Banking with a heart
Customers are getting more critical of their bank’s lending practices, John Berry writes.
Conscious consumerism is posing an enormous dilemma for New Zealand’s largest banks. The Royal Forest and Bird Protection Society’s decision last week to dump ANZ as its banker in favour of Kiwibank, a bank it claims has stronger environmental credentials, highlighted the challenge.
Forest and Bird doesn’t want habitats cleared to dig for coal or pump oil and it definitely doesn’t want to deal with a bank making loans and generating profits by enabling environmental damage.
In 2016 Forest and Bird asked ANZ for a divestment plan to understand how and when it planned to reduce lending to fossil fuel companies. But according to Forest and Bird, the bank did not do enough.
‘‘It’s important that the companies we do business with are not investing in fossil fuels. That’s not an industry that is part of a sustainable future for our planet,’’ the organisation said.
Forest and Bird’s action is the next step in a trend that gained prominence in 2016, when many investors were shocked to find their KiwiSaver plan invested in tobacco and landmine companies.
Most KiwiSaver providers, including the banks which dominate the industry, quickly dumped these investments.
Investors have since focused on whether it’s appropriate for KiwiSaver funds to hold shares in businesses causing social or environmental harm.
From there it’s a small step for KiwiSavers and indeed customers like Forest and Bird to question the contradiction of banks lending to these companies.
This is not just about one environmental group and its 70,000 supporting members. The worry for ANZ and all banks is that Forest and Bird is encouraging others to question their banking relationships.
Indeed, in announcing its decision, Forest and Bird noted: ‘‘We encourage other organisations in New Zealand to look at the investment practices of their banks …
‘‘By demanding responsible investment practices, we can change the way this country, and the world, does business.’’
Shortly after, the Greater Wellington Regional Council confirmed it would start monitoring fossil fuel exposures of its banks.
The same conversation is occurring overseas and is prompting previouslyunthinkable decisions. Last year BNP Paribas in France announced it would cease lending on shale and oil sand projects and to cigarette manufacturers.
The World Bank stopped lending to coal-fired power stations and over the next two years, will stop funding oil and gas extraction.
The new NZX Corporate Governance Code is very clear that material environmental, social and governance (ESG) practices should be reported.
This is part of a global push for meaningful public disclosure on these matters.
The banks’ response will not simply be a question of personal beliefs on social issues or climate change. It’s a business decision.
Superficially it’s a calculation of whether they will make more money lending to fossil fuel companies than the profit they will lose from exiting customers.
But it’s not black and white. Risk managers and strategists at banks will be thinking from a long-term perspective.
They’ll fear Forest and Bird’s switch could start a multi-year trend cutting to the heart of banking reputations.
They’ll counter by explaining (legitimately) that fossil fuel lending cannot cease overnight.
They’ll also argue that lending can be used to encourage the transition from fossil fuels to renewable energy, helping ‘‘cleanse’’ oil company exposures in the minds of conscious consumers.
ANZ, for example, lends more to renewables projects than fossil fuel companies.
Whatever they decide, banks cannot ignore the substance of Forest and Bird’s message.
This is a new environmental and social focus and other organisations will follow.
John Berry is co-founder and chief executive of Pathfinder Asset Management, a boutique responsible investment fund manager.
’’This is part of a global push for meaningful public disclosure on these matters.’’