What are the ESG Risks for Australian Banks?

Sustainanalytics, a global leader in Environmental, Social and Governance (ESG) research and ratings, provides ratings for many of the larger companies both globally and in Australia.  The table below lists some of Sustainanalytics’ ratings for larger Australian companies.

The overall rating is the sum of the scores in the Environmental, Social and Governance categories with the “percentile” column showing where these companies rank in a global context.  Separately, there is a “controversy” risk rating which estimates the risks the company will be involved in a controversial issue that may be embarrassing to those investors that are supporting it, even if it does not affect the company’s financial position.

Company Environmental Social Governance Total Percentile Controversy Risk Rating
Transurban 1.6 4.6 4.5 10.7 2 2 Low
Wesfarmers 6.0 6.2 3.6 15.8 8 2 Low
Brambles 2.9 9.2 5.3 17.4 12 2 Low
Telstra 3.5 10.2 6.2 19.9 20 2 Low
Woolworths 5.6 11.4 4.3 21.3 24 3 Medium
Suncorp 0.8 9.6 11.1 21.5 24 2 Medium
Macquarie 2.0 11.8 10.0 23.8 32 2 Medium
CSL 0.0 17.0 7.0 24.0 33 2 Medium
ANZ 1.9 14.3 10.3 26.5 42 3 Medium
CBA 1.2 12.8 13.1 27.1 44 4 Medium
Westpac 1.4 13.4 13.5 28.3 47 4 Medium
Woodside 14.9 6.3 6.9 28.1 47 2 Medium
NAB 2.0 13.4 13.5 28.9 50 3 Medium
BHP 16.8 7.7 5.2 29.7 53 4 Medium
Rio 13.1 9.4 7.4 29.9 54 3 Medium
AMP 1.5 13.4 16.0 30.9 58 4 High

Unsurprisingly, AMP is classified as the highest risk of all Australian ADI’s rated by Sustainanalytics with it also having the highest controversy risk.

Of the 16 companies listed, the 7 ADI’s (identified by bold font) have the highest governance risk scores (and are the only ones to score above “10”); meaning they disproportionately occupy the bottom half of the table.  This is likely due to the findings of the Hayne Royal Commission and the media and public’s intense focus on poor business practices of banks putting their own interests ahead of those of their clients.  These concerns are not without merit given the number of recent scandals with AMP’s wealth management, CBA’s financial planning and Westpac’s lapses in payments controls being front of mind and probably accounting for these three institutions having higher “controversy risk” scores than others such as ANZ and NAB.

Amicus believes the ESG scores are one factor to consider in assessing the risks of an investment in any of the banks listed and in particular the controversy score may be relevant to some investors who for ethical, rather than financial reasons, may not want to be seen supporting an institution that charges fees to dead people. 

These risk ratings are not a reflection of the ADI’s policies such as lending to companies in the fossil fuel burning industries, but rather of the risks of these factors to the companies themselves.

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