Modified assessment 2 - Analysis of annual sustainability report of Westpac PDF

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Analysis of annual sustainability report of Westpac ...

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1. Integration of sustainability strategy into business strategy Although Westpac’s business strategy vision is “to be one of the world’s great service companies, helping our customers, communities and people to prosper and grow” (Westpac 2017a, p. 15), this is not fairly represented in an equal manner in the annual report. In fact, all paragraphs at the beginning of the business strategy focus on customers and providing services to them more effectively. It is only in the last few paragraphs that sustainability is mentioned, ironically stating the sustainability strategy is a “customer- focused strategy” (Westpac 2017a, p. 14). This means that from the 3 focus areas of sustainability (social, environmental and economic), there is a heavy emphasis on economic measurements of success to the detriment of the other two. The five elements of the sustainability strategy are mentioned in the business strategy, giving the impression that sustainability is a main foundation for Westpac. These five elements are: service leadership, digital transformation, growth highways, workforce revolution and performance discipline (Westpac 2017a, p. 14). However, when reading further in following pages for details of each of these elements and how they are addressed in the business strategy, the vast majority is dedicated to detailing ‘performance discipline’, mainly focusing on customers and economic growth. For example, the first 4 elements are barely mentioned in the entire report- at the beginning and then under ‘CEO performance objectives’, whereas ‘performance discipline’ has a much larger section dedicated solely for its own purpose. This can be quantified as 4 elements are represented as 12 considerations in the performance objectives (under the same category), whereas ‘performance discipline’ has a total of 11 considerations alone. This is likely to be because the users of the annual report and the sustainability report are different. In the annual report, the CEO addresses shareholders directly in the opening letter and Deegan (2016, p. 57) confirms that lenders, investors, other creditors and regulators are the target of annual reports. However, as the sustainability report is voluntary and not legally enforceable (Langfield-Smith 2015, p. 754), the sustainability strategy could be used as a tool for marketing the business strategy and ultimately, the organisation itself. Also, the target of the sustainability report differs as it is written for a range of stakeholders: customers, employees, community, suppliers, and investors (Westpac 2017b, p. 7).

2. Key stakeholders

Stakeholders are individuals or groups of people who can influence or be influenced by the organisation. Westpac states that these various stakeholders affect the sustainability materiality assessment which is included in the annual report and informs future strategies. The stakeholders mentioned are:

Customers: The total number of customers in Australia and New Zealand who were served in 2017 was 13 million. From this number, 5.3 million in Australia were digitally actively in accessing the bank services, which represented 39% of total customers. On the other hand, mobile active customers in Australia comprised 3.4 million which equalled to 25 % of total customers. The number of branches where customers were being served was 1,046, 169, and 36 in Australia, New Zealand, and the Pacific respectively (Westpac 2017b, p.71).

Employees: The total number of employees in 2017 was 39,011, including 33,117 in Australia, 4,794 in New Zealand and 1,100 in Westpac Pacific. In Australia out of the 33,117 employee there were 24,200 employees with full time employment and the female comprised 11,902 of them. However, employees with part time job consisted 5,949 the female proportion was 90.6%. In 2017 the number of new starters comprised 4,118. The proportion of females was 48% and the age group 25-34 comprised the largest one with 1,667 employees, whereas, the age group > 55 was the smallest with 114 employees (Westpac 2017b, pp.66 -69).

Investors: Communication is established with investors through queries and feedback in the form of surveys, annual and general meetings, environmental, social and governance (ESG) analyst meetings, as well as memorandums. The Westpac Sustainability Report does not contain information on investor data, such as numbers and types of investors, amount of money invested and purpose for the investment (Westpac 2017b, p.44).

Government and regulators: The sustainability report states that it is grounded in both the Global Reporting Initiative (GRI) G4 framework, Sustainability Accounting Standards Board (SASB) and the AA1000 AccountAbility Principles Standard (2008). It also mentions the Australian Bankers’ Association (ABA) a government advocacy group which brought the banking industry together in April 2016 to protect both customers’ and the banks’ interests. Some of the ABA’s current policy goals include development in anti-fraud, addressing corporate culture, accessibility to banks across rural Australia and improving sustainability standards (Investopedia 2018). In the social aspect, the report states that the Australian Securities Investment Commission (ASIC) undertook an investigation of banks in 2017 to uncover any non-compliance with laws and regulations.

