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Published 07 February 2013 00:50, Updated 26 November 2013 18:35
The now infamous fake ‘ANZ’ press release issued by anti-coal protester Jonathan Moylan from his bushland camp dragged banks’ sustainability credentials back into the spotlight. Photo: Peter Lorimer
You know it’s no longer business as usual for the finance industry when a fake press release claims that one of Australia’s biggest banks has withdrawn funding from a coal mine on environmental grounds and the ensuing news reports wreak havoc on the sharemarket.
Yet the sign that things have really changed is not the hoax itself, which targeted ANZ and Whitehaven Coal just one week into the new year, but rather the fact that such a notion is so entirely plausible that everyone fell for it.
Once upon a time banks were not expected to consider the environment in their lending decisions, but public expectations have changed, and everyone from the investment community to the banks themselves acknowledges this is the case.
As a result, Australia’s biggest banks now have a range of sustainability policies to inform lending decisions and some tout their environmental credentials in their advertising messages.
The question is whether all the talk about sustainability has altered the banks’ actual investment decisions or if it’s just window dressing.
Commonwealth Bank’s executive manager of sustainability, Cecile Walton, describes mounting pressure from shareholders, institutional investors, customers, government and communities, activist groups and even employees.
“Over the last five or 10 years, we’ve seen a real groundswell in terms of pressure from external parties on sustainability matters,” she says.
The managing director of Ogilvy Earth, a public relations consultancy specialising in environment and community issues, Andrew Ure, says banks face a huge challenge because citizens are increasingly informed about the link between finance and sustainability. Meanwhile, activists see banks as an easy target because they are more vulnerable to public pressure than the resource companies or the developers they fund.
He believes the change in public expectations when it comes to corporate behaviour is a fundamental disruption for all business.
“Doing business in the 21st century means thinking about the way their processes impact on the environment and it’s about processes not just public relations,” Ure says. “If you’re doing it but not telling anyone, you’re vulnerable, but if you’re telling people and there’s nothing behind it and it’s ‘greenwash’, then you’re also vulnerable.”
More than a decade ago, the anti-nuclear lobby was drawing attention to Westpac’s links with the Jabiluka uranium mine. But the biggest breakthrough for activists came in 2008 when ANZ pulled out of funding the Gunns pulp mill in Tasmania after intense public opposition, including protests by the bank’s own staff.
GetUp campaigns director Paul Oosting, who worked for The Wilderness Society at the time, says that within weeks of ANZ’s announcement the other big four banks had also given undertakings that they wouldn’t fund the project and by 2010 more than 20 banks and pulp companies around the world had done the same. In this case, a compounding factor was the desire to avoid governance problems at Gunns highlighted by the campaigners.
Oosting says the banks can expect more of this sort of pressure because the public is “increasingly looking at the decision makers allowing a project to proceed”. Upcoming hot spots for activist action include Hancock’s Alpha Coal and other projects in the Galilee Basin and the impact of shipping coal on the Great Barrier Reef and the James Price Point gas hub in the Kimberley region of Western Australia.
A recent example outside the finance sector was when anti-pokies campaigners, having reached an impasse in parliament, turned their attention to Woolworths as a major owner of the machines. GetUp was able to mobilise enough members with shares in Woolworths to call an extraordinary general meeting on the issue.
Ogilvy Earth’s Ure says any consumer-facing organisation can be targeted at any time and banks need to be prepared. Regnan managing director Amanda Wilson, whose firm provides guidance on risk to long-term institutional investors, has a similar message.
“The sort of things we’ve seen in the activist space . . . we’re going to see more and more of that. Banks shouldn’t be responding; banks should be anticipating and managing. They should be thinking long and hard about their lending models and not just their lending models but their own internal reputational risk, their own codes of conduct, their own cultures and so on. You can’t just be treating this as a short-term crisis issue.”
Wilson adds banks need boards that understand social media and the activist community, not just lawyers and finance people. She says it’s hard to gauge from the outside whether a bank is serious about sustainability but two big clues are where the person in charge of sustainability sits in the hierarchy and whether it’s factored into how staff are remunerated.
During the 1990s, Westpac was targeted by activists campaigning against the Jabiluka uranium mine. Westpac enterprise executive Peter Hanlon, who has been with the bank for more than two decades, says the bank learned a lot as a result.
“What happened with Jabiluka is that while the process was going on we were commencing to engage with them and the obvious observation was that it was just a little bit too late,” he says. “The big lesson out of Jabiluka for us is taking those groups seriously, not treating them as if they don’t have a legitimate voice and making sure that we’re learning from what they’re talking about, because even though they might be the pointy end of a process and some people might consider them radicals, by and large when there’s an issue like that, it’s part of the mainstream as well.”
Hanlon says Westpac has been on its sustainability journey since Bob Joss ran the bank in the 1990s and the notion of “doing the right thing” is now embedded in the bank’s culture. The bank has policies on issues such as the environment and armaments and is soon to add another layer, looking at the issue of changing demographics and particularly the ageing population.
But like all of Australia’s biggest banks, Westpac has significant exposure to mining and other carbon-intensive industries. Hanlon says the bank has long-standing customers in coal mining and coal power generation and no intention of pulling their loans. “We think we should be part of the transition process that they’re going through,” Hanlon says. “No one is interested in not changing – certainly all the companies we deal with actually are very focused on how they might transition their business because they all know to some degree that if they don’t . . . then they might be out of business within a reasonably short timeframe.”
