Climate change, sustainable business and development more generally are significant issues facing today’s organisations and communities. An increasing amount of research has been carried out in these areas. Our study aims to explore how Westpac, a large Australian financial institution and leader in this field, developed and implemented a climate-change sustainability strategy.
In the last decade, the term ‘sustainability’ is now commonly used to refer to organisational activities that were discussed previously under Corporate Social Responsibility (CSR) and Environmental, Social and Governance (ESG) issues. At Westpac, sustainability is defined broadly and is reported to mean to ‘do right by our people, customers, community and the environment’.
Westpac’s sustainability strategy encompasses more than financial sustainability: it links social, environmental and economic dimensions, indicating that Westpac understands that it needs to adopt a coordinated, long-term and well-resourced approach to its sustainability strategy.
Sustainability and accountants
The main findings arising from this research which are of interest to practitioners are:
- An organisation’s sustainability strategy is dynamic and hence the term ‘sustainability’ is a malleable rather than a fixed concept.
- Support from top management is crucial to the effective implementation of a sustainability strategy.
- Sustainability strategy has the ability not only to change internal practices but also to change relationships with external stakeholders, such as suppliers.
- Climate change initiatives are an important but partial element of a comprehensive sustainability strategy.
- Carbon management and integrated financial and non-financial reporting are some of the current issues affecting the development and implementation of sustainability strategy. This provides potential ‘space’ for management accountants to become involved in sustainability strategy.
- Although accountants may not have full ownership of a sustainability strategy, it is clear that they can play a role in helping to develop broader-based business reporting. If accountants do not take up this challenge, other professional groups, such as engineers and environmental scientists, may well claim this area of expertise.
Westpac’s sustainability journey did not commence as a proactive move to build the organisation’s competitive advantage in terms of product leadership or operational efficiency. It was a response to an organisational ‘crisis of legitimacy’. During the late 1990s, the chairman, board and executive were under intense media and community pressure, with protests targeted at Westpac by customers, unions and environmental activists.
Increased bank fees and branch closures, particularly in rural areas, incensed regional communities. Extensive negative media coverage resulted in a major decline in Westpac’s reputational capital and employee morale. Traditional Public Affairs (PA) initiatives failed.
With the backing of the executive and board, a small team within PA reframed the problem as one of ineffective engagement with stakeholders, particularly with external communities.
A key aspect of its re-engagement with stakeholders was the institutionalisation of a ‘social reporting’ regime. Partly, this reflected the fact that Westpac’s personnel were involved and partly, it reflected the external origins of discontent.
The first Social Impact reports were published in 2002. These became Stakeholder Impact Reports (SIR) in 2004, emphasising the broader focus of Westpac’s sustainability strategy and accountabilities. Over time, these reports moved from an emphasis on communicating with communities to also reporting on engagement with employees, as well as suppliers.
Additionally, conscious of criticisms of ‘greenwash’, Westpac sought to publish performance targets, as well as performance against targets. Admittedly, the information is at a highly aggregated level, but Westpac does not seek to ‘tell good news’ only. As noted by a member of the sustainability team, ‘We were addressing the material issues in the accountability space which was new for the banking sector.’
Westpac’s motives for undertaking its sustainability strategy may have commenced as a response to an external crisis, but the process gained internal momentum. The PA team found that many disparate parts of Westpac were doing ‘great things in small ways.’ The PA team sought to capture this information in one place.
As a member of the team reported, ‘We were successful with our initiatives such as the reporting. Each time we had a win we reported the successes so we were allowed to keep going.’
The PA team’s efforts emphasise the importance of ‘small wins’ in anchoring a new initiative. Growing employee support and increased staff morale partly resulted in the ongoing support and development of Westpac’s sustainability strategy. In the last two years, Westpac did decide to make ‘sustainability’ a key part of its strategic mission and now explicitly includes this concept in its published statements of strategic intent.
As part of this ongoing evolution of the concept of sustainability, Westpac launched its five year climate change strategy in December 2008. This development outlined how the senior executive team would be directly responsible for and be measured by its ability to help achieve Westpac’s emission reduction targets, with specific key performance indicator targets being incorporated into senior executives’ personal performance targets.
This strategy was formed in consultation with key internal and external stakeholders and revolves around five main areas:
- managing risks and developing capacity across the business
- minimising Westpac’s direct environmental footprint
- engaging employees
- communication and advocacy in the community on climate change issues
- developing products and services that drive or impact positive environmental outcomes.
Westpac’s initial sustainability endeavours were successful because they were supported by very senior management, among them the chairman, the CEO and other senior managers – and including the group executive for people and performance, the head of stakeholder communications, and the head of regional community partnerships.
These key players brought high-level skills, resources and leadership that underpinned Westpac’s sustainability strategy.
Day-to-day work on the sustainability strategy was initially undertaken by a small team from PA. It was the team’s intention to change how Westpac conducted business and connected with its stakeholders.
Today, this team has expanded to encompass a dedicated ‘group sustainability’ team with new leadership and an extended portfolio of engagement, including responsible investing, carbon markets, supply chain management, customer advocacy, financial inclusion and responsible lending, community involvement, media relations, investor relations and government relations.
The accounting and finance function was not involved in the initial conception or implementation of Westpac’s sustainability strategy, other than to provide data as requested by the PA team. Nonetheless, as the sustainability strategy team is seeking to develop more integrated extended performance reports, it is envisaged that the accounting and finance function will become more tightly coupled to Westpac’s sustainability strategy in the future.
About the Authors
Jane Baxter is an Associate Professor, Wai Fong Chua is Pro Vice-Chancellor (Enterprise Systems) and Trish Strong is a lecturer in accounting at the University of New South Wales. This article is Part 1 of the CIMA white paper, Westpac’s Squashed Tomato Strategy, and has been abridged and reedited for clarity and conciseness.