Suppliers: Westpac states that it is important uphold ethical, social and environmental standards in relation to the supply chain, referring to the Responsible Sourcing Code of Conduct. The report details types of suppliers by percentage of supply chain spend: IT and telecommunications (31%), workforce enablement services (18%), products, marketing and digitisation (14%) and operations and property (13%) (Westpac 2017b, p.82).

Non-government organisations: Westpac liaise with a wide variety of non-government organisations (NGOs) including UN Global Impact, Task Force on Climate-related Financial Disclosures (TCFD), Indigenous Financial Services Network and Investor Group on Climate Change. There are regular meetings to discuss and inform future direction and development of Westpac policies (Westpac 2017b, pp. 58-59).

Communities: The sustainability report details the scope of community investments, including donations, grants, volunteering, scholarships and financial education opportunities. Total community investment was $1.63 billion, with the majority being donated in Australia ($1.55 B), followed by New Zealand ($8 M) and the Pacific ($0.668 M). The lion’s share of community investment was spent on a range of in-kind contributions, meaning goods and services rather than monetary form. This was followed by monetary contributions, time contributions and management costs of community organisations (Westpac 2017b, p.83).

3. Areas of strong sustainability performance

Westpac (2017b, p. 9) classifies their sustainability strategy in three categories: social, environmental and economic. These are the strongest areas of Westpac’s sustainability performance:

Social: 

A target of 50% of women in leadership positions was proposed and met in 2017, up from 48% the previous year (Westpac 2017b, p. 7). This is also reflected generally in the almost equal participation in full time employment by both genders in Australia, however, New Zealand has a higher percentage of female employees (57%) in comparison to males.

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Westpac’s target was to recruit an additional 500 Indigenous employees by the end of the financial year 2017. This was achieved and in fact far exceeded with 628 new Indigenous employees (Westpac 2017b, p. 89).

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The $3 M target for supply chain spend with Indigenous owned businesses was exceeded and the target was increased to $10 M for 2020 (Westpac 2017b, p. 10).

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St George Bank (affiliated with Westpac) has become the first Australian bank to be recognised as dementia friendly by Dementia Australia (Westpac 2017b, p. 10).

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Total in-kind contributions (which includes use of company premises, donation of resources and marketing) in the community investment program has increased to $115,189,239 (15.6%) in 2017 from $99,601,543 in 2016 (Westpac 2017b, p. 84).

Environmental: 

Westpac was ranked the most sustainable bank for the tenth time in the 2017 Dow Jones Sustainability Index Review. It was also identified as among the top 22% of companies globally in the Carbon Disclosure Project. RobecoSAM also ranked Westpac in Gold Star ranking in their 2017 Sustainability Yearbook (Westpac 2017b, p. 11).

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Westpac almost doubled the target for the numbers of environmentally friendly products and services (achieved 9 products from a target of 5 for 2017) (Westpac 2017b, p. 11).

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There was a higher than expected increase in lending and investment in green buildings, forestry, renewable energy and green business initiatives, 16% above the 2017 target to $7 B (Westpac 2017b, p. 11).

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Electricity efficiency in commercial and retails sites were dramatically improved, reduced by 6.6% from a target of 181 kilowatt per square metre (Westpac 2017b, p. 77).

Economic: 

Westpac increased access to financial services in the Pacific region and exceeded the 300,000 targets for 2017 by 18.3%. In 2013, Westpac recorded 147,392 customers in the Pacific having banking access in 2013, a number that has more than doubled in 4 years (Westpac 2017b, p. 12).

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The average customer satisfaction rating (out of 5) for advice on achieving a secure retirement very slightly exceeded the target of 4.90 to 4.91 (Westpac 2017b, p. 72).

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Westpac’s national charitable foundation’s distribution increased dramatically from $5,867,116 in 2016 to $9,894,343 in 2017 (a 68.3% jump) (Westpac 2017b, p. 84).

4. Areas of weak sustainability performance

Social: 

Employees complete a survey of 8 questions on length and quality of working life, including areas such as, productivity and participation, future sick leave, health, quality of life, mental illness, and risk of death and/or disability. Scores are rated out

of 49 according to the Work Ability Index. Westpac’s 2017 target was 44/49, however, on average the achievement was markedly less at 41, also decreasing from 2016 (42). This is considered to be average (Westpac 2017b, p. 117). Although community investments generally increased from 2016 to 2017, the

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management costs which relate to salaries and on-costs of employees who manage the community investment program decreased. General community investment program management costs decreased from $3,902,710 in 2016 to $2,836,262 in 2017. This could mean there were fewer employees or lower salaries devoted to the community investment program (Westpac 2017b, p. 84).

