Commonwealth Bank of Australia : 2023 Climate Report

2023

Climate Report

Commonwealth Bank of Australia

Contents

Message from the	2	Governance		Sustainability	56
Chair and CEO	Our approach to		Funding Target
			Managing our
Overview		governance	31
	operational emissions	58
Our transition roadmap	4	Risk		Appendix
Supporting Australia's		Our approach to
energy transition	6		Our reporting
climate risk	37
		boundaries	63
Strategy		Our climate
		Financed emissions
		scenario analysis	42
Our climate strategy	11	methodology	64
Natural capital
Lending to support			Task Force on
	and biodiversity	48
the transition	12	Climate-related
Bringing stakeholders		Metrics and targets		Financial Disclosures
28		content index	89
together	Performance summary	53	Glossary of terms	90
Testing the resilience
	Financed emissions	54	Important notices	97
of our business	29

Last year's Climate Report outlined our 1.5°C temperature ambition and roadmap for progressively setting sector-level targets on our financed emissions. This year's report is focused on reporting our progress against this roadmap. To achieve the nation's and our emissions reduction ambitions, decarbonising Australia's electricity grid will play an important role.

Italicised words and phrases are defined in our glossary. Click on the word or phrase to view the definition.

Important information

All figures and commentary relate to the full year ended 30 June 2023 and comparisons are to the full year ended

30 June 2022, except for financed emissions and sector-level performance which are for the full year ended 30 June 2022 and comparisons are to the full year ended 30 June 2021, unless otherwise indicated. Financed emissions are lagged as 2023 customer emissions data is not reported ahead of our report's publication. For further information on reporting boundaries, methodology and definitions, see the Appendix on pages 62-101.

This report contains climate-related and other forward-looking statements and metrics which are not, and should not be considered to be guarantees, predictions or forecasts of future climate-related outcomes, financial performance or share prices. The statements are subject to known and unknown risks, uncertainties and other factors, many of which are beyond the Group's control. Readers are cautioned not to place undue reliance on such statements in light of the significant uncertainty in climate metrics and modelling that limit the extent to which they are useful for decision-making, and the many underlying risks and assumptions may cause actual outcomes to differ materially. While the Group has prepared the information in this report based on its current knowledge, understanding and in good faith, it reserves the right to change its views in the future.

This report makes reference to and representations of the commitments outlined in the Environmental & Social (E&S) Framework. Please refer to the E&S Framework for detailed information of our commitments. It is available at commbank.com.au/policies.

Our reporting suite

Our corporate reporting suite brings together key reports outlining our strategic, financial and non-financial performance.

commbank.com.au/investors

Annual Report

An in-depth look at our performance for the 2023 financial year.

commbank.com.au/2023annualreport

Environmental & Social Framework

commbank.com.au/policies

Sustainability Metrics Data Book

commbank.com.au/reporting

UN Principles of Responsible Banking

commbank.com.au/reporting

Corporate Governance Statement

commbank.com.au/corporategovernance

This important information should be read together with page 74(Addressing uncertainty in climate modelling); page 75(Key sources of uncertainty and limitations); and page 97(Important notices).

Please read the important guidance, limitations and important notices throughout this report to aid your understanding.

The release of this announcement	Commonwealth Bank of Australia | ACN 123 123 124 | Commonwealth Bank Place South,
was authorised by the Board.	Level 1, 11 Harbour Street, Sydney NSW 2000 | 9 August 2023 | 112/2023

Acknowledgment of Country

We respectfully acknowledge the Traditional Owners of the Lands across Australia and pay our respects to their Elders past and present. Our registered office is located on the Lands of the Gadigal Peoples.

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• MESSAGE FROM THE CHAIR AND CEO

Message from the

Chair and CEO

We support Australia's transition to a net zero economy

by 2050. In supporting this ambition, our actions need to align with our purpose - building a brighter future for all - and aim to be inclusive. We remain committed to managing the risks and opportunities of climate change, and supporting our customers.

Our progress meeting our commitments

Last year, we released our inaugural Climate Report reaffirming our support for Australia's transition to net zero emissions by 2050. We also outlined our transition roadmap for progressively setting targets on our financed emissions in line with our Net-Zero Banking Alliance (NZBA) commitments.

This year, we've made progress against our E&S and NZBA commitments. Some of the key achievements over the past

12 months include:

• Setting five new sector-level

targets for Australian housing and

3

2023COMMONWEALTH CLIMATE REPORTBANK

OVERVIEW

This past year has been challenging for our customers and communities in Australia and New Zealand impacted by weather-related events. Climate change is impacting the frequency and scale of natural disasters. There is a need to take action to help mitigate the physical and transition impacts

of climate change on our customers, communities, and the nation. We remain committed to playing our part in limiting climate change in line with the goals of the Paris Agreement and supporting Australia's transition to net zero emissions by 2050.

