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The misconduct uncovered by the financial services royal commission has given the major banks and financial institutions a major reputation problem.
The Commonwealth Bank was dubbed the “gold medalist” of charging fees for no service, ANZ identified it had to remediate two million accounts, and AMP’s various scandals threatened to blow out the remediation budget to over $1 billion.
NAB was forced to fire more than 300 of its bankers, while Westpac was found to take months to bring breaches to the attention of the regulator with just one of its financial advisers racking up a compensation bill of $2.2 million.
Both were on the receiving end of two of the worst shareholder revolts in Australian corporate history as a result.
In short: it wasn’t pretty.
With Commissioner Kenneth Hayne’s final report to be made public on Monday next week, their reckless transgressions made in the pursuit of profit is to be thrust firmly back into the spotlight again.
So can Australians, many of whom already own the big banks inadvertently or otherwise, consider themselves ethical and at the same be invested in them?
“The issues vis-a-vis the ethics of the banking industry were under question even before the Hayne royal commission,” Morphic Asset Management head of asset management James Tayler told Trading Day.
Pointing to the highly-controversial Carmichael coal mine that Indian multinational Adani plans to build in Queensland, Tayler said there were evidently some major considerations investors had to make.
“From an environmental perspective for instance… the uproar around the Adani project certainly highlighted that we should question which sectors the banks lend to. All four of the major banks continue to lend to the coal mining industry [and] the fossil fuel industry,” he explained. “Clearly, you have to think about that.”
“A lot of the campaigns pushed the big four to update and disclose their policies and all four continue to lend to the mining industry,” he added.
It’s that refusal by the big banks to change in the face of increasing public scrutiny that has ethical investors avoiding them like the plague, according to ethical financial planning company Ethinvest.
“A big portion of our clients have for a long time excluded the big four from portfolios on the grounds that what their practices were not justifiable and not in line with their values,” Ethinvest financial planner Fiona Thomas said.
However, with the royal commission shining light on issues within these companies and as social awareness grows, so too does the opportunity for reform.
“You’re dealing with a set of industries that have breached their social license and now face the inevitable consequence that they’ll be regulated in some way, but we can expect that their governance and culture will improve and that’s likely to improve their businesses over time,” Nanuk Asset Management chief investment officer Tom King said.
Watch the first half of the panel discussion above and the second half below.