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Wednesday, November 20, 2019

Morrison's attack on activists left out

Earlier this month, Scott Morrison chose a mining lunch in Brisbane to signal plans to crack down on what he called an “insidious” economic threat.

The Prime Minister’s target was a new breed of environmental activist, those more likely to ask questions at a bank’s annual shareholder meeting than they are to chain themselves to a coal loading terminal.

These protesters pressure businesses that sell goods and services to firms "they don't like", Morrison said, especially mining companies. He suggested this behaviour could be a new form of "secondary boycott" – something that's illegal in other contexts.

Such boycotts were "a potentially more insidious threat" to the resources state's economy than a street protest, the Prime Minister warned, and "even more worrying" than protests that turned into outright vandalism.

"Some of Australia's businesses are now refusing to provide banking, insurance and consulting services to an increasing number of firms who just support through contracted services to the mining sector and the coal sector in particular, which is the nation's second-largest export sector," he told the Queensland Resources Council lunch.

Morrison's speech included shout-outs to the crowd ("How good is mining for Australia?"), and jabs at people with a different view, who live in "the goats cheese circle of some parts of our capital cities".

However, he left out one crucial fact. In picking a fight with activists, he avoided a critical reason why banks and other financial businesses have been getting nervous about dealing with coal miners and companies that depend on them: cold, hard financial risk.

That is a glaring omission that stretches the credibility of Morrison's attack on the environmentalists, whatever you think of their agenda.

Since Morrison’s speech, Attorney-General Christian Porter has named Market Forces, an environmental pressure group, as one of the groups the government may seek to “curtail”. Market Forces, an arm of Friends of the Earth, runs campaigns targeting banks, superannuation funds and insurance companies over their financing of fossil fuels.

No doubt, it's had some success. Negative publicity has surely played some role in pushing big banks and insurance companies to cut their exposure coal mines and coal-fired power stations.

But let's not overstate the activists' influence. After all, they've been campaigning while the government’s own financial regulators have also been ramping up the pressure on lenders to take climate risks more seriously in decisions, such as lending to a coal miner, for example.

While our political system has been largely dysfunctional on climate change policy, global financial markets have realised that whatever your politics, the issue presents a financial risk.

Whether it's the risk of more extreme weather hitting insurance companies, of government policies harming mining profits, or the potential motza to be made from renewable energy, these factors are also being taken into account by financial firms when deciding where to put capital.

Australian Prudential Regulation Authority member Geoff Summerhayes has described this trend as  a “the weight of money”. The Reserve Bank and the Australian Securities and Investments Commission have also made it clear they want climate change to be taken seriously as a financial risk.

As APRA’s Sumerhayes observed in a July speech, these are not radical organisations.

"When a central bank, a prudential regulator and a conduct regulator, with barely a hipster beard or hemp shirt between them, start warning that climate change is a financial risk, it’s clear that position is now orthodox economic thinking," he said.

"Climate risk" might sound abstract, but it gets more tangible for bank or insurance company directors, who can potentially be held personally liable. Prominent barrister Noel Hutley SC has said directors could face future lawsuits for failing to consider risks related to climate change, and the corporate watchdog last year said this interpretation appeared “legally sound”.

Moreover, the shift in global markets is well and truly already under way.

Underlining this point, Sweden’s central bank last week said it had dumped government bonds issued by the mining heavy states of Queensland and Western Australia, citing Australia's high greenhouse gas emissions.

The $2.9 trillion superannuation sector is also pressuring companies, both publicly and behind closed doors, to take climate risks seriously.

That is the context in which the government has chosen to focus on "secondary boycotts" by environmental and other activist groups.

While the government maintains there is a genuine problem with secondary boycotts, it's hard to see how tighter laws in this area would make much difference to the decisions of banks and insurance companies.

Chief executives of the big four banks were all quizzed about this over the last fortnight at the government’s banking inquiry, and none appeared too concerned about groups such as Market Forces.

When Liberal MP Craig Kelly asked National Australia Bank interim chief executive Phil Chronican if the bank was being pressured into “secondary boycotts” by activists on Friday, he replied: “Secondary boycotts? No, I don't think that's the case.”

Pressed again, Chronican acknowledged there was some pressure from activists, but made it pretty clear why the bank was (gradually) cutting off lending to thermal coal.

“We came back to a risk-based approach to this, which is that we are required by our regulator to assess the risk of our portfolio in light of climate change and climate change requirements,” he said.

In other words, the government's own regulators are pushing banks to take a harder look at the risks of financing projects exposed to climate risks — such as coal mines. It’s hard to see how cracking down on  protesters would change that situation in the slightest.

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