At BOQ we recognise our corporate and social responsibility to maintain a lending portfolio comprised of sustainable businesses.
To this end we have identified a number of industries that fall outside of our risk appetite, such as: adult industries, online gambling sites, arms manufacturers or retailers and businesses associated with criminal organisations.
For lending that we do undertake, part of our standard process for managing risk is to consider the economic, environmental and social sustainability of our customers and potential customers. We do this by:
- working closely with our customers to understand their businesses
- having a clearly expressed and communicated risk appetite in relation to environmental matters
- undertaking a comprehensive analysis throughout the credit decisioning and management process to identify potential issues
- having a suite of credit policies and practices that ensure risks and issues are identified.
In regards to environmental risk, while this can arise from a number of areas, from a lending perspective we focus on:
- the nature and operation of the borrower’s business
- the nature and location of the property where the business operates (both leased and owner-occupied property) on which the activity occurs i.e. environmentally sensitive sites
- contamination issues arising from land use.
All lending decisions are referred to a credit decision team who closely evaluate:
- the legislative or regulatory restrictions or controls under which the business must operate
- compliance with legislation and regulation, both historical and ongoing
- the potential for liability for environmental issues to be assumed by BOQ at some future date.
Throughout this process we work closely with customers and potential customers to understand how they are able to manage sustainability risks and reduce their impact. We may also engage independent third parties to make assessments on our behalf.
Where we have concerns as to the customer’s ability to comply with their legal obligations or determine that our association with the business or industry poses substantial economic or reputational risk, then BOQ will decline to be involved. Final authority for the credit team’s decisions rest with the Executive Credit Committee chaired by our Chief Risk Officer.
We incorporate sustainability awareness and risk assessment as part of our lending training.
As part of our ongoing relationship with our customer base we discuss their ability to manage the sustainability of their business on a regular basis.
We’re aware this is an area that is getting increasing focus from customers and investors and as a result we have taken a number of steps in recent years:
- As detailed on our website, we updated our approach to sustainability as part of our 2014 annual reporting cycle and continually review this approach each year.
- We introduced a Reputational Risk Management Policy to outline BOQ’s prudent and proactive approach to managing reputational risk.
- As part of our Lending policies, we also have a Prohibited List of Industries and Activities for which we have no risk appetite and do not wish to be involved in.
- In July 2015, we introduced an Ecological Care and Sustainability Lending Policy, which helps guide our lending decisions and strengthen controls when considering lending in a range of industries that have the potential for environmental impact.
When it comes to deciding who we will and won’t lend to, our decisions are guided by the above policies and approaches – businesses would not meet our risk appetite if they are not sustainable businesses or have the potential to cause reputational damage to BOQ.
Lending to the mining sector
As a smaller bank, BOQ does not fund large mining projects but we do lend money to some small and medium sized businesses in the mining sector. This lending is predominantly in the form of equipment leasing for trucks and other vehicles, earthmoving equipment or computer equipment for example. As at 31 August 2017, BOQ had ~$83m (less than 0.3% of our loan book) in direct lending exposures to mining companies. This was made up of ~$7m in commercial loans directly to mining companies and ~$76m in equipment leasing directly to mining companies. Within this, ~$31m in equipment leasing has been provided directly to companies involved in either coal mining, oil & gas extraction or petroleum exploration. The remainder (~$52m) was provided to companies involved in other types of mining such as gravel and sand quarrying, mineral exploration and gold/copper ore mining. We also provide commercial loans and equipment leasing to companies that have may provide services to the mining sector (eg. mining services contractors, transport to mining, etc.) As a 31 August 2017, we estimate that less than 5% of our commercial loan and leasing books fit into this category.
This is an area we continue to monitor against the above policies given the evolving community attitudes towards the environment and sustainability.
Lending to industries involving animals
We’re conscious of the industries we support through our lending and this consideration extends to those industries whose business activities involve the treatment, production, breeding, transport or housing of animals.
The World Organisation for Animal Health (OIE) sets the international standard and provides an effective framework for animal welfare management.
We’re committed to aligning our practices with the World Organisation for Animal Health’s five freedoms of animal welfare and their general principals of animal welfare.
We encourage all our borrowers to adhere to these standards and this has become part of our business as usual lending practice.