Examining the Sustainability Efforts of Australia's Biggest Banks

Australian companies will soon be publishing financial results, as well as details about sustainability efforts.

Corporate social responsibility of the big four banks – Australia and New Zealand Banking Group (ANZ), Commonwealth Bank of Australia (CBA), National Australia Bank (NAB) and Westpac is a continuing topic of debate following recent scandals as well as reports of unsustainable activities.

Yet according to ANZ chairman, David Gonski, Aussies ought to “stop bashing the actual banks” for being large and profitable.

This comment should put civil society on guard.

A current study by the Centre for Corporate Governance at the University of Technology Sydney, area of the UNEP Inquiry into the Design of the Sustainable Financial System, examined self-regulatory as well as voluntary sustainability efforts of the world’s largest banks, in partnership with  Catalyst Australia which scrutinised the efforts of the large four Australian banks.

Sustainable finance

The “4 pillars” of the Australian banking program are a dominant part of the Aussie economy: the four banks are featured in the top five of the ASX 200 and they hold A$522 million of Australian household build up, equal to one-third of Australia’s gdp.

In the words of David Murray, former CBA boss and chair of the Financial System Inquiry: “banks account most of the assets in the economy – regardless of whether it’s businesses, governments themselves, homes, or projects, whatever else.”

This market dominance results in great power and great obligation. As banks provide the most of external finance to businesses and governments, they can influence practices: bank lending possibly has more impact on environmentally friendly enterprise than investment and divestment on the stock market.

Banks can thus wield their enormous market power to support sustainable actions, while their actions may likewise contribute to detrimental conduct.

Conflicting images

The examination of the sustainability initiatives of Australian and worldwide banks reveals a schism between symbolic and substantive durability efforts.

At the 2014 World Economic Forum, Westpac was named probably the most sustainable company in the world. The actual Dow Jones Sustainability Index, a major reference point for environmentally friendly investors, has named ANZ as a leader in the global financial sector six times within the last seven years, while NAB and also the CBA have likewise been accepted for their sustainability performance.

Yet despite being lauded for their durability efforts, the public image of large Australian banks have endured in the wake of bogus financial advice scandals, disputed fees, and allegations associated with rate-fixing and insider trading.

Banks possess drawn the ire of ecological activists by extensively funding the actual fossil fuel industry, fossil fuel mining along the Great Hurdle Reef, and nuclear hands manufacturing. Oxfam Australia claims the large Four are also backing agricultural and timber companies accused of land grabbing in creating countries.

As a result, public self-confidence in banks is reduced: according to a national survey, part of the research by Catalyst Australia, 76% of respondents think that banks put profits prior to their social and ecological responsibilities.

Regulation and Supervision

In 2005, the federal government launched an Inquiry into Corporate Responsibility and Multiple Bottom Line reporting. It examined the extent to which the Australian legal framework promotes or discourages company directors from considering interests of stakeholders apart from shareholders, the suitability of voluntary sustainability measures, and the appropriateness of reporting requirements.

The Committee found that legal changes were undesirable, as it deemed it “not appropriate in order to mandate the consideration of stakeholder interests into directors' duties.”

Furthermore, the Panel recommended that sustainability confirming should remain voluntary, dreading that “mandatory reporting would lead to a ‘tick-the-box’ culture of conformity.”

In the aftermath of the global financial trouble, financial sector regulators were pushed to exercise more guidance and be less trusting associated with self-regulatory efforts. Consequently, in The year 2013 the Government launched the Economic climate Inquiry. Regrettably, the relation to reference did not address social and environmental sustainability and risks in the financial field.

The readiness to increase supervision to avoid financial risks is not matched up by a similar willingness in order to supervise and regulate the actual social and environmental dangers caused by the financial sector. This emphasis on voluntary initiatives is problematic, as the study by Catalyst Australia implies that only 26% of the Australian community believes banks will act ethically and responsibly when they self-regulate.

Bridging the governance gap

While many Aussie and overseas banks possess successfully shaped sustainable company imagery, the research by the Center for Corporate Governance as well as Catalyst Australia finds which self-regulation permits facts to be hidden and leaves social and ecological matters peripheral to business strategies.

The assurance that banking activities are based on sustainable concepts requires public monitoring of compliance and performance – because US litigator Louis D. Brandeis famously stated:

“Publicity is justly commended like a remedy for social and commercial diseases. Sunlight is said to be the best of disinfectants; electric light the best policeman.”

In order to accomplish this, directors' duties ought to be reformulated to include social as well as environmental responsibilities, sustainability confirming requirements should be redefined and further embedded in corporate governance methods, and social and ecological risk assessments should apply the precautionary principle, shifting the burden of proof to stars that potentially cause harm.

Robust government, regulation, and supervision should not be seen as measures that restrain innovation or entrepreneurship, but instead as instruments that can help to restore trust, and ensure that financial activities are conducted openly, fairly and sustainably.

Australia’s banking four pillars wobbly on sustainability record is actually republished with permission from The Conversation