B.

Company Research
1. Company profile and disclosure of SPMS.
National Australia Bank Group:
The company chosen for non-environmentally sensitive industry is NAB Banking Group in the
financial industry. NAB Group is Australia’s largest bank which is located in Australia and New
Zealand. It is divided into eight divisions across Australia, New Zealand and Global. NAB has been
recognised as a leader in Customer Relationship Management.

NAB 's Corporate responsibility agenda for Sustainable shareholders returns consist of six elements:
Resource efficiency, Regulation, Risk Revenue, Reputation and Relationships.
NAB’s Approach to Corporate Responsibility which is centred on:
• Customers –delivering a great customer experience and applying responsible lending practices;
• Employees – developing the skills and capabilities of employees, customer-focused, diverse and
inclusive workforce; and
• Addressing broader responsibility to society – supporting communities, managing environmental
impact and dependencies, and having a positive impact through supply chain. Approach recognises
and supports the United Nation’s (UN) new global agenda “Transforming Our World: the 2030
Agenda for Sustainable Development” (NAB sustainability report,2015.

Disclosure of SPMS:
To analyse the SPMS disclosure a systematic process of coding is used to find patterns, meanings and
themes (Elijido-Ten, E 2013). NAB has disclosed all the three criteria and is awarded a score of 2 for
Ord-SPMS and 1 for Bin-SPMS as per the SPMS disclosure model (Elijido-Ten, “SPMS disclosure
model”, pg 63. E 2013). Three criteria for NAB Group:

1. Strategy statement and measures in multiple perspectives:

NAB approaches “Basel III: international regulatory framework for banks” (NAB 3 pillar report 2015)
which helps NAB to improve the ability to assimilate shocks emerging from financial and economic
stress, improve risk management and governance and which strengthen transparency and
disclosures. In 2015, NAB announced a reinvigorate strategy that was centred on investing in priority
customer segments, delivering a great customer experience with primary focus on Stakeholders,
mitigate risk, identify new revenue opportunities and enhance reputation while delivering superior
shareholder returns with future focus and environment and community/sustainability perspectives.
Advanced Measurement Approach: NAB uses AMA for operational risk management. The
implementation of AMA leads to improved risk management processes, advanced risk measurement
mechanism with improved relationship between risk managers and risk specialist. (The advanced
measurement approach for banks- http://www.bis.org/ifc/publ/ifcb33p.pdf)

NAB uses IRB approach which is based on expected and unexpected losses. IRB approach helps NAB
to predict in advance about the losses which they will suffer. It forecasts the average level of credit
losses.

Interest Rate Risk in Banking Book: NAB and Bank of NZ uses IRRBB in Non-Traded Market Risk. This
is the risk to interest income which generates form inconsistency between duration of assets and
liabilities which arises in normal day to day activities.

NAB’s Internal Models Approach analysis the overall risk position which is helpful in determining
the economic capital required to meet those risks.

NAB’s sustainability disclosures are more focussed towards social attributions and has been
disclosing sustainability information since 2008.

 NAB facilitates greater investment in renewable energy. It launched $300 million climate
bond – the first by an Australian issuer into the domestic market and with the support of the
Clean Energy Finance Corporation (CEFC), a $120 million fund that can provide discounted
finance to businesses looking to invest in energy efficient and small scale renewable assets.
“National Australia Bank has announced it will set a “science-based target” to reduce its
emissions by 21 per cent of 2015 levels by 2025.The bank said its new target was in line with
the goal set at the Paris COP211 to limit global warming to less than two degrees above pre-
industrial levels. It will cover direct greenhouse gas emissions (Scope 1) as well as indirect
greenhouse gas emissions from electricity, heat or steam (Scope 2), though not emissions
from data centres.” (Jewell, C. 2016, “NAB announces commitment to “Science-based”
climate targets”, The fifth Estate, viewed 27 August 2016,
http://www.thefifthestate.com.au/business/public-community/nab-announces-
commitment-to-science-based-climate-targets/84290)

1.1 Improving customer experience:

NPS (Net Promoter System) has been introduced to Improve understanding of how to
deliver great customer experience. Number of branches and banking centres and number of
ATMS for customers has been increased. NPS is a simple average of the NPS scores of four
priority segments: Mortgage Customers, small business and medium (dig deeper 2015, NAB)

1.2 Monitoring and Reporting Risk:

The objective of NAB Group is to protect the value of equity investments over the long term.
Monthly reports are generated on the basis of internal performance to manage non-traded
equity risk. Monitoring and Reporting framework helped NAB to motivate, measure,
monitor all the risk in equity framework. Below is the Monitoring and reporting framework
which gives an insight of how risk is managed.