Our collective climate-related challenge

Climate change is a collective global challenge requiring coordinated action to limit global warming to 1.5°C. Australia's commitment to transition to net zero emissions

by 2050, presents significant opportunities and risks for our country. We believe Australia has the ability

to be a renewable energy exporter, as well as a producer of critical minerals such as copper, nickel and lithium. To reduce Australia's emissions and maintain national prosperity,

our nation requires significant investment in new technologies, industries and communities.

Globally and domestically, governments are beginning to act. Australia's international peers are accelerating their decarbonisation plans which

can build resilience against future global energy supply and price shocks. Given global competition for capital investment to fund these national

decarbonisation plans, we welcome the legislative and policy initiatives the Australian Government has taken over the past 12 months. The legislated 2030 emissions target of a 43% reduction versus 2005 levels, provides industry, banks and investors with clear direction to guide investment and funding decisions. We support the establishment of the $1.9 billion Powering the Regions Fund to support existing sectors in reducing their emissions, as well as developing new clean energy industries.

Supportive policy settings can help Australia benefit from its potential as a renewable energy producer, consumer and exporter.

Transitioning Australia's energy sector

Australia's electricity grid remains reliant on coal-fired electricity generation. Rapidly replacing this generation with renewables is one of our nation's greatest medium-term transition challenges and opportunities. Reducing the emissions intensity

of the electricity grid is also a key driver to lower emissions in other sectors, including the largest sector in our portfolio - Australian housing. Transitioning Australia's electricity grid is key to achieving the nation's and our emission reduction ambitions.

We acknowledge the continued interest from broader stakeholders and community groups in our exposures to fossil fuel extraction. Our current exposures are approximately half

of what we reported in our 2019 Energy Value Chain.

As Australia's largest bank, we have an important role in lending to sectors and businesses that will be integral to Australia's energy transition. This year we have reviewed our Environmental and Social (E&S) Framework. Following our review, we expanded our commitments in relation to fossil fuels extraction and introduced restrictions on project finance for certain infrastructure dedicated to new gas or oil extraction projects. We have clarified our expectations for certain customers to have published Paris-alignedTransition Plans by 2025, requiring that the plans include their Scope 1, 2 and 3 emissions, and engaged a third party to assess. We remain committed to not providing project finance

to new or expanded thermal coal mines. These commitments remain subject to Australia having a secure energy platform.

We also remain committed to reducing our financed emissions in thermal coal mining to zero by 2030.

We are mindful that scenario modelling from national agencies such as the Australian Energy Market Operator (AEMO) see a role for investment in new transmission infrastructure and firming technology, including batteries, as critical for Australia's energy transition. AEMO also notes an ongoing need for gas-fired electricity generation, to support the security and stability of Australia's electricity grid. In supporting Australia's transition to a net zero economy by 2050, we acknowledge that our lending portfolio will continue to be influenced by the production and energy mix of Australia's grid as it changes over time.

Supporting our customers

Noting we have reduced the Bank's exposures to fossil fuel extraction, many of our remaining largest emitting customers are operating in harder-to-abate sectors including transport, mining and heavy industry. As a country, stakeholders, including lenders, need to balance reducing emissions without unintentionally harming industries that play an important role in the economy, and need long-term support to transition. We intend to continue lending to customers in harder-to-abate sectors, subject to meeting our credit policies and in line with our E&S Framework.

Our portfolio also includes smaller business customers who are important to Australia's economy. A key role

of some of these businesses is to transport and produce goods used in the construction of homes, commercial buildings and critical infrastructure. Actions that move production offshore or financing to private markets, do not necessarily reduce global emissions, and are unlikely to help Australia's economy transition.

In harder-to-abate sectors, our customer engagement is focused on understanding our customers' approach to reaching net zero by 2050, and requesting and considering data on how they can manage

their climate-related risks and opportunities. One of our roles is to help ensure we have affordable lending products to support the adoption of new transition technologies.

With the majority of our lending to housing, we seek to provide our retail customers with accessible solutions to help their homes become more energy and resource efficient. We now offer a range of products designed to fund energy efficiency and support emissions reductions. This is not only important for Australia's energy transition

but is also intended to ease cost of living pressures.

Recognising that not all of our customers are in a position to pay for solar panels, batteries, efficient appliances or double glazing, we welcome additional government funding targeted at energy efficiency, and see a continued role for targeted government incentives.

