Banking Industry In Australia And Sustainability Reporting

Overview/background information of the industry/sector/context

Australian banking industry is one of the biggest sectors in the country, leading in country’s financial system. As of September 2017, authorized deposit-taking institutions (ADIs) totaled at 147, holding over 55% of all assets associated with financial sector (RBA, 2017). ADIs are classified as banks, building societies, credit unions and others who are not captured in the first three. Banks are further categorized into major banks, other domestic banks, foreign subsidiary banks and foreign bank branches. Major Banks in Australia include Westpac Banking Corporation, Commonwealth Bank of Australia, Australia and New Zealand Banking Group Limited (ANZ) and the National Australia Bank Limited (Khan, 2018). While other banks are recently making inroads, they have not had significant impact on Australia’s baking system.

In August 2018, a report by Australia’s Productivity Commission accused these major banks to have created an oligopoly in the industry, exploiting customers due to their strength and market influence. According to the report, problems of opaque pricing, remuneration marred by conflicts advice and unavailable information for customers in making their banking choices were among the leading problems.

In the 1990s, Australia’s banking system the four pillars policy was introduced to the banking industry to avoid a creation of a monopoly in the market and retain a healthy competition to benefit customers. However, this move is viewed to have had counterproductive outcomes, leading to the emergence of a collusion between leading banks to form an oligopolistic banking environment. The outcome for this has been coercion of customers to retain banking products that are unsuitable to them. This revelation evokes a need to reevaluate some industry policies. A potential solution is sustainability reporting, where stakeholders can have a better view of organizations and understand how these organizations relate with both their internal and external environments over short and long terms. According to GRI (2018), sustainability reports provide stakeholders with information regarding company model of governance, values and linkage between their operations and commitment to global economy. Though these reports, organizations improve communication on their performances in governance, social, economic, environmental aspects. At present, the importance of these reports cannot be underscored with respect to Australia’s banking industry.

Reporting Framework and Legislation

Having a clear reporting framework plays a critical role in providing a clear guideline that benefits the accounting profession and businesses in their operations. All regulations for banking industry in Australia are anchored on Banking Act of 1959, which vests regulation powers on Australian Prudential Regulation Authority (APRA). The authority is responsible for developing prudential policies that play a vital role in ensuring balance regarding safety, competition, contestability, as well as competitive neutrality within Australia’s banking industry. The legislation empowers APRA to safeguard depositors where they can revoke licenses when gross misconduct by ADIs is detected (Khan, 2018). Further, APRA ensures that ADIs act in pursuance with prudential standards as well as protect depositors from exploitation by ADIs. They also collect necessary industry data and information regarding third party audits of ADIs, as well as develop frameworks for regulation for companies in line with principles established by the Basel Committee on Banking Supervision (BCBS).

Overall, they are responsible for sustainability of ADIs through ensuring compliance with local and international standards of operations. In addition to APRA, banking in Australia is further regulated by Financial Sector Act 1998, Reserve Bank Act 1959, Corporations Act 2001, Financial Sector Act 1999 and Financial Sector Act 2001. In addition to APRA, other authorities mandated in regulation include Australian Securities and Investments Commission (ASIC) as well as Reserve Bank of Australia (RBA). While ASIC was established by 2001 Australian Securities and Investments Commission Act of 2001, RBA was established by the RBA Act. ASIC regulates banks’ conduct with a broader aim to protect investors, while RBA oversees system stability by tracking monetary policy and systems used for payments. In addition, Australian Competition and Consumer Commission (ACCC) was formed under Competition and Consumer Act 2010 to regulate competition and ensure industry players do not collude for the detriment of consumers. Overall, these legislations collectively require financial institutions to accurately report on financial, social, and environmental strategies for sustainable output both at local and global scales.

Current Practice in Sustainability Reporting

The Commonwealth Bank of Australia (CBA) targeted education, innovation and good business practices for their corporate responsibilities in the year 2017. In education, CBA invested over $16 million and put greater emphasis on teaching children the value of money and helping the workforce to prepare for the future. Programs such as Start Smart and School Banking were introduced for school children, in addition to a financial literacy program for indigenous students. In 2017, CBA launched new features for their online applications such as better bill experience, transaction notification, spend tracker, youth app etc. It also expanded its Innovation labs to Hong Kong and London. Several measures were taken to improve cybersecurity in Australia. In collaboration with University of NSW, $1. 6 million dollars were invested in cybersecurity education and research. Cyber education was imparted to parents and carer via ThinkUKnow online safety program.

