Westpac hosted a detailed briefing on key environmental, social and governance (ESG) issues facing the bank and sector. The presentation was most heavily focused on: 1) governance and risk measures in the face of multiple conduct and anti-money laundering issues over recent years; 2) diversity and other elements of the ‘social’ dimension; and 3) actions on climate change and the transition to net-zero emissions.
As expected, given numerous compliance failings in recent years, much of the briefing was focused on efforts to strengthen risk governance, management and culture. Westpac also provided an update on its Customer Outcomes and Risk Excellence (CORE) program. Almost one-third of CORE activities have been submitted, with: 1) 95% of design activities to be completed by end of 2021; 2) 95% implemented by end of 2022; and 3) 100% embedded by end of 2023.
Westpac has maintained 50% representation of women in leadership roles, although we note it has a much broader definition than other banks and the ratio of women in general manager roles has fallen back to 40%. It is actively addressing gender pay gaps, has refreshed employee leave and human rights policies, and is working on improving cultural diversity. Housing affordability was not a well-canvassed issue, although Westpac highlighted digital solutions to minimise abuse in payments and limit problem gambling.
We regard Westpac as having been an early adopter of climate change principles. This has seen obvious positive outcomes in the portfolio, with now only $2.8bn of exposure to coal and oil & gas. On the flipside, exposure to climate change solutions has increased to $10.1bn and 75% of electricity generation in the portfolio is now renewable.
We maintain Hold recommendation on Westpac and our $27.00 target price given our below-consensus revenue forecasts and pending more certainty on delivery of the cost-savings plan.
RESEARCH EDITOR
Walter is the Editor of Ord Minnett's retail investor publications, such as the Opening Bell, Ords Weekly and the Ords Monthly, along with various investment guides and investor information published by Ord Minnett.
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WBC, Westpac Banking Corporation
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