Calling for an inclusive transition

We welcome the announcement of a national Net Zero Authority. This is a positive step to support workers, communities and regions impacted by Australia's transition to net zero emissions by 2050.

As Australia works towards the national reduction targets, the country simultaneously needs to seek community perspectives on social transition costs and risks. It is important that stakeholders identify policy amendments or gaps that need to be considered to support a purposeful and coordinated transition.

	heavy industry (steel, alumina,
	aluminium and cement) using
	scenarios, which are aligned to
	limiting global warming to 1.5°C.
•	Expanding the coverage of our
	financed emissions disclosures and
	data we use in our calculations.
• Developing sector-level strategies
	to help meet our emission
	reduction targets in the power
	generation, upstream gas and
	oil extraction and thermal coal
	mining sectors.
• Building our internal capabilities
	for measuring and reporting
	on natural capital.
• Reviewing our E&S Framework.
•	Continuing to build our
	understanding of the potential
	social impacts of climate
	change for our customers
	and communities.

The Board, together with management, continues to make progress on our strategy, including our strategic pillar of supporting Australia's transition to a digital, resilient and sustainable economy. We remain committed to managing the risks and opportunities of climate change and playing our part to support an inclusive transition.

Paul O'Malley

Chair

Matt Comyn

STRATEGY

GOVERNANCE

RISK

METRICS AND TARGETS

APPENDIX

Remember you can click on italicised words or phrases to view the definition.

Chief Executive Officer

• OUR TRANSITION ROADMAP

Our transition roadmap

Our net zero by 2050 ambition is to transition our operational and financed emissions to align with pathways to net zero by 2050. We are progressively setting operational and sector-levelfinanced emissions targets in line with pathways that aim to limit global warming to 1.5°C. By 2025, we aim to have targets on sectors that account for more than 75% of our 2020 financed emissions. Our roadmap outlines the steps we intend to take to meet these commitments.

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2023COMMONWEALTH CLIMATE REPORTBANK

2021

2022

2023

2024 2025 and beyond 2050

Setting targets to achieve our goals

For more information see pages 12-27and 53-61.

• Set Sustainability Funding Target.
• Set reduction targets for Scope 1 and 2, and Scope 3 operational emissions.
• Maintained external carbon neutral certifications for our Group-wide operations.

• Set financed emissions targets for power generation, upstream gas extraction, upstream oil extraction and thermal coal mining.
• Maintained external carbon neutral certifications for our Group-wide operations.
• Achieved the equivalent of using 100% renewable electricity in our global operations through the purchase of RECs (in arrears and ongoing).

• Set financed emissions targets for Australian housing and heavy industry (steel, alumina, aluminium and cement).
• Continue to seek external carbon neutral certifications for our Group-wide operations.

• Set financed emissions targets for Australian agriculture, Australian commercial property and transport.
• Report on revised Scope 3 operational emissions target.
• Continue to seek external carbon neutral certifications for our Group-wide operations.

▶ By 2025:
•	Set sector-level targets on sectors
	that account for more than 75% of our
	2020 financed emissions.
•	Have sector-level strategies in place to
	support the achievement of targets.
•	Reduce emissions in line with Scope 1
	and 2 operational emissions target.
•	Reduce emissions in line with revised
	Scope 3 operational emissions target.
▶ From 2027 onwards:

OVERVIEW

STRATEGY

2020 drawn lending exposure coverage 1, 2

N/A

1%

67%

77%

• Aim to commence setting sector-level

targets beyond 2030.

2020 financed emissions coverage 1, 3

Supporting our customers with products, services

and engagement

For more information see pages 12-29.

N/A

• Green Loan
• Sustainability-LinkedLoans
• Amber Electric
• Carbon Insights

27%

• Green Home Offer
• Property Sustainability Upgrade Loan
• Customer engagement with 100 of CBA's most carbon intensive Institutional Banking customers (ongoing)
• Carbon Markets

44%

• Agri Green Loan
• Green Vehicle and Equipment Finance
• Structured Asset Finance
• Sustainability Action Tool
• Personal Loan Green Offers
• Customer engagement with 100 of CBA's most carbon intensive Institutional Banking customers (ongoing)

88%

• Green Buildings Tool
• Strategic investment in Wollemi Capital
• Customer engagement with 100 of CBA's most carbon intensive Institutional Banking customers (ongoing)

▶ By 2030:
• Seek to reduce financed emissions in line
	with our sector-level targets. 5
•	Aim to have achieved our Sustainability
	Funding Target of $70 billion in
	cumulative funding.
•	Continue to source the equivalent of
	100% of our global electricity demand
	from renewable sources.
•	Continue to seek external carbon
	neutral certifications for our
	Group-wide operations.

