Social and environmental risks in Institutional lending

We seek to operate in a way that minimises the social and environmental impacts associated with our business, while at the same time enabling opportunities for positive social and economic development. This includes ensuring social and environmental considerations are taken into account in the business activities and financing decisions in our Institutional division, which serves ANZ's business, corporate and institutional customers.

Some stakeholders call for banks, including ANZ, to 'redline' or exclude particular clients or sectors. While we have defined some areas we will not lend to – for example the manufacture of certain types of armaments – our approach and preference is to work with our clients to help minimise or mitigate social and environmental impacts and, where appropriate, provide financial support to help them improve their performance.

Our experience is that when a strong and trusted banking relationship exists, we can make a difference by offering new ideas, perspectives and financial solutions to help our clients address these issues. It also takes time.

ANZ's Institutional and Corporate initiative

Our Environmental Finance Steering Committee meets bimonthly and is responsible for overseeing the development of our decision-making frameworks, product innovation and strategic initiatives. The Steering Committee has approved the social and environmental issues screening tools, and guided the development of the Wholesale Risk policies which were subsequently approved by Group Risk.

A principles-based approach

Four key business principles guide our Institutional lending and investment decisions.

• Sustainable economic development requires environmental constraints to be acknowledged, addressed systematically and embraced as opportunities for business innovation and solutions.
• Companies committed to continuous improvement in environmental performance via an integrated strategy are more likely to build sustainable businesses that maximise shareholder value over time.
• The financial sector is key in formulating innovative solutions and incentives to help customers and partners align their actions and behaviours with enhanced social and environmental outcomes.
• As a business leader, ANZ commits to the above principles and will demonstrate its own continuous improvement in social and environmental performance through engagement with all relevant stakeholders.

Assessing environmental impact of ANZ's lending in Australia*

This year we completed a detailed analysis of the social and environmental impacts of our lending portfolio, using an existing methodology developed by the CSIRO and the University of Sydney. The results demonstrate that the majority (79%) of our Institutional loan portfolio is within sectors with low-to-medium social or environmental impacts.

Using this analysis we have been able to identify and assess those clients most affected by social and environmental factors. For example, if the cost of water increased then this would increase the risk associated with a client heavily reliant on water. We then use the information to engage our clients on how we can assist them by providing financial solutions to mitigate their environmental risks (e.g. providing capital to improve water or energy efficiency) and to capture new market opportunities (e.g. water or carbon trading).

*ANZ has assessed the social and environmental impacts of its Australian Institutional lending portfolio based on the methodology established in the "Balancing Act: A Triple Bottom line Analysis of the Australian Economy" (CSIRO/University of Sydney, 2005). ANZ has been advised by Integrated Sustainability Analysis at the University of Sydney (http://www.isa.org.usyd.edu.au/) in carrying out this assessment.

**Percentage of ANZ’s Institutional Lending Portfolio (Australia) in these sectors.

***The intensity (water and energy) per $ of final (i.e. consumer) demand for the Australian economy.