Denied insurance, rebuffed loan applications and struggling to refinance: Australia’s coal export industry, the world’s largest, says it is being squeezed out by banks and insurers, and some want the government to wade in.
Australia exported A$43bn-worth of thermal coal, its second-largest export by value, in 2020. But miners say that Australian banks’ retreat from fossil fuels as they seek to curb their contribution to greenhouse gas emissions is also stifling Asian financiers’ willingness to plug the resulting funding gap.
The complaints come in submissions to a parliamentary inquiry established earlier this year to examine the impact of prudential regulation on Australia’s export industries. While the probe includes all major exporters, it is expected to focus mainly on the increasingly controversial coal trade.
Australian financial regulators have in recent years issued guidance asking banks and insurers to consider and disclose the risk climate change poses to their balance sheets, in line with a developing global regulatory momentum aimed at keeping global warming under 1.5 degrees Celsius as outlined in the 2015 Paris Agreement.
But the coal industry is a hot-button issue in parts of the country where it is a major employer. High-profile decisions by major Australian lenders to exit the sector over the next decade have sparked a political backlash among some influential MPs in the ruling conservative coalition.
The inquiry is backed by the federal natural resources minister, Keith Pitt, who told GTR in February that “it should not be the role of the financial sector to play eco-warrior”.
“The current approach of Australia’s financial institutions increasingly appears to be one of restricting or withdrawing funding for carbon-related export businesses with no consideration or understanding of the holistic role they play in customer countries’ emissions reduction efforts,” says a submission by Whitehaven Coal, a major miner chiefly operating in the state of New South Wales, where coal exports last year were around A$18.5bn.
“The funding restrictions being imposed [by Australia’s four major banks] are having the effect of putting the banks ahead of government and industry on policy timeframes, which has the potential to cause further uncertainty for industry and put Australian jobs at risk – particularly in regional areas,” says the submission to the inquiry by parliament’s Joint Standing Committee on Trade and Investment Growth.
Whitehaven says the retreat of local banks from the sector is also spooking international finance providers, who the company says typically take their lead from Australian lenders when running the ruler over local companies.
“The common question asked by international banks when these issues arise is: If you cannot raise funding and support from your own banks in your own country, then why should we take the risk in backing you?” its submission says.
Centennial, another New South Wales miner and subsidiary of Thai energy company Banpu, says that Asian banks will generally only join a syndicated financing arrangement if Australian banks are in the mix, because local financiers “would know Australian mining assets better than they would”.
But the listed company says Asian banks have provided 98%, or A$520mn, of a debt facility arranged in 2017, with Australian banks taking on just 2% of the debt. Local banks also shouldered around two thirds of a guaranteed facility worth A$240mn arranged at the same time, with the remainder undertaken by Asian banks. By comparison, debt facilities arranged just three years earlier were evenly split between local and Asian banks, the company says.
Last year the trend away from local financing continued “with Australian banks again further reducing their exposure and Centennial only securing a short extension to our existing banking facilities”, its submission says, adding: “2021 represents a sensitive time for Centennial as we again navigate a refinancing.”
“The inability to finance projects or existing operations will continue to lead to lost opportunities to overseas competitors, erode our global competitiveness and negatively impact our national economy and the lifestyle beloved by the vast majority of Australians,” the company claims.
Adani, an Indian company whose coal mine in the state of Queensland has become a lightning rod in the political debate over coal exports, says in its submission that it has been refused new loans, extensions to existing loans, bank guarantees, transaction banking and new or extended insurance policies by Australian institutions. Its contractors have also been told by banks they will not be able to tap new debt if they work with Adani, the company says.
Australia’s big four banks – ANZ, Commonwealth Bank of Australia, National Australia Bank and Westpac – have all vowed to exit the thermal coal sector by 2030, or are aiming to do so.
Difficulty finding insurance was also a top complaint among coal miners. New Hope, a Brisbane-headquartered company, says: “In recent years, a number of insurance companies have become reluctant to insure businesses in the coal industry due to concerted campaigns by activist groups… over the past four years [the company’s] insurance has more than doubled and it is becoming increasingly difficult to secure directors insurance.”
