Westpac assesses climate-related lending risks


Westpac Bank has taken stock of its exposure to climate change with the issue of its first Climate Risk Report.

Storm damage along the Esplanade, Owhiro Bay, Wellington, 2013.

Storm surge damage at Ōwhiro Bay, Wellington.
Photo: NIWA / Dave Allen

The report follows one from the Ministry of Business, Innovation and Employment (MBIE) which found insurance premiums could increase five-fold for some properties due to sea-level rise and at-risk properties could be refused insurance in 20 years.

Up to 3 percent of Westpac NZ’s lending was potentially subject to risk from sea-level rise, with two-thirds of the properties already susceptible to flooding, its customer experience hub general manager Karen Silk said.

For the year ended September 2020 Westpac NZ had $88 billion in net loans. Three percent of that equates to $2.64bn in lending secured against risky assets.

“Through risk-based pricing we anticipate that over the coming years many of these properties will see insurance premiums increase. In some cases insurance may become unaffordable or unobtainable.

“When and how insurers adjust pricing is uncertain, but it is a key risk factor for the bank as we require the houses we lend on to be adequately insured.”

She said more information and better data collection would help estimate the financial impacts better over time.

The report also referred to a 2018 report which examined the impact of climate change on industry, showing agriculture was the bank’s biggest lending risk, with more than $10 billion committed.

Risks associated with agriculture included drought, flooding, erosion, and transition risks to do with changing customer preferences.

The report said Westpac carefully considered lending to companies with high environmental, social and governance (ESG) risks and all business applications for more than $1m were subject to an ESG risk assessment.

“Westpac NZ’s ESG approach recognises that due to increasing regulatory and consumer pressure, emissions-intensive sectors will need to align their long-term strategy and capital investment to a low-emissions economy.

“Customers will need capital to make this transition. There are risks relating to customers unable to undertake this transition, but opportunities for Westpac NZ to support customers who can, through sustainable finance structures.”

Westpac NZ has also pledged to reduce its own contributions to climate change.

“That’s why we’ve been increasing our lending to climate change solutions, while also reducing our lending to fossil fuel mining and production. Since 2012 we’ve reduced our lending to fossil fuel mining and production by around 60 percent and we’ve stopped lending for coal mining altogether and have no plans to start again,” Silk said.

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