GOOD BUSINESS PRACTICES

Westpac proposed three sustainability priorities in 2017, namely, embracing societal change, environmental solution and better financial future. They were also the first Australian organization to release a Financial Inclusion Action Plan. As a joint venture, Westpac and Pacific Financial Inclusion Program launched Choice Wantok for banking in rural areas. New bereavement support websites were made accessible for over 40,000 customers and their families who suffered losses. St George Bank got accredited by Dementia Australia and became first ever bank to be dementia-friendly. Over 28,000 customers benefited from hardship assistance made available by Westpac Group Assist. 1,885 financial relief packages were issued to customers affected by the natural disasters such as Swan Valley bushfires, Cyclone Debbie and flooding in Queensland. In addition, Westpac has focused on digital innovation.

As a part of Digital Transformation, 160 new features were introduced, such as, Westpac Quick Transfer that allows their mobile banking app to transfer money without having to sign in, CashNav that is a free money management app and many more. Westpac has invested in more than 20 control enhancement projects as a part of strengthening cybersecurity. Building a workforce of the future is another current issue that Westpac takes seriously. To promote gender diversity and women in leadership, Westpac launched 200 Women project, Equilibrium program and Women of Influence awards. Other programs were launched to embrace cultural diversity and inclusivity. The Westpac Accessibility Action Plan was announced for the people with disability. Australia’s first corporate LGBTIQ summit was conducted by Westpac’s LGBTIQ Employee Action Group. In 2017, Westpac recruited 628 Aboriginal and Torres Strait employees, more than the targeted 500.

At the heart of NAB’s sustainability practices are values aligned culture, positive customer outcomes, information and management security, environmental and social impacts, governance, improving customer experience and transparency and disclosure. Their NAB Assist team aids customers experiencing hardship to get hold of their lives. In addition to publishing articles on cyber security, the security team at NAB gives customers regular insights into the ways they can adopt to protect themselves and their information. They are also financing several renewable energy projects in Australia. ESG risk training was introduced for bankers and business bank credit managers across Australia. A Responsible Investment Policy was rolled out to exclude investments in companies producing cluster munitions, nuclear weapons etc.

As for governance, an Annual Board performance is held and greater transparency on collective skills of NAB board is provided. To improve customer experience, a website called How We’re Listening was launched along with five redesigned customer journeys. As per Paris Agreement, NAB provides information related to limiting global warming. The bank publishes its first Tax Transparency Report. Like Westpac’s policies, NAB also focused on financial inclusion and resilience and gender equality. Few distinct practices that NAB is involved in are: climate change, biodiversity loss, resource scarcity and human rights. At ANZ, the issues of importance are fairness and ethical conduct, fraud and data security, responsible business lending, customer experience and digital innovation. To manage the ESG risks, a decision-making and leadership body, Responsible Business Committee was formed in 2017. It keeps a check on new ESG risks and debating and agreeing on relevant material matters. To ensure responsible behavior and a good code of conduct, ANZ introduced policies like anti-money laundering and counter-terrorism financing policy, fraud policy, health and safety policy; and training courses such as Living the Code, Equal Opportunity Essentials and many more. Like the other banks, ANZ has a whistle blower policy as well.

In the realm of cyber security, an email address was enabled to help customers report suspicious messages. To provide stronger account safety, an app called ANZ Shield was launched. Sustainability in ReportingSustainable reports are vital in elucidating organization’s environmental and social performance. Additionally, they play a critical role in enhancing transparency in communication among stakeholders and organizations. Sustainability reporting illustrates that banks have an understanding that they have social non-financial obligations (Khan, 2018). There have been major international concerns about the implication of organizational activities on the society and environment.

