Mutual Bank Limited (TMBL) is different to other banks: profit-for-purpose is the business model and philosophy.

The Bank operates under socially responsible strategies, standards and practices that apply to all the banking divisions and products. These are written into the Constitution and the member-owned structure. The Business Objective of the Lending Risk Policy is that “The Bank strives to provide quality services to members via prudent lending practices that are financially, socially and environmentally sustainable.”

The Bank applies strict social responsibility criteria when it comes to investing and lending members’ money, and is the only Australian bank to certify retail deposits, mortgages as well as wholesale funding.

It does not lend to or invest in sectors that harm our society or our world, including alcohol, armaments, correctional facilities, cryptocurrency, deforestation or gross environmental degradation, fossil fuels, gambling, military activities, political activities, pornography, slavery, tobacco, or uranium.

CMSI was established as an industry-led collaboration to assist with, and support, climate-related financial disclosures. CMSI involves insurers, banks, re-insurers, investors, scientists, reporting standards professionals, service providers and supporting parties. CMSI worked in parallel to the development of the ASFI Roadmap to get a head start on the development of Australian specific guidance materials for TCFD reporting for the Financial sector.

Taking a phased approach to a large complex task – CMSI focused its first sprint on developing technical, business and scientific standards for climate-related physical risk projections of the future costs of repairing and replacing Australian buildings and infrastructure.

By bringing together leading industry, scientific and financial experts, CMSI hopes to increase Australia’s ability to address climate change by enabling companies to make informed, scientifically robust, strategic decisions.

In its first phase, the CMSI has published and recommended financial disclosure guidelines and developed scientific scenario specifications for the purpose of disclosure of scenario analyses for climate-related physical damage to buildings and infrastructure. It considers a wide range of chronic and acute risks for the general insurance, banking and asset owner sectors. These guidelines and specifications are open-source and voluntary.

In further phases CMSI intends to iterate the recommendations provided in the reports in line with further developments in climate science and the application to financial disclosure; extend the physical risk analysis to cover additional impacts and more complex risks; and develop additional guidance around scenario development for transition risks.

The draft Prudential Practice Guide (PPG) aims to assist entities by providing guidance on prudent practice in the management of financial risks arising from climate change, including with respect to governance, risk management, scenario analysis and disclosure.

The plan to develop this PPG was outlined in APRA’s 2020 letter to industry on climate change financial risks. It responds to requests from regulated entities for more information about APRA’s expectations, and insights on better industry practice, in managing climate change financial risks. The draft PPG is designed to assist entities to consider climate risks and opportunities within their existing risk management frameworks, and to support well-informed decision-making.

APRA has engaged with the other agencies from the Council of Financial Regulators in preparing the draft PPG and has also aligned the draft PPG with recommendations from the Financial Stability Board’s Task Force on Climate-related Financial Disclosure (TCFD). The draft PPG has also been informed by APRA’s engagement with peer regulators in other jurisdictions.

Scenario analysis is an area where APRA sees a wide range of capabilities and practices. APRA is currently undertaking a climate vulnerability assessment (CVA) involving Australia’s largest banks, which will involve climate scenario analysis in line with the expectations outlined in the draft PPG. In due course, the lessons from the CVA exercise will be shared with the wider industry to support entities in improving their scenario analysis. Link

In alignment with ASFI recommendations 11 and 12, Mercer published its progress in alignment with the Task force on Climate-related Financial Disclosure (TCFD) recommendations and supports asset owner clients who are looking to do likewise.

The scenario analysis and related analytics encouraged by ASFI recommendation 16 were reportedly important stepping-stones for Mercer’s net-zero commitment, and the executive and board support that underpins that commitment.

Mercer has developed analytical tools that pair scenario analysis with stress testing, including physical, policy and transition risks. The results allow the firm to have practical conversations with its internal stakeholders about portfolio outlook in a changing world. The tools that are applied to Mercer’s own funds are also available and have been utilised by its clients globally.

1) Recognising Natural Capital Program (ReNCaP), a national initiative which aims to identify and test how natural capital can be recognised on the balance-sheet. This project has adopted a co-design approach with both State and Federal Government participation with a strong engagement from the finance sector.

2) The Climate Risk Ready program (CRR) is jointly sponsored by NSW Treasury, to improve the management of climate risks to NSW Government assets and services and to mainstream these considerations into government decision making.

3) National housing disclosure and ratings work, on behalf of the Federal Government, in collaboration with the finance and social housing sectors. This work is focusing on ensuring consistent and reliable data underpins decision making regarding funding and finance and ultimately interventions in the housing market.