It’s a similar story at other banks. “[Energy and mining] are big drivers of economic growth here in Australia and export earnings for Australia so you can’t have the position that we do in the market without having exposure to those industries,” says Commonwealth Bank’s global head of specialised finance, Scott Speedie. “We’re a large institution in an economy that is very reliant on extractive industries.”
Of course, all the banks are also involved in funding renewable energy and green technology – as an example Speedie points to CommBank’s support of the Collgar Wind Farm, a $750 million renewable power project at Merredin in Western Australia.
Yet for some, the banks’ involvement in the resources and power industries is enough to prove they are engaging in “greenwash” – the derogatory term for marketing something as environmentally friendly when it’s not.
In the wake of the publicity over the Whitehaven Coal hoax, Australians took to social media in droves to deride ANZ for what they saw as the bank’s hypocrisy in funding a massive coal mine that could destroy koala habitat and farm land, whilst being signatory to a set of international voluntary standards on sustainability called the Equator Principles.
ANZ declined an interview but a company spokeswoman gave written comments, saying that finance decisions at the bank had changed as a result of its sustainability policies. She says the bank exited a “potentially significant” relationship with a mining and resources customer in 2010 because the company failed to address the concerns of stakeholders over the project’s impact on the environment and indigenous people.
“ANZ attended a site visit to the project in early 2010 – but requests to bring independent experts were declined. Similarly, the client had commissioned an independent social and environmental assessment report in 2009, but was unwilling to provide it to ANZ. Our reputation risk governance process provided the framework for us to examine the issues, allegations and client actions at the highest levels of the bank. As a result of this deliberation ANZ decided to exit
the relationship with the customer
Regnan’s Wilson also gives ANZ the thumbs up – of all the Australian banks, she says ANZ and Westpac have the most sophisticated models for judging sustainability risk.
However, ANZ seems to be in the firing line of activist campaigning more than other banks and it has a much higher-than-average count for “dodgy deals” on the global BankTrack.org site. According to this site, ANZ is involved in financing not just Whitehaven Coal’s Maules Creek project, but also Alpha Coal near the Great Barrier Reef, a HRL brown coal plant in Victoria, tar sands mining in Canada, dam construction in Laos and Cambodia, and a liquefied natural gas project in Papua New Guinea. The ANZ spokeswoman declined to comment on specific customers for commercial confidentiality reasons.
National Australia Bank also elected to provide written comments, stating that the bank takes a “holistic approach” to sustainability that includes a strong governance framework and building sustainability outcomes into executive remuneration from the CEO down. The bank did not comment on how investment decisions have changed.
Within the finance industry, views on the Equator Principles themselves are mixed. Modelled partly on the World Bank’s lending guidelines, they are meant mainly as a risk management mechanism. However, the idea is that signatories should not fund big infrastructure projects that don’t meet certain standards for environmental and community impact.
CommBank is the only big four bank in Australia that has not signed on to the Equator Principles and Speedie says that is partly because they lack teeth.
“The reason we’re not is that it’s become clear since their inception that a number of organisations have signed up to that code and have really paid lip service to them and that’s very much devalued those principles as a valid currency in project finance,” Speedie says. “We are aware of domestic examples where we have decided for reasons of environmental or social or governance reasons not to bank a project that other [Australian] banks have, including banks that are signatories to those principles.” He adds that power generation is one sector that comes to mind.
There are four signatories to the Equator Principles in Australia – ANZ, Westpac, National Australia Bank and the government’s Export Finance and Insurance Corporation.
Speedie says the Equator Principles are being reshaped, including having some sort of compliance regime, and CommBank is watching the developments closely and would consider signing up in the future. Meanwhile, he says the bank already undertakes exactly the same risk assessment and insists that every asset on its balance sheet would be Equator Principles compliant.
Westpac’s Hanlon says the Equator Principles have substance but are just a starting point.
“There have been a number of cases where we’ve rejected a loan or an application for co-investment based on either the Equator Principles or others . . . and some of those companies don’t approach us any more,” he says.
“But if that’s all you have, and your commitment to the environment and making loans on environmentally and socially acceptable means is just the Equator Principles, then you’re probably not doing enough.”
Longer term, attitudes will continue to evolve as environmental issues wax or wane on the agenda and the public understanding of the link between finance and sustainability deepens.
MBA program director at Oxford University, Professor Stephan Chambers, says it is “absolutely” conceivable that it could become socially unacceptable for a bank to fund a coal mine.
“In the end the prices will express what we know and if what we know is that these things are dangerous, or non-renewable, or polluting, or not supported by a consensus of citizens, they will get priced accordingly,” Chambers says. “What we think is acceptable for a funds management firm to invest in is different today to what it was yesterday and it will be different again tomorrow.”
(Macquarie declined to participate in this report).
Where sustainability sits in hierarchy
Is remuneration linked to sustainability outcomes?
|CommBank||No, but CBA says all its loans comply.||Within group corporate affairs.||The bank described this question as not “appropriate”.|
|ANZ||Yes, since 2006. Reports publicly on compliance.||CEO Mike Smith chairs corporate responsibility and diversity committee. Objectives, targets and performance approved annually by board governance committee.||Executive remuneration is linked to overall sustainability performance.|
|Westpac||Yes. Westpac one of 10 Equator Principles founding signatories in 2003. “We thought that was a very good step in the right direction but even as we did that we thought that it was ‘necessary but not sufficient’.||Christine Parker, group executive, HR and corporate affairs, has direct accountability for sustainability. and reports to CEO Gail Kelly.||From CEO down, a “balanced scorecard” which includes sustainability objectives determines remuneration outcomes.|