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
While environmental risk 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.
BOQ acknowledges the increased community concern about climate change and the impact that businesses have on the
environment they operate in. These impacts arise both directly through physical footprint, resource utilisation and output and indirectly through supply chain and customer support.
Climate change is one of the most significant issues that will impact the long term prosperity of our economy, environment and society. We support the goal of governments around the world to limit global warming to less than 2 degrees Celsius above pre-industrial levels and to transition to net zero emissions by 2050 as outlined in the Paris Agreement. BOQ supports science based reduction targets, the associated policy implementation and market mechanisms necessary to achieve this end.
We believe the financial sector has a critical role to play in assisting the transition to a low carbon economy, through both the resources we utilise directly and through our financing activities. This transition needs to be managed in a balanced manner.
Lending to the fossil fuel mining sector
BOQ does not directly fund mining projects. However, as at 31 August 2018 ~$32m (around 0.1% of our loan book) has been provided through equipment financing to companies directly involved in fossil fuel mining.
Going forward, BOQ has committed to cease funding equipment directly involved in the extraction of fossil fuels. The terms of current lending facilities do not exceed 5 years, which means BOQ will have no exposure to fossil fuel extraction equipment by the end of 2023.
We will continue to support business and consumer loan applicants in regional areas who may be reliant on income from
the mining industry, within the context of our group risk appetite. When assessing any new lending, a key element of the lending assessment is the sustainability of income sources to service the debt as well as the value of the borrower’s assets, both of which can be impacted by changes in economic conditions. BOQ will continue to monitor changes in economic conditions, related to climate change and a host of other factors, in determining our appetite for lending across the economy.
BOQ is making a positive environmental contribution to the communities in which we operate by:
- Considering the environment in all relevant business decisions
- Improving measurement and reporting of our operational environmental impact via BOQ’s non-financial
- Building out disclosures which align with the Task Force on Climate-related Financial Disclosures’ recommendations
- Ceasing any new equipment finance for extraction of fossil fuels
- Actively managing and improving our sustainability approach by engaging with stakeholders to understand impacts, trends and attitudes relating to climate change
- Continually looking for opportunities to play our part in the transition to a low carbon economy
We recognise that we are on a sustainability journey and that there is scope for improvement. In an effort to improve
sustainability practices we are in the early stages of exploring the following initiatives:
- Providing finance to back climate change solutions (e.g. supporting green infrastructure, energy efficient
equipment and small scale renewable energy)
- Sourcing renewable energy for more of our power needs and setting targets for this transition
- Reducing our own emissions by maintaining the highest efficiency of our buildings (e.g. enhanced solar investment)
- Advocating for policies that stimulate investment in climate change solutions
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. The OIE is an intergovernmental organisation with the global mandate to improve animal health, animal welfare and veterinary public health. OIE standards have become the de facto international reference for animal welfare in the trade of animals and their products in developed and developing markets. OIE standards act as a guide for the development of assurance programs and it is envisaged that they will be increasingly used as a basis for bilateral agreements between OIE member countries.
We align our practices with the OIE’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.