Net zero ambition

GOVERNANCE

RISK

Transparently reporting our progress

2021 E&S Framework	NZBA commitment signed
2021 Annual Report:	1.5°C temperature ambition
TCFD-aligned chapter	adopted
	Preliminary climate scenario
	analysis on 74% of exposures
	80% of CBA's financed emissions
	reporting, PCAF aligned
	2022 Climate Report

Preliminary climate scenario analysis on 89% of exposures4

2023 E&S Framework

2023 Climate Report

2024 Climate Report

METRICS AND TARGETS

• Timing of targets and estimated coverage of 2020 drawn lending exposure and 2020 financed emissions is indicative and subject to change; for example due to changes in business structure, availability of relevant data, methodological developments, global and local emissions trajectories, and scientific literature. Estimates have not been updated compared to the 2022 Climate Report.

• Drawn lending exposure of sector-levelfinanced emissions targets as a percentage of the Group's 30 June 2020 drawn lending exposure, excluding finance and insurance, and government administration and defence.

• In line with the PCAF Standard, our 2020 financed emissions calculations consider our customers' Scope 3 emissions in upstream oil extraction, upstream gas extraction and thermal coal mining. In 2020, we did not consider customers' Scope 3 emissions in other sectors. For more information on our financed emissions methodology see pages 64-73.

4 Scenario analysis methodologies vary by portfolio, please see pages 44-47 for further information.

• There are a number of dependencies in achieving these targets. If the outcomes described in the scenarios we use - such as rapid decarbonisation of Australia's electricity grid - do not eventuate, we may not achieve our financed emissions targets.
  See pages 69-71 for further information.

APPENDIX

6

Working together to achieve net zero by 2050

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COMMONWEALTH BANK 2023 CLIMATE REPORT

Addressing climate change requires a collaborative approach between government, business and the community. We welcome Australia's emissions reduction plan to reduce emissions by 43% by 2030, and achieve net zero emissions by 2050. The Australian Government's 2022 Climate Change Statement and AEMO's 2022 Integrated System Plan (ISP) suggest this target is achievable. These reports highlight how the largest near-term reductions in Australia's emissions come from the decarbonisation of Australia's electricity grid - reliant on the Australian Government's target of 82% renewables generation by 2030.

A purposeful and coordinated approach is required across all sectors of the Australian economy to meet near-termdecarbonisation goals. Aligned to our purpose and strategy, CBA remains committed to playing our part and supporting Australia's transition to a net

zero economy by 2050. Our new sector-levelfinanced emissions targets for Australian housing and heavy industry use credible, 1.5°C aligned decarbonisation pathways published by the Science Based Targets initiative (SBTi) and Mission Possible Partnership (MPP).

We acknowledge there are varying perspectives on the emissions reductions required for Australia to meet the goals of the Paris Agreement. We believe credible, 1.5°C aligned transition scenarios, tailored for Australia's unique energy mix and circumstances can support businesses to set targets. We welcome and support future work led by the Australian Government to develop sectoral decarbonisation pathways for electricity and energy, industry, the built environment, agriculture and land, transport and resources. We will continue to monitor for Australia-specific pathways, and will review those that are developed by the Australian Government 1.

OVERVIEW

STRATEGY

Reducing emissions in key sectors by 2030

AEMO's ISP provides grid decarbonisation milestones across different timeframes out to 2050. Recent modelling funded by AEMO explores implications for other sectors of the economy. These two reports 2 outline a number of 2030 milestones for Australia on potential pathways towards the goals of the Paris Agreement, including:

Electricity

Buildings & houses

Transport

Heavy industry

GOVERNANCE

A critical step to achieving net zero by 2050 for Australia, is a net zero

By 2030		By 2030
Electricity emissions		Energy efficiency
intensity significantly		measures
lower		Reduced reliance
Distributed solar		on natural gas
generation more than		Increased
triples
		electrification
Wind and solar		of homes
generation more		More than 12%
than 67%
		of household
Fossil fuel generation		daily electricity
less than 21%		consumption
		potential stored
		in batteries

By 2030

Electric vehicles (EVs) make up at least 12% of road transport

EVs reach cost parity

EVs 50% of new car sales

By 2030

New technologies and carbon capture

Increased electrification

Fuel switching

RISK

METRICS AND TARGETS

electricity grid.

• In 2021 we engaged Commonwealth Scientific and Industrial Research Organisation (CSIRO) to develop Australia-specific pathways consistent with limiting global warming to 1.5°C.

2 Refer to page 96for sources.

APPENDIX