News that the Coalition is preparing a policy to stop banks from refusing credit and banking facilities to perfectly legal industries on environmental, social and governance grounds is a major development.
Staring down this modern fad, commonly referred to as debanking, is one step in the fightback against the hijacking of corporate Australia by tiny minorities of noisy but influential progressive activists. Ordinary Australians can only have cheered when Peter Dutton slammed Bendigo and Adelaide Bank, and other banks, after the regional bank refused, on ESG grounds, to lend to a family-owned Tasmanian forestry business with a long history and track record.
The Opposition Leader doesn’t only have bank snobbery about forestry in mind. Dutton damned all banks refusing to lend to legal Australian businesses in deference to the ESG demands of proxy advisers and industry super funds. Fossil fuel businesses, for example, are legitimate, profitable and creditworthy businesses that have been effectively debanked on the say-so of proxy advisers, industry funds and sundry activists.
Dutton’s point is that if banks refuse to lend on political rather than credit grounds, they are effectively usurping the role of politicians. If Australia’s elected politicians determine an industry is fit to carry on business, then banks – in business only because the government has given them a banking licence – should not be second-guessing the government’s political judgments.
The quid pro quo for a government-issued banking licence is that banks should offer banking services to lawful, creditworthy businesses. Indeed, as we know from the global financial crisis of 2008 and 2009 and its aftermath.
Australian banks benefit from an explicit government guarantee of retail deposits up to $250,000 and arguably an implicit guarantee of other bank liabilities. For banks, beholden to the largesse of Australian taxpayers for their survival, to pick and choose among creditworthy businesses based on the political views of their boards and activist industry funds shows remarkable chutzpah, not to mention ingratitude.
By contrast, unregulated providers of private credit have no banking licence, therefore derive no benefit of a statutory licence or guarantee, and are free to lend to whomever they like.
Ironically, because private credit providers are also free of the dismal influence of proxy advisers and industry super fund activists, they have been filling at least some of the holes in the lending market left by the banks hobbled by ESG zealots.
They are, for example, lending with their ears back to fossil fuel businesses, and making handsome returns.
This is yet another example of private markets taking advantage of ridiculous levels of useless regulations heaped on public market participants just as private providers of equity are supplanting the hamstrung ASX.
Activists (including the climate zealots in regulatory agencies) claim that restricting banks from lending to fossil fuels, forestry and similar industry is simply a judgment about risk and therefore a purely commercial decision. It follows, they say, that if an incoming Coalition government prevents debanking on ESG grounds, this amounts to directed lending, which should be anathema to a free-market party.
Balderdash.
This is simply clothing political ESG judgments in risk management clothing. If lending to fossil fuels or forestry carried unacceptable risk, why are private credit providers knocking the doors down to lend money to these allegedly risky businesses? And just watch as US banks, currently uncoupling themselves from the ESG train, jump back into lending to businesses our ESG zealots say are “too risky”.
In any event, the Coalition has no intention of mandating lending to forestry or fossil fuels; it simply wants banks to make these decisions on commercial grounds based on the individual circumstances of each borrower, and free of arbitrary, one-size-fits-all political diktats imposed by activists and industry funds.
This is not to say banks must lend to all lawful creditworthy businesses. Banks may legitimately decline to lend in areas where they lack expertise, are overexposed or cannot protect themselves against residual risk. But many of the industries banks are refusing to lend to suffer none of these problems, and many are industries that both sides of politics wish to support because they provide employment or energy security or other benefits to the nation.
The real problem here is that the banks are effectively acting as the agents of unelected political activists who wish to impose their judgments on society.
These agents – proxy advisers, industry super funds and other ESG activists – can’t or don’t want to get elected but wish to act as a de facto government. They believe their moral or political judgments are better than the average punter and their elected representatives.
These elites think voters are schmucks who can’t be trusted with important decisions.
As a concept, ESG was always going to end this way. It’s deliberately designed to hijack corporate assets and apply them to the service of political objectives.
Perfectly nebulous, ESG can be dressed in all kinds of altruistic clothes. But, at bottom, it exploits corporate resources in ways that have only the most tenuous links with shareholder benefit.
Of course, it’s easy to find service providers from the ESG rent-seeking community – accounting and law firms, consulting firms and the like – to provide opinions that, with a long enough perspective, ESG goals will make money for shareholders.
Certainly, the ESG racket is making a lot of money for those selling such opinions. Their self-interest as well as their disconnect from the real world go part way to explaining why these elitist professionals are held in such contempt by the average voter.
While Australian banks are trapped in enforced ESG webs, US banks are fleeing ESG as fast as they can. The six largest US banks, including JP Morgan, Bank of America and Goldman Sachs, have all left the Net Zero Banking Alliance in a no doubt Trump-induced awakening from wokeness.
Such an awakening will be much slower in Australia, chiefly due to the disastrous dominance of the industry super funds.
Our superannuation system has gifted control of the commanding heights of Australian investment to these union-controlled vehicles of “progressive” zealotry.
They are highly politicised and will hold out in support of the most inflexible ESG principles they can, for as long as they can. Their voting and political power will make it tough for Australian banks to follow US and global trends away from the religion of ESG.
Paul Keating’s design of the superannuation system was a masterstroke for the unions and the ALP but had a disastrous effect on Australian markets and investors. Putting unions in control of the purse strings of Australian investment has had two dire consequences for the country.
It means our superannuation system directly enriches the unions (and the ALP) through the massive funds that flow from the funds to the unions. And it entrenches left-wing control of the votes that determine the boards of Australian corporates such as the banks.
Until that control is broken, Australian corporates will be trapped in a statist, ESG-afflicted style of controlled capitalism that the US and large chunks of the rest of the world have left far behind.
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