Time is right for co-operatives with ESG in focus, says Melina Morrison

Melina Morrison is in the running to be president of the International Cooperative Alliance. Picture: Jane Dempster

In just under a week, Melina Morrison will find out if she will be president of the world peak body for co-ops and mutuals, the International Cooperative Alliance.

The ICA represents three million co-operatives worldwide, including some giants: Credit Agricole, Rabobank, Nippon Life, Fonterra, Ocean Spray and Kerry Gold. Around 10 per cent of global workers are employed by co-operatives and the top 300 have a turnover of over $US2.2 trillion ($3.1 trillion).

Of three final candidates waiting for news from Seville, it looks like it has come down to a two horse race between Morrison and the incumbent Argentinian Ariel Guarco. Morrison would be the first president from the Asia-­Pacific; this election has coincided with a shift in the global mood.

Covid-19, war, supply chain chaos and cost of living pressures raise a question: should the world be looking to other business models that put people before profits and bring greater security of resources? In Australia, the loudest voices in the federal election were for climate change and a more caring country.

Morrison says the co-op model – with an overriding purpose to benefit members and communities – will come into its own.

“Investment is looking for impact. These investment opportunities are thin on the ground. As capital grows, it will be those business which can fly their ESG flag clearly and be credible. You have got to be authentic, so it is a huge opportunity for co-operatives,” she says.

Australia’s co-ops and mutuals are minnows by world standards but punch above their weight and are growing. Combined turnover of the top 100 (excluding industry super) was $34.4bn in 2021, up 10 per cent over the last year. They have combined assets of over $180bn and employ 76,000.

The traditional co-operative model is member-owned and controlled, giving them a voice in how the business is run. Profits made are ploughed back into the running of the business.

Morrison says the model has been highly effective through supply chain shortages and floods.

She cites West Australian grain co-operative CBH, with annual revenue of almost $4bn.

“If you have agricultural co-operatives domiciled in your country you have food security because they are owned here. We saw during Covid, with these serious supply chain issues, if you cannot fend for yourself and have your own national capacity you are very vulnerable,” she says.

After the flooding in NSW and Queensland, discretionary risk mutuals have stepped up as for-profit insurers retreat, she says.

“People and communities have to find other ways to address the systemic risk of being underinsured or not insured at all. A mutual still has to get reinsurance, still has to solve the underlying problem of pricing. But the community looks at the holistic issue it has in protecting itself against risk, so the whole purpose of the business is different. That is why sometimes solutions can appear in markets where more traditional corporate models cannot respond,” she says.

Internationally, Morrison says a large proportion of insurance and risk protection globally is mutually owned. Australia’s history is a different story.

Mutualisation – seen as a third way between liberal market capitalism and state-owned socialism – created giants like AMP, MLC and National Mutual.

But by the 1990s, they were demutualised into public profit-making businesses. A spate of takeovers put many assets in the hands of the big banks, where profit was put before purpose to an ugly end. The financial services royal commission led to the sale of insurance assets as banks opted to simplify. “If we look at some of the great institutions like AMP, they are totally devalued now,” says Morrison.

Morrison argues that co-ops and mutuals have weathered the pandemic better than many other businesses thanks to a lean structure and no pressure to reward shareholders.

The issue the world over is visibility. In 2012 Morrison led a campaign to raise awareness of co-ops. That led to the creation of the Australian peak body – the BCCM – that she has run ever since. It boasts members like HCF, NRMA, RACV, Heritage Bank, CBH and Norco.

In the last federal budget, the BCCM was given $7m to get co-ops to help solve problems in aged care and disability services.

Until recently, the biggest problem for co-ops was growth – the capital conundrum. Co-ops could only raise capital from their members, who often did not have deep pockets.

In 2019 Morrison helped secure new legislation for a mutual capital instrument akin to a preference share with limited or no voting rights. “It allows capital to sit on the equity side of the balance sheet,” she says.

“Its capital cannot have influence in the kinds of decision that make or break a co-operative such as demutualising it. Only the members can decide that.”

In late December aged care business Australian Unity issued $350m in mutual capital instruments in two tranches. HESTA took a cornerstone $20m investment. “HESTA took that stake and were very open about the fact that this was impact investing,” says Morrison.

Part of the communications challenge is that co-operatives are a broad church. And they can have very different types of memberships. There is customer membership in a credit union, but also employee membership in a company like British design and engineering firm Arup. Here the members share in the profits. Or a co-operative could be more about networking.

HunterNet co-op is a group of small manufacturing and engineering businesses in Newcastle left behind after BHP pulled out of the steelworks. “They can act like one large-scale entity and group tender for very large projects, but they can also be very flexible within that network, so they don’t all work together all the time,” says Morrison.

Also part of this broad church are industry super funds, from HESTA and Aware to AustralianSuper. Yet members of these funds have no direct say in where profits are spent. Trustee boards typically have union and employer representatives on them.

Morrison says industry funds are not primary co-operatives. “They are not one member one vote. But they are mutually owned, not-for-profit superannuation funds.”

What industry super does represent, however, is investment power. And increasingly it needs assets that are ESG-aligned.

Morrison says the competitive advantage for co-ops seeking capital is the social licence to operate. “Co-operatives and mutuals can say our whole business purpose is set up to deliver social impact,” she says.