Several submissions also warned that banks and insurers could lose their appetite for Australia’s meat and livestock industry, another major export business, over emissions stemming from farming the country’s estimated 68.1 million sheep flock and 24.6 million cattle herd.
The Red Meat Advisory Council, an industry umbrella group, says it is “conscious that the significant difficulties in gaining access to financial services other law-abiding exporting industries have experienced is starting to emerge in the meat and livestock industry,” but its submission did not provide any examples.
ANZ, a major Asia Pacific trade finance provider, said it provides about A$30bn of lending to farming customers, most of whom are exporters. Its submission says it has excluded farmers from its engagement with high-emissions customers on climate change.
Despite what has been outlined in the submissions, the Australian Banking Association says access to finance is not a priority for most exporting businesses. The lobby group’s submission to the committee cites annual surveys that found access to finance has not rated among the top 10 concerns of Australian exporters in the past five years, with the issue being reported as a concern by just 6% of exporting businesses in 2020 – just 1% more than those who named climate change a concern.
Calls for action against banks
The parliamentary committee has been asked to mull a series of regulatory and legislative changes in an attempt to stem the flow of financing away from the coal and meat industries. Those demands are likely to be canvassed at hearings expected later in the year and may win the backing of conservative legislators on the committee.
Whitehaven’s submission urges the committee to “examine and consider policy responses to” whether shareholder activism is “unduly influencing the decision-making process” and says the government could require banks to produce documents such as a ‘Regional Australia Impact Test’ statement on how their decisions will affect regional areas, or a legal notice period that allows “affected stakeholders” to discuss possible fixes short of the withdrawal of funding from a project.
Like their peers in other parts of the world, Australian banks have come under increasing scrutiny by shareholder activist groups such as Market Forces and the Australasian Centre for Corporate Responsibility, and regular shareholders, over their climate lending policies.
Whitehaven argues “many investment decisions [are] being influenced by the level of risk that individual banks are prepared to absorb from activist pressure and ‘noise’”.
CMAX Advisory, a lobby group that represents exporters in the resources and defence sectors, says the government should consider ways to entice the official export credit agency, Export Finance Australia (EFA), to provide support to companies jettisoned by private institutions.
“The government could also consider expanding the remit of EFA to include assisting private companies in accessing private financial services. It would do this by providing advice to the companies, and also assuaging moral or ethical concerns amongst financial providers,” its submission to the inquiry says.
The Red Meat Advisory Council is asking the committee to consider policies such as banning financial institutions that shun the meat sector from dealings with the federal government and having the government conduct annual reviews for “financial service providers who are reported to have refused service to law-abiding businesses”.
Banks push back
The banks which responded to the inquiry by publication time insisted they would support customers that wanted to transition from emissions-intensive industries, but were unapologetic about trying to meet emissions reduction goals.
Westpac, a major lender, said banks would “continue to reduce their exposure to sectors that are not aligned with a pathway to a net zero economy as a way to mitigate against the potential for growing credit defaults”.
The Australian Banking Association, in a lengthy submission, reeled off a long list of global regulatory initiatives it says Australian policymakers and banks are unable to ignore if they want to remain plugged in to the global financial system.
It says banks’ decisions are shaped by guidance from the Australian Securities and Investments Commission, the Australian Prudential Regulation Authority (APRA) and global industry-led initiatives aimed at diverting lending and investment away from fossil fuels.
The lobby group says investor and regulatory demands have forced banks to grapple with the risks posed by climate change and “to take mitigating action”.
APRA published new guidance on climate change risk management for banks and insurers in April in response to what it said were industry requests for clearer advice, but it is not legally binding.
“The prudential practice guide doesn’t direct or prevent APRA-regulated entities making any particular business or investment decision,” APRA chair Wayne Byres said at the time. “Rather, it is aimed at ensuring decisions are well-informed and appropriately consider both the risks and opportunities that the transition to a low carbon economy creates.”