Economic: Between the years 2015-2017, number of participants involved in financial

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education in Australia has declined dramatically, almost halving each year. This translates to 3.59 times decrease from 2015 (4,038 participants) to 2017 (1,121 participants). Also, the number of hours dedicated to financial education more than halved from 2016 (4,210 hours) to 2017 (1,958 hours) (Westpac 2017b, p. 85). The percentage of Westpac customers who joined the Westpac superannuation

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program has fluctuated between 2013 - 2017 to become 7.5 % in 2017 which is less than the target for the 2017 by 1.4%.The bank will take further steps to revise this target response to current regulatory changes in this field (Westpac 2017b, p. 72). The lending to the social and affordable housing sector has increased gradually

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over the years from $0.65b in 2013 to reach $1.32 b in 2017, though this figure is less than the target for 2017 ($2b) by 34% (Westpac 2017b, p. 76).

5.

Assessment of quality of the company’s sustainability report

a)

Readability

Generally, the Westpac Sustainability Report 2017 has been presented in a visually appealing manner and lends itself to making it easy for the reader to find and follow information.

Sections at the top of each page are hyperlinks which can be clicked and take the reader to the relevant section immediately. The contents page is also hyperlinked in a similar manner for ease of navigation, as well as various subheadings throughout. Also, the use of icons to represent various categories make it easy for the reader to follow throughout the report, for example, ‘environmental solutions’ has an icon of a sun. The 2017 scorecard for each section is represented in bar graphs which display the 2017 target as well as the results from 2013-2017. This makes it easy for the reader to gauge improvements or setbacks in the trends, rather than having to read a paragraph explanation. Furthermore, many of the pages feature an overview of the content in larger, red font. This is easy to read if one needs to skim information quickly. There are 4 columns of text on most pages, which makes it easier for the reader’s eye to follow, rather than having to read the entire line from the left to the right-hand side of the page for each sentence. Paragraphs are also broken up into smaller sections, which are indicated with subheadings of the topic in bold, allowing the reader to scan for the topic headings that are relevant to them. The ‘Creating sustainable value’ page draws the reader's’ attention to Westpac’s successes, but does not make downturns clear. These, however, can be found in the ‘Our progress’ section, where ‘exceeded’, ‘met’ and ‘not met’ icons are used quite clearly. Most importantly, it is the consistent use of the same style of graphs, icons and colours throughout that appeals and assists the reader.

b) Adoption of GRI principles or other frameworks 

Global Reporting Initiative Index GRI is a reporting system that provides performance measures and methods for measuring and reporting sustainability - related impacts and performance (Langfield- Smith et al., p. 755). The fourth generation of GRI (G4) was released in 2013 which requires the organization to define material aspect that important to the organization’s effects whether are economic, environmental, socially and has influence on the stakeholder decisions and assessments. As it can be seen, the Westpac report covers the areas which relate to the fourth generation GRI. The section ‘The issues that matter’ (Westpac 2017b, pp. 13-51) addresses the definition of each material aspect, the boundaries within and outside Westpac and a detailed

presentation of the performance indicators. The Westpac report refers to 6 material aspects: service leadership, conduct and trust, digital innovation, workforce for the future, positive societal impact, and value chain risk. The subsection ‘Material topics and management approach’ under the section ‘The fundamentals’ (Westpac 2017b, pp. 60-64) explains how each material aspect is managed in detail.

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UN Guiding Principles on Business and Human Rights (UNGP) Westpac also provides a human rights positions statement based on UNGP principles and the related key actions which align with the 2020 action plan (Westpac 2017b, p. 49). This was formulated in response to the UK’s Modern Slavery Act 2017.

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Climate Change Reporting Index The Westpac report presents a Climate Change position statement (5 principles) which guides the Climate Change 2020 Action Plan. For example, one principle from the position statement is “A transition to a net zero emissions economy is required” and the related action plan point to implement and realise this principle is “Provide finance-backed climate change solutions” (Westpac 2017b, p. 48).

References Deegan, C 2016, Financial accounting, 8th edn, McGraw Hill, North Ryde.

Investopedia 2018, Australian Bankers’ Association (ABA), accessed 12 September 2018, . Langfield-Smith, K, Thorne, H, Smith, D & Hilton, R 2015, Management accounting: information for creating and managing value, 7th edn, McGraw Hill, North Ryde.

Westpac 2017a, 2017 Westpac Group annual report, accessed 14 September 2018, .

Westpac 2017b, 2017 Westpac Group sustainability performance report, accessed 14 September 2018, ....