Through the 46th Parliament, the Joint Standing Committee on Trade and Investment Growth has been tasked with focusing on Australia’s strengths as an exporting nation, how the Government can continue to support key export industries, and what is required to enable more of Australia’s businesses to expand their export markets.
As part of that broad remit, the Minister for Resources, the Hon. Keith Pitt MP asked this Committee to investigate how Australia’s framework of prudential regulation interacts with some of the country’s biggest export industries. The request came against the backdrop of increasing concerns that banks and insurers were reducing services to sectors such as coal mining and live animal exports which banks and insurers seem to have determined are not in alignment with their corporate ethics. After the endemic issues exposed by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, one does wonder how any bank or insurer can legitimately cast aspersions on other law-abiding sectors about ethics.
The fact is a strong financial system such as Australia’s requires equally strong regulatory settings, including as to how risk is managed by banks, investors and insurance companies. Financial institutions are required to manage risks, including emerging risks, faced by their customers and clients. However, it seems some of these risks — notably the ill-defined ‘climate risk’ — are little more than a veneer over what appears to be political and public relations considerations. The Committee was concerned to learn that profitable and law-abiding companies in some of the country’s main export sectors — predominantly coal but also live animal exports — face the threat of losing access to essential services such as transactional banking, finance and appropriately priced insurance.
Further to this thinly-veiled corporate wokery masquerading as Environmental, Social and Governance issues, other factors are negatively affecting how the financial services sector engages with certain export industries. This includes, from perhaps least to most impactful:
activism targeting banks and insurers and the resultant bad press;
minority but noisy shareholder activism;
unclear and misinterpreted directions coming from regulators including APRA and ASIC particularly in regards to so-called ‘climate risk’;
proxy advisory services captured by activists and negatively reporting to institutional and international investors on the engagement of financial services corporations with certain export industries; and
the lop-sided influence of international investors such as BlackRock who seek to use their sizeable capital to shift Australia’s financial corporations away from certain export industries.
This report makes 13 recommendations to the Australian Government to address the challenges the Committee heard about during this inquiry. Several recommendations deal with consultation, including recommending that Australia’s regulators work with affected sectors in issuing clear advice about risks. The Committee has also recommended that the Government direct banks to demonstrate the consultation processes they have undertaken with relevant businesses before withdrawing funding from Australian export projects; and that the Government consider laws requiring shareholders be consulted before banks or other financial institutions withdraw funding from export-focused projects.
Several other recommendations deal with the issue of the disproportionate influence of small groups of shareholders in financial institutions. The Committee recommends that the Government review the extent and influence of shareholder activist groups in Australia, including whether proxy advisers are placing risks on the stability of the Australian financial system. The Committee also recommends that the Australian Competition and Consumer Commission investigates whether finance and insurance firms are breaching the concerted practices provisions of the Competition and Consumer Act 2010 by denying finance or insurance coverage to lawful sectors of the Australian economy.
The Committee has recommended that the Government take steps to ensure that banks must, at a minimum, provide transactional banking services to all law-abiding businesses. On a related note, the Committee has recommended that the Government consider options to ensure that viable, law-abiding businesses can access reasonably-priced finance and insurance services.
Most importantly, the Committee has asked the Australian Government to accept the notion that finance and insurance are essential services for business. If this notion alone is accepted, then clearly action must follow to ensure that business in this nation has access to those essential services.
The Committee received over 70 submissions and held five public hearings to gather evidence for this inquiry. On behalf of the JSCTIG, I thank everyone who made a submission or appeared at a hearing. I also thank my colleagues on the Committee for their engagement with the complex topics this inquiry considered.
Mr George Christensen MP
Chair