1
Paris COP21 United Nations conference on climate change. (http://www.cop21.gouv.fr/en/)
2. Backward-looking statements linked to strategies:

 NAB disclosed all the past targets in all the segments and have been successful in
achieving the stated strategies. As per customer’s perspective NAB has improved
customer experience by introducing NPS (Net promotion system) to understand and
deliver great experience to customers. NAB's new operating model helped to resolve
hardships in dealing with customers who are facing financial hardship.
 NAB continued to provide support to the development of infrastructure and energy
projects. NAB made sustainable positive impact by resource efficiency. Head office
at 800 Bourke Street was awarded the first Green Star - Performance rating in
Australia, representing “best practice” in sustainable building operations. The
building has also received a 5.5 Star NABERS Energy tenancy rating. (Dig Deeper
2015, NAB)

3. Forward-looking statements linked to strategies:

For environment

NAB to achieve carbon neutrality as its environmental agenda is incorporated with United
Nations. Issues such as climate change, Resource scarcity is a part of future-proofing of NAB.
With environmental measures it is incorporated in improving recycling of organic waste by
NAB employees. (Dig Deeper 2015, NAB)
Internal Processes

Nab facilitates improvement in the efficiency of supply chain. NAB has been working with
two largest technology partners to improve operational efficiency. For agricultural sector
 NAB has partnered with CSIRO to explore the links between natural capital management and
long-term profitability (Dig Deeper 2015, NAB)

Innovating for customers

It announced NAB Prosper that provides consumers with affordable online option for
wealth advice.
NAB started - NAB Ventures an innovation fund of $50 million which will make possible for
NAB to access ideas, strategies and potential investment in innovation of customers.

NAB launched first digital wallet called “Semble” in NZ, partnership between the three main
telecommunication companies in New Zealand (2degrees, Spark and Vodafone), and two
banks (BNZ and ASB). (Dig Deeper 2015, NAB)

Company performance & link to reward system:

The performance of the company can be measured on both financial and non-financial metrics. The
metrics should be well design on the basis of the objectives of the company, in the management
study those metrics are called key performance indicators. These indicators are:
1. Risk management

2. Business excellence

3. Employee engagement

4. Customer advocacy

5. Shareholder returns

6. Diversity and inclusion

7. Enterprise collaboration

8. Customer needs met

9. Internal and external impact

“What I would say is that we will have, on a regular basis and in a digital form for our top executives,
all of their KPIs updated on a regular basis so they can granularly monitor what’s going on, what
risks we’re taking in a particular performance unit, and how their performance is tracking against
their KPIs and their plan,” Mr NAB chief financial officer Craig Drummond said. (Gluyas, R. “NAB gets
real on performance”, The Australian, viewed 28th August 2016)

After all objectives and performance are met by executives, NAB has its own way to make employees
motivated and attracted through reward system. This reward system is termed as “Reward-Mix”,
below is the information on how NAB renders reward to encourage, attract high performing
executives.
*LTI = Long term incentives
STI = Short term incentives
STI cash = Short term incentives in cash

Financial Performance Analysis:

The performance of NAB has been measured on the basis of their annual report which is the
integrated report which provides all the information to its stake holders.

According to the financial report 2015 there is an increase 12% cash return on equity as compared to
2014 which was around 11.8%.NAB’s ROE has been decreased since 2013. Dividends has been
consistent since 2014 with 4.2% increase from 2013.
NAB succeed/fail in SPMS:

NAB’s one of the strategies in the year 2015 was to advocates its customers and was aiming to have
the highest net promoter score amongst their peers for their priority customer segments. And in the
end of the year they have achieved modest gains in their strategy improving from -18 to -16 and for
2016 they are aimed to drive towards the same Improvements.

Their another strategy was to engaging the people who are working with them and throughout the
year they have work on that and in the year 2015 NAB has perform exceptionally and have global
employee engagement score of 60% in 2015 compare to 52% & 42% in the year 2014 and 2013
respectively. They were performed well in generating return on equity in 2015 which increased by
100 basis points to 13.1 %. These findings suggest that the nab follows its all performing indicators
and ultimately suggest that NAB has succeed in its strategies and their performance measurements
system.

References.

http://www.theaustralian.com.au/business/financial-services/nab-gets-real-on-performance/story-
fn91wd6x-1226955250731

http://www.bis.org/bcbs/basel3.htm

http://www.allenovery.com/SiteCollectionDocuments/Capital%20Requirements%20Directive%20IV
%20Framework/IRB%20approach%20to%20credit%20risk%20in%20the%20Banking%20Book.pdf

http://www.bis.org/publ/bcbsca05.pdf

http://www.wikinvest.com/stock/Westpac_Banking_CP_(WBK)/Interest_Rate_Risk_Banking_Book_I
rrbb_Income_Arising

http://www.bis.org/bcbs/publ/d368.pdf

http://www.nab.com.au/content/dam/nabrwd/About-Us/shareholder
%20centre/documents/annual-financial-report-2015.pdf
https://www.nab.com.au/content/dam/nabrwd/About-Us/shareholder
%20centre/documents/annual-review-interactive.pdf
http://www.aspecthuntley.com.au/asxdata/20151116/pdf/01684949.pdf

http://www.riskpro.in/clients/Internal_Models_Approach_IMA.pdf

appendices:

2013 2014 2015

ROA(%
) 0.73 0.59 0.61
 2013 2014 2015
ROE(%
) 12.75 10.83 10.44