Insights

Banks – Repairing the Trust Deficit

By June 18, 2020 No Comments
By William Wu

COVID-19: A Time for Action

As highlighted in our May thought piece – “COVID-19 Perspectives”, recent events look to have accelerated social, economic, and environmental norms and expectations consistent with an increased emphasis on sustainable outcomes. COVID-19 has provided companies the opportunity to demonstrate, via their actions, the importance of customers and the community in their business response and strategy.

Over recent months we have seen the banks emerge as leaders in managing the economic crisis that has unfolded.  The Government and the Reserve Bank of Australia have noted during the crisis the crucial role the financial sector plays in supporting households and businesses – a bridge across the COVID-19 chasm. In response, major banks immediately passed on rate cuts over and above the official cut in cash rates. Term deposits were also raised to ensure that savers were also protected.  Matt Comyn, CEO of the Commonwealth Bank of Australia, in particular emerged as a leader in managing the crisis, moving quickly to offer financially stressed customers loan payment relief. His leadership in supporting customers through the economic shutdown has led to the CBA brand recently entering the top 10 most trusted brands in the Roy Morgan Risk Monitor Survey1 for the first time since the Financial Services Royal Commission.

By William Wu

COVID-19: A Time for Action

As highlighted in our May thought piece – “COVID-19 Perspectives”, recent events look to have accelerated social, economic, and environmental norms and expectations consistent with an increased emphasis on sustainable outcomes. COVID-19 has provided companies the opportunity to demonstrate, via their actions, the importance of customers and the community in their business response and strategy.

Over recent months we have seen the banks emerge as leaders in managing the economic crisis that has unfolded.  The Government and the Reserve Bank of Australia have noted during the crisis the crucial role the financial sector plays in supporting households and businesses – a bridge across the COVID-19 chasm. In response, major banks immediately passed on rate cuts over and above the official cut in cash rates. Term deposits were also raised to ensure that savers were also protected.  Matt Comyn, CEO of the Commonwealth Bank of Australia, in particular emerged as a leader in managing the crisis, moving quickly to offer financially stressed customers loan payment relief. His leadership in supporting customers through the economic shutdown has led to the CBA brand recently entering the top 10 most trusted brands in the Roy Morgan Risk Monitor Survey1 for the first time since the Financial Services Royal Commission.

Rebuilding the Trust

In our December Thought Piece “Banks – The Growing Trust Deficit”, Melior called on banks to rebuild trust in the community and to improve their performance in terms of governance in order to reinforce their social licence to operate.

Melior notes the significant steps banks have since made in addressing these issues including:

  • Banks taking a wider consideration of all stakeholders including their customers and the community by passing on significant rate relief to households and businesses;
  • A number of key changes at executive levels of major banks including, but not limited to, the CEO and the Chairperson;
  • Embedding greater environmental and social considerations into corporate strategies. In particular, the improvement of fossil fuel lending policies;
  • Enhanced disclosure and transparency of not only financial risk, but also environmental and social risks including the release of internal regulatory investigations;
  • The prudent deferral of interim dividends and equity raisings to strengthen capital ratios.

Melior’s Response

Banks have a critical role to play in maintaining a functional economy which is linked to several SDGs, in particular SDG 8 – Decent work and economic growth. Melior recognises the benefits of banks in providing this, in particular during times of crisis and economic contraction.

We have been encouraged by the recent actions of the banking sector to support the domestic economy which only further reinforces our belief of their crucial role in supporting the broader economy.  Off the back of these developments, Melior has reviewed its ESG assessment of the banks and several now pass our framework given their improvement in ESG areas particularly governance with significant change occurring at senior management and board level.

The issue of increased alignment of executive remuneration with a greater focus on environmental and social outcomes remains. Melior will continue to advocate through direct company dialogue and through participation in the Australian Sustainable Finance Initiative (“ASFI”) working group for a greater focus on environmental and social issues including an alignment of remuneration to incorporate environmental and social outcomes.1

Sources

The Roy Morgan Risk Monitor surveys 1000 Australians every month to measure levels of trust and distrust in more than 800 brands across 25 industry sectors. Respondents are asked which brands and companies they trust, and why, and which brand and companies they distrust, and why.

This content is for general information only. In preparing and publishing this content, Melior Investment Management Pty Ltd (ACN 629 013 896, authorised representative no. 001274055) does not seek to recommend any particular investment decision or investment strategy and has not taken into account the individual objectives, financial situation or needs of any investor. Investors should consider these matters, and whether they need independent professional financial advice, before making any investment decision.