A strategy of engaging with the big banks over the misconduct revealed by the royal commission has seen two financial giants respond quickly and seriously to ethical investor concerns.
In the wake of royal commission revelations, UCA Funds Management wrote letters expressing its concerns as shareholders to the CEOs of the four big banks, Thursday’s Ethical Consulting Group (ECG) forum heard.
Westpac and CBA both replied within a week and set up meetings between their heads of investor relations and UCA Funds Management staff.
UCA Funds Management CEO Mathew Browning said that with bad behaviour on every front page ethical investors can “punch above their weight” in engaging with the banks on the key issues.
“They know that we’re active advocates and that the voice of the church has an influence in the marketplace and they don’t want any more negative press,” he said.
“They do take it seriously. They respond to our requests for meetings to discuss the actions they’re taking to fix the problems and acknowledge that our voice added to others is important to their social licence to operate.”
UCA Funds Management investors and other interested parties attended the ECG forum held at St Michael’s Uniting Church offices to discuss what had come out of the royal commission into banking so far and how to respond.
The big four banks, especially with their implicit government guarantee, were already finding themselves having to consider a new environment of regulation and scrutiny, the group heard.
“Their social licence to operate is going to be changed,” UCA Funds Management development manager David Patterson said.
“The purpose of this royal commission is to reset the table. Our part in that conversation will be about engaging with them and that involves creating a really robust framework to make sure that takes place.”
“We take our ethical portfolio very seriously. It is the moral obligation of someone in ethical investment to reconsider their relationship with the big four banks.’
UCA Funds Management senior investment analyst Jon Fernie said that the banks had been placed on a watchlist, which means their ethical behaviour will be continually monitored.
“All the major banks and AMP have been implicated in some sort of unethical behaviour to varying extents,” he said.
“We believe that engaging with them and trying to track their progress around key issues will drive better outcomes.”
UCA Funds Management had decided against excluding any particular bank from its portfolios for a number of reasons but chiefly because it was hard to single any particular institutions out and the focus was now fixing problems.
“As all the banks are implicated to a certain extent it is difficult to target just one or two,” Mr Fernie said.
Mr Fernie said that the watchlist approach meant that UCA Funds Management would stringently assess what banks were doing.
“We are looking for specific examples and metrics on how they are going to improve their practices and behaviour. We just don’t want to hear motherhood statements,” he said.
UCA Funds Management has identified a number of issues it has raised with the banks.
These include poor financial advice, loan practices, dysfunctional incentive structures, the need for improvement in management board oversight, how compensation for misconduct is handled and more broadly bank culture.
The forum also heard from Joanna Leece, who is executive officer at Uniting Kildonan, part of Uniting Vic.Tas, which provides financial counselling to people in vulnerable situations.
Ms Leece said Uniting has been complementing this work by doing enterprise partnerships with corporations, such as utility providers, to change their systems and train staff in how to better respond to people in financial distress.
Uniting Church minister John Bottomley discussed whether bad behaviour in banks was just individualistic in nature or reflected unaddressed societal and perhaps even theological problems.
“The policing regimes are simply a fence put around bad behaviour and nothing is done to change the heart,” he said.