Conversely, traditional reporting and accounting fails to adequately measure environmental and social impacts, thus the need for wider range of sustainability reporting within the organizations (Farneti & Guthrie, 2009). Numerous organizations have moved to sustainability reporting that involves disclosure of their indulgence in social and environmental issues in annual reports. Global Reporting Initiative (GRI) describes sustainability to include social, economic, and environmental aspects to enhance accountability and transparency. By adopting sustainable reporting, organizations have an opportunity to demonstrate progress, reinforce organizational commitment, enhance internal governance, and meet disclosure expectations (Farneti & Guthrie, 2009). An example of sustainable reporting is NAB’s report, which focused on the outcomes of material assessment as well as their corporate responsibility during 2017 fiscal year. Outcomes of the material assessment plays a vital role in assisting the institution have adequate focus today and in future and establish ways that create value for various stakeholders.

To ensure sustainable reporting standards, the institution used Global Reporting Initiative (GRI) guidelines, a practice they intend to use in future. While reporting simple language was used and links easily provided for easy access to additional information (National Australia Bank, 2017). Challenges and Issues Concerning Sustainable ReportingSustainable reporting faces a wide array of issues particularly during transfer of tailored information from private sector to the public. Therefore, there is need for a public reporting agency for employers and service providers in the banking industry. The public agency ought to ensure that players in banking industry follow up on sustainability reporting guideline.

For instance, organizations in banking need to provide a valid reason for omission of performance indicators from its reporting disclosure. Bank ought to clearly indicate specific performance within specific parameters and make adequate report regarding every performance indicator (Khan, 2018). Transparency in reporting is critical. Common Wealth Bank of Australia has released numerous disclosures concerning cooperate responsibility performance to benchmark the organization’s performance. The organization has a board of governors to oversee cooperate responsibility as well as opportunity initiatives (Common Wealth Bank of Australia, 2018).

Consequently, players in the banking industry need to align their incentives with community interests is greatly served by expanding the duties of the directors to take into account social and environmental elements. Defining disclosure requirement and enshrining these in corporate governance systems would help to harmonies standards, increase comparability and enhance transparency, while reducing information asymmetry, and occurrence of moral hazards. If an activity has a suspected risk of causing harm to society or the environment, the burden of proof should fall on the prospective financiers of this activity. The government should more actively fulfill its duty to guardian public interest (Khan, 2018).

Future Prospects for Sustainable Reporting

In 2016, Common Wealth Bank of Australia initiated a sustainable property strategy to run up to 2020 (Common Wealth Bank of Australia, 2018). It identified various challenges facing banks in future including environmental, social, and financial factors. Players in banking industry who are likely to heavily focus on immediate return ought to receive harsh criticism. Industry players may be required to align corporate interests with community interests by creating both long-term financial and non-financial value for both stakeholders and shareholders. Moreover, banks need to address issues concerning information asymmetry. Banks ought to ensure they manage risk in a more effective manner (Khan, 2018). In addition, Common Wealth Bank of Australia appreciates their critical responsibility in mitigating implications of climate change by improving environmental efficiency in their operations. Since, 2001 the bank has been able to measure, minimize and report their environmental footprint. In the cause of the year it has established initiatives that enhance its Sustainable Property strategy (Common Wealth Bank of Australia, 2018). Sustainable reporting aims at addressing existing trends into the industry.

In the future sustainable reports need to focus on present organizational performance in comparison to broader concepts. This step may require that discussions concerning an organizational performance takes into consideration industry demands as well as limitations relating to social and environmental resource at region, global, local and sectorial levels (Farneti & Guthrie, 2009).

Conclusion

Australia’s banking industry has been accused of exploitation through oligopoly, a claim it needs to dispel. While sustainable reporting may provide answers, it still faces a wide array of issues particularly regarding transfer of tailored information. Having a regulatory framework in the Australian banking industry code is crucial as it effectively articulate values and links within the industry with the established code of conduct on how institutions in the industry transact with small business as well as individual. About the future of sustainability, Common Wealth Bank of Australia provides an example of an institutional redemption from accusations of exploitation, which other players might adopt as well. The bank appreciates its critical responsibility in mitigating implications of climate change by improving environmental efficiency to operations, as well as improving the lives of stakeholders while still focusing on their financial goals.