In addition to the above activities, the newly announced Net Zero Industry and Innovation Program includes a focus on Clean Technology Innovation – which aims to identify and facilitate the commercialisation of sustainable technologies, including identifying suitable funding/finance vehicles which can be led by governments

Guided by the ASFI Roadmap recommendation 14 and supported by RIAA’s annual member survey results which highlighted nature and biodiversity as a top ESG priority, RIAA is launching a Nature working group to play a leadership role in supporting the development of the Taskforce on Nature-related Financial Disclosures (TFND).

This working group will primarily serve and provide a platform for working towards establishing a TNFD reporting framework and guidance for nature-related financial disclosures. The working group objectives are to:

Build out the recommendations of the Australian Sustainable Finance Initiative (ASFI) and Aotearoa Circle’s Sustainable Finance (SFF) Roadmaps

Engage with the latest international developments (particularly the TNFD)

Address nature-related financial risks and expand opportunities in Australia and Aotearoa New Zealand.

As part of Aware Super’s strategic initiatives, in 2018 a framework was established to help measure the impact of its investments and assess how some of its key investments are contributing to the United Nations Sustainable Development Goals (SDGs).

The Impact Measurement Framework measures the positive impact of our investments across the following areas:

• social impacts, such as jobs creation and access to affordable housing
• environmental impacts, such as climate change solutions and renewable energy generation
• sustainability impacts, such as waste avoided and contributions to a circular economy.

Aware Super measures the positive impacts of 10 assets – representing approximately $1.6 billion of its members’ retirement savings. Over time, the Fund intends to add more assets and a greater percentage of its overall portfolio.

Impact measurement results for the year to 30 June 2020 include:

• 228 FTE additional jobs created (SDG 8)
• 178 key workers benefiting from affordable housing (SDGs 10 & 11)
• 133 retirement village villas fitted with solar energy (SDG 11)
• 400,849 MWh of renewable energy generated (SDG 7)
• 477,000 M3 of agricultural waste reused, avoiding landfill (SDG 12)

This information is publicly disclosed in its 2020 annual report.

Through the Resilience Valuation Initiative, the Australian Business Roundtable for Disaster Resilience & Safer Communities (ABR) is leading a coalition of stakeholders to advance an accepted process with enabling methodologies for understanding the value of a resilience-building asset, feature or activity in Australia.

Current members of the ABR are leaders from Australian Red Cross, IAG, Munich Re, Optus and Westpac Group.

The ASFI Roadmap calls out the need for and benefits of investing in risk reduction and disaster mitigation and provided an important reference point in developing our rational.

The Resilience Valuation Initiative is well aligned to the ASFI Roadmap, specifically recommendations 18 and 34. We see our work potentially delivering against the framework for assessing the cost of mitigation investment that factors in broader social costs and benefits proposed by ASFI.

http://australianbusinessroundtable.com.au/our-initiatives

The Financial Inclusion Action Plan (FIAP) Program provided a platform for organisations from diverse sectors to combine forces to collectively improve the lives of millions of people in Australia.

40 organisations joined the program who together employed over 250,000 people with 80 percent of the Australian population as customers. Demonstrating that realising greater financial inclusion and resilience is not the responsibility of any one sector, these members represented financial services, utilities, social services, government, education and legal services amongst other sectors. It was led by Good Shepherd Australia New Zealand and the Centre for Social Impact.

https://sdgs.org.au/project/financial-inclusion-action-plan/

Some links to examples of FIAPs are provided below.

https://www.iag.com.au/financial-inclusion-action-plan
https://www.qbe.com/au/about/sponsorship-community/fiap
https://www.australianunity.com.au/about-us/fiap

There are a range of financial institutions, organisations and regulatory bodies that have adopted a Reconciliation Action Plan, with a RAP Impact Report highlighting the breadth and depth of progress and the gaps that remain.

For illustrative purposes, some examples of RAPSs that have been developed by financial sector participants are provided below. This list is not intended to be exhaustive but illustrative of the range of different participants and approaches that are emerging across the financial sector.

Hesta’s Reconciliation Action Plan Innovate - “HESTA acknowledges Aboriginal and Torres Strait Islander peoples as the Traditional Custodians of all Lands on which we come together. At HESTA, we know that Aboriginal and Torres Strait Islander cultures enrich this nation and we pay our respects to Elders, past and present.”

