Australia’s native forests, home to some of the most diverse plants and animals in the world, are being bulldozed at a globally significant rate:
More than 50% of Australia’s native forests have been cleared or severely damaged. Over a five-year period from 2016 to 2021, 1.74 million hectares of deforestation occurred in Australia[1], and official data shows that clearing in Queensland[2]and New South Wales[3]is still increasing. In recent years, more deforestation has occurred in Queensland alone, primarily for pastoral expansion, than by the entire Indonesian palm oil sector[4]. Eastern Australia has been identified as one of eleven ‘deforestation fronts’ alongside Borneo, the Amazon and the Congo, that will account for 80% of the deforestation occurring to 2030[5].

Habitat loss and degradation is the dominant driver of extinction in Australia, with 70% of threatened species impacted[6]. Over 250 Australian scientists have signed an open letter calling on the Federal Government to put an end to land clearing as the single biggest threat to the nation’s biodiversity[7].

Bank finance is enabling deforestation in Australia, including potentially illegal clearing:
The majority of deforestation in Australia is driven by cattle pasture expansion in Queensland and New South Wales. NAB’s exposure to potentially illegal deforestation in Queensland between 2018 and 2020 was the highest of all Australian banks at 35,834 hectares[8].
A recent investigation that selected 100 cases of deforestation linked to major banks through mortgages, flagged that NAB had the highest exposure of its peers to financed deforestation at 6,308 hectares cleared[9]. Eleven cases linked to NAB obtained no federal approval despite likely meeting the thresholds for impacts on threatened species habitat requiring an approval under Australia’s Environment Protection and Biodiversity Conservation Act 1999.

This raises regulatory risk for NAB’s customers, increasing default risk for our bank where actions are taken against landholders by Government or third parties. Publicity of illegal activity missed in bank credit risk assessments may have reputational implications for our company where it concerns the effectiveness of risk management and oversight mechanisms. Deforestation poses material risks whether it is legal or illegal.

Nature and climate risks are financial risks for our bank and its customers:
Our company has stated, ‘if a business’ profit depends on the quality of the soil, water and air, that natural capital should be recognised in business decisions’[1]. As an agribusiness banking specialist, NAB has recognised that the agriculture sector, which represents 13% of its Exposure at Default (EAD), has the highest potential dependency on ecosystem services provided by nature[2]including soil stabilisation, flood mitigation and climate regulation. Deforestation can bring about damaging processes like erosion that worsens soil quality and reduces the capacity of agricultural land[3].
Research across Australia shows that as forest becomes cleared, degraded and fragmented, there is a greater chance of drought occurring in that area[4]. These nature impacts, among many others, are drivers of default risk. Deforestation also increases the risk of urban flooding[5], potentially exposing our bank to credit risk in entire regions that it finances and from mortgage-backed securities of uninsured or underinsured property.
When forests are cleared or burnt, stored carbon is released into the atmosphere and carbon sinks are destroyed, heightening climate risk. All sectors of the economy that NAB finances will face escalating impacts from global warming if deforestation continues unchecked.

Our bank’s decision makers need better data to assess instances of deforestation :
Where NAB becomes aware of customers alleged or found to be involved in illegal deforestation, it has stated that it will review this and take action in line with policies and processes. As a specialist in the provision of finance to agribusinesses, NAB should be a leader in sourcing data and tools to proactively assess such instances in credit risk assessments and other due diligence. This should extend further than its land-use change questions in checklists for new customers and annual reviews.

NAB has long been a resolute partner for its customers in the agriculture sector. An analysis of exposure to commodities with a high-risk of deforestation and in high-risk regions will identify opportunities for deeper engagement and partnership. Imperfect data should not halt progress on this analysis given that NAB has stated ‘nature-related impacts can manifest across a number of material risk categories including Balance sheet & liquidity, Credit, Compliance, Conduct, Market, Operational, Strategic and Sustainability’[1].

Peers are committing to no deforestation to build resilience to climate impacts and evolving regulation:
As part of its Net-Zero Banking Alliance (NZBA) 2030 Agriculture sector target, Westpac has set a no deforestation commitment which provides for no further conversion of natural forest to agricultural land use within farm systems from 2026. While NAB is a member of NZBA, it has not outlined a commitment or strategy to stop financing deforestation. This does not reflect the progress made by Westpac and other global peers such as Barclays and BNP Paribas that recognise deforestation is a key driver of climate change and biodiversity loss[2].
The Science Based Targets Initiative (SBTi) recently published the Financial Institutions Net-Zero Standard which includes a recommendation that financial institutions commit to no new in-scope financial activities involving portfolio entities engaged in commodity-driven deforestation[3]. It has identified the Accountability Framework initiative (AFi) as a credible framework, recommending AFi’s cutoff date, December 31st 2020, to reduce the risk of customers clearing before a future cut-off date.
196 countries having signed the Global Biodiversity Framework’s agreement to halt and reverse nature loss, including Australia, and the EU Deforestation Regulation is shortly coming into force for deforestation-linked products sold into EU markets, including from regions labelled low risk. A strategy to eliminate financed deforestation will build resilience to stronger regulations for NAB and its customers.
We urge shareholders to support these resolutions.