Hostplus ‘Innovate’ Reconciliation Action Plan - “We are committed to ensuring all Australians have access to the tools and resources required to enjoy the retirement they deserve. We are also very aware of the current social and economic challenges faced by members of Aboriginal and Torres Strait Islander communities around the country. The Innovate Reconciliation Action Plan represents an important step on our journey to promote awareness of these challenges both internally and externally. Significantly, the document also serves as a road map of the actions the fund will take over the coming 18 months to help close the gap between Indigenous and non-Indigenous Australians as we work to deliver a brighter future for our members.”

IAG Reconciliation Action Plan Elevate - “At IAG, our vision for reconciliation is that Aboriginal and Torres Strait Islander peoples, businesses and communities will be safer, stronger and more confident as we partner with Indigenous-led organisations and engage the passion of our people.”

QBE Reconciliation Action Plan Elevate - “As an active insurer of Aboriginal and Torres Strait Islander communities in Australia, we’ve long been committed to those communities and the preservation of Indigenous culture, values and traditions. Our vision for reconciliation is for Australia’s First Peoples to be valued, accepted and to experience equality in our society. We value their customs and rich heritage and want to see this preserved and celebrated for generations to come.”

Westpac Elevate - “Our 2018-2020 Reconciliation Action Plan (RAP) – the fourth since we launched our initial plan in 2010, lays out our vision for reconciliation, focusing on four areas where we believe we can achieve the most significant outcomes. It has been ranked ‘Elevate’ status by Reconciliation Australia, the highest status to be awarded.”

National Australia Bank Elevate - “Working together with Indigenous Australia, we are helping to strengthen financial resilience, increase business and employment opportunities, and develop NAB’s cultural capabilities. In turn, this helps improve life outcomes in economic empowerment, employment, and education for Indigenous Australians, and a better future for all of us. Our commitment to Indigenous Australians has been guided by our Reconciliation Action Plans which cover economic participation, employment and career development, and cultural understanding.”

TCorp is invested in the future of NSW and recognises it has a role to play in Australia’s contribution to the meeting the United Nations Sustainable Development Goals (SDGs).

TCorp established the NSW Sustainability Bond Programme which allows it to issue green, social and/or sustainability bonds, providing a mechanism for investors to contribute capital to accomplish environmental and social goals.

https://www.tcorp.nsw.gov.au/resource/Case_study-Helping_the_NSW_Government_deliver_on_sustainable_social_and_green_infrastructure.pdf

An initiative of ClimateWorks Australia with Monash Sustainable Development Institute. The Net Zero Momentum Tracker monitors Australia’s progress towards net zero emissions across key sectors of the economy.

The latest update indicated that 195 organisations have been analysed, 52 of which have committed to net zero by 2050 pathway. In addition to the State Governments and Territories all committing to net zero emissions, the commitments span the corporate sector, banking, insurance, superannuation funds, asset managers and other financial market participants.

https://www.climateworksaustralia.org/net-zero/

The Centre for Policy Development (CPD) released a new supplementary legal opinion by Noel Hutley SC and Sebastian Hartford Davis on climate change and directors’ duties, building on their landmark 2016 and 2019 opinions on company directors’ duties to consider, disclose and respond to climate-related risks.

The latest analysis emphasises that the bar for directors continues to rise amidst surging global action on climate, and highlights legal risks associated with “greenwashing” – including around corporate net zero emissions commitments – as scrutiny of climate-related targets grows.

‘Greenwashing’ on climate creates clear legal risks. Greenwashing can constitute misleading or deceptive conduct, including for organisations selectively disclosing their exposures or not taking credible steps to operationalise net zero commitments. Care needs to be taken to ensure that climate-related targets and analysis are rigorous, underpinned by appropriate governance, strategy and action, and reflected in financial statements as required

Superannuation funds can play a catalytic role in supporting the climate transition and should prepare for greater scrutiny of their climate-related governance and risk management. Recent developments, including the REST settlement, have highlighted the need to mainstream climate risks as a core focus of governance and risk management, especially as the investment risks and opportunities related to climate become increasingly dynamic and complex. As universal owners, superannuation funds have a major interest in supporting an economically and socially sustainable zero carbon transition.

Industry-level collaborations on climate must consider the implications of competition law but, if properly managed, these issues should not impede collective action to address climate change. There is growing enthusiasm to collaborate across sectors and supply chains to develop and roll out low-emissions technology, and to design and deliver industry-level net zero pathways. In some circumstances, coordination between competitors, on climate as on other issues, may constitute cartel conduct, but exemptions and authorisations are available. Provided collaborative initiatives across industries and sectors are mindful of these provisions and proactively address them, competition law need not represent a major obstacle to collaboration on climate.

https://cpd.org.au/wp-content/uploads/2021/04/Summary-of-Conclusions-Climate-Risks-Roundtable-.pdf

Climate League 2030 is a ten-year, private sector-focused initiative to support and act towards a goal of reducing Australia’s annual greenhouse gas emissions by at least a further 230 million tonnes from what is projected for 2030.

The initiative is coordinated by the Investor Group on Climate Change (IGCC) and assisted by foundational supporters Aware Super, Cbus, IFM Investors and the Queensland Investment Corporation.

To help put Australia on a Paris-aligned emissions trajectory, investors, banks, insurers and businesses must be part of the solution. To participate in Climate League 2030 organisations support the initiative’s goal and commit to taking at least one new action each year that will make a demonstrable contribution to reducing Australian emissions. Participants can commit actions under the following themes:

Integrating Paris-aligned emissions reduction goals into the organisation’s investment policy or business strategy

Collaboration between investors, clients and companies to deliver absolute emission reductions

Investing in line with the goals of the Paris Agreement

Climate League 2030 participants will report annually on the progress towards their existing commitments and detail how these actions are helping to reduce Australian domestic emissions. Each participant will also pledge at least one new action each year. The collective progress of the registered actions in contribution to the initiative’s goal will be reported periodically.

Climate League 2030 was launched in October 2020 starting with investor participants. Over the following 18 months it will be progressively opened to banks, insurers and companies to replicate the coverage and success of initiatives in other markets, such as We Are Still In in the U.S. and the Climate Leaders Coalition in New Zealand.

Mercer noted that the clear signal of industry intent embedded in ASFI recommendation 31 added credibility to its proposal internally to achieve net zero emissions by 2050 for its Managed Funds and the Mercer Super Trust.

The clarity afforded by the ASFI roadmap also enabled Mercer to launch its Analytics for Climate Transition advisory service for asset owners looking to make similar commitments.

Australian Super’s participation in collaborative investor initiatives like the Sustainable Development Investments Asset Owner Platform (SDI-AOP) are important mechanisms for influencing change on a global scale.

The Fund’s involvement in the SDI-AOP with APG, British Columbia Investment Management Corporation and PGGM brings together a group of asset owners who collectively manage more than US$1 trillion in assets.

The platform has been developed specifically by asset owners for asset owners, to help investors identify and assess companies on their contribution to the Sustainable Development Goals by providing a common taxonomy and extensive IA-powered mapping. The SDGs are important for investors as they provide a pathway for fostering sustainable economic development and growth by tackling 17 of world’s most urgent sustainability challenges including climate change, water scarcity, healthcare access and social inequality.

Adding an SDG lens to the investment process alongside traditional ESG metrics can provide a holistic view of the investment portfolio and future opportunities, while offering valuable insights to integration and stewardship practices.

The next big step for the platform is defining forward-looking metrics to enable reporting on SDI outlooks of companies based on SDG-aligned patents. This is an important development as the industry moves towards more transparency about how investment portfolios can contribute to solutions for global sustainability challenges.

Powering Australian Renewables (PowAR) reached agreement to acquire the Australian assets of Tilt Renewables Ltd (Tilt).

PowAR – a partnership between QIC, the Future Fund and AGL Energy Ltd –announced that it has joined with Mercury NZ Limited to acquire all the outstanding shares not already owned in Tilt.

Under the terms of the proposed transaction, PowAR will take ownership of all of Tilt’s Australian businesses and Mercury NZ will take ownership of all of Tilt’s New Zealand businesses.

Tilt is a developer and operator of renewable generation assets across Australia and New Zealand, with total operating capacity of 836 MW across seven wind farms in operation and two further windfarms in commissioning. The company has a development pipeline of more than 5,000 MW1 capacity across various technologies, including wind, solar and battery storage and peaking capacity.

The transaction, when completed, will reinforce PowAR’s standing as Australia’s largest owner and operator of renewable energy, with installed capacity of 1,313MW across seven operating wind and solar farms, with a further two wind farms in the final stages of commissioning. PowAR’s development pipeline would represent the largest, high-quality portfolio of renewable energy development opportunities in Australia, at more than 3,500MW across wind, solar, battery storage and peaking capacity.

https://www.qic.com.au/investment-capabilities/global-infrastructure/assets/powar