Introduction
ANZ bank withdrew its funding from the Port of Newcastle due to concerns about climate risks and the potential for the port to become a stranded asset. ANZ Bank is considered one of the largest lenders to the port (Millington, 2021). However, the current shift in the world away from coal has created an investment risk. The bank thus took action to support the fight against climate change and ensure the ability to meet the net-zero emissions action plan that was initially stipulated. The focus of this work is to discuss the key drivers behind the decision, point out why the decision is difficult, describe what stakeholders expect from a bank, and note how, as a lender, I could help reconcile the existing pressures and explain the ethics guiding the decision.
Key drivers behind the decision
The decision by ANZ bank not to renew loans with the Port of Newcastle was influenced by various key drivers. The first one is climate risk awareness. As Luo & Tang (2021) argued, climate risk awareness expects organizations to develop effective procedures to help reduce the climate change risks in society. As a bank, ANZ has climate risk awareness, which has seen it recognize the global threat of climate change and the associated financial risks. Thus, The business is determined to embrace the increasing call for reducing climate change challenges. One of the steps to be taken is to reduce the financial assistance of industries that heavily rely on fossil fuels such as thermal coal. This explains why the Port of Newcastle was affected since it also employs thermal coal.
The other key driver of the decision by ANZ bank is the stranded asset concerns. As noted by Millington (2021), the world is currently shifting away from the use of coal. This shows that the Port of Newcastle is undoubtedly facing the risk of being a stranded asset. This indicates that ANZ might face risks in its portfolio since the investments in assets associated with fossil fuels are likely to become financially sustainable. Thus, from the guidance shared gg on the need for ascertaining the risk profile of an investment decision, ANZ felt that renewing the loans would not be ideal. The risk of stranded assets is undoubtedly high because many companies are likely to focus on sustainable ways of production in the future.
Lastly, the decision was attained due to the need for strategic alignment. Based on Bergeron et al. (2004), companies need to engage in planning and implementing practices by ensuring that the strategies resonate with the stipulated objectives. Looking at the case of ANZ Bank, the business recently developed the aim of net-zero emissions as part of the action plan (Millington, 2021). For these reasons, renewing the loans with the Port of Newcastle means that the business will not work towards the new objective of reducing carbon emissions. Such instances show that the only decision to make is to choose a strategy that aligns with the current goals of the bank.
Why the decision was difficult
The decision not to renew the loans with the port was also challenging to arrive at due to different reasons. One of them is the economic impact of the step. ANZ recognizes that the decisions will have financial repercussions, especially in regions benefiting from the port. As noted, the Port of Newcastle supports the local, regional and national economies, with over 9000 employees working there (Millington, 2021). The port is also essential in promoting the export mix. Such instances show that the influence of the Port of Newcastle economically cannot be neglected. The current decision is likely to affect the level of economic development in a significant manner. Even though ANZ bank is optimistic that the decision is for the betterment of the future generation since most of the climate concerns affecting the world will be resolved.
The decision was also not easy to make based on the fact that it was against the commercial targets of the bank. ANZ bank, like any other business, often aims to make profits and increase its revenue. As Hatcher (2004) confirms, for-profit companies must always strive to make money. Even so, ANZ decided to discontinue loans to the Port of Newcastle, which created a risk of reducing the general financial performance and the loan portfolio. It is thus evident in this context that there is a high chance that the company may need to meet some of its future targets in terms of revenue generation from the decisions. Nevertheless, ANZ is aware that the issue of climate is severe and needs the attention it requires. Moreover, businesses are shifting away from coal, so ANZ Bank must also accept the changes and embrace the new developments.
Lastly, it took a lot of work to balance the stakeholder concerns. The stakeholder theory expects that organizations focus on creating value for all the stakeholders (Laplume et al., 2008). This means that ANZ’s decision undoubtedly goes against the theory in that the Port of ANZ, as part of our customer, will likely benefit from something other than the decision. Also, the government is not expected to gain from the new change despite the increasing emphasis on the importance of the coal business and its contribution to employment. ANZ still feels that the current decisions align with the expectations of many of the stakeholders who support sustainability and the fight to control the issue of climate change.
Expectations of the stakeholders regarding lending to carbon-exposed industries
2021 has seen stakeholders having differing expectations of the stakeholders in relation to lending to carbon-exposed industries. One of the most evident requirements of the stakeholders is environmental responsibility. As Barich (2021) outlines, stakeholders expect banks to demonstrate ecological commitment by not lending to businesses that engage in carbon emissions. The other expectation of the stakeholders is for the bank to conduct a close analysis of the environmental impact of an assessment before providing any support. Thus, stakeholders are against the idea of banks lending to carbon-exposed industries. One vital requirement is that banks must be at the forefront of ensuring that they influence the ideal of climate change control through environmental responsibility (Bowman, 2010). This is the same idea that ANZ is currently employing by ensuring that it reduces its support for the carbon-exposed sectors, as evident in the case of Port of Newcastle.
Also, stakeholders expect that banks engage in climate risk mitigation by being cautious of their lending practices. As noted, stakeholders expected banks to assess and mitigate all the financial risks related to the climate (Barich, 2021). There has been a call for organizations to consider analyzing their portfolios and determining the level of exposure to carbon-intensive industries. The main requirement is to establish measures that will help ensure that the banks do not engage in lending to such sectors, which further safeguards against any form of financial loss. Thus, It is evident in this context that stakeholders expect banks to participate more in climate risk mitigation by reducing their lending rates to industries that generate more carbon emissions.
Reconciling the pressures of hitting commercial targets
ANZ engaged in reconciling the stakeholder pressures by focusing on hitting commercial targets in various ways. One of the strategies employed is risk assessment. The focus of risk assessment is to check on the threats that are likely to affect the operations of the business and its ability to meet the stipulated targets (Koller, 2005). In this context, the ANZ team conducted a risk assessment of the carbon risk exposure of the Port of Newcastle and compared it to the possible influence on the financial performance of the bank. What is evident is that the bank noted that the risks from the port operations were higher than the financial gain. Such instances undoubtedly influence the bank’s decision not to renew the loan. The business is looking forward to investing in other industries with low carbon risks, which will also have more financial benefits.
The bank is also looking forward to engaging in the diversification of the portfolio to reconcile the stakeholder pressures and hit the commercial goals. ANZ considered diversifying the loan portfolio by engaging in supporting ventures that are more sustainable. In this context, the bank has considered moving away from carbon-exposed industries like the Port of Newcastle while supporting firms that are transitioning to cleaner alternatives. As Peterson et al. (2021) note, customers now provide more support to businesses operating sustainably. This is the same benefit ANZ will likely gain from its focus on adjusting the loan portfolio. This step is practical in allowing the company to meet the stakeholder expectations while simultaneously attaining the commercial targets.
Ethics of the decision
From the perspective of ANZ bank, the decision of the bank not to renew loans with the Port of Newcastle is ethical since it aligns with the company’s goal of addressing climate change and reducing carbon risk exposure. From the context of environmental ethics, a business is responsible for protecting the natural environment for the benefit of future generations (Zsolnai, 2011). Such instances mean that the idea of ANZ bank not supporting the carbon-emitting industries is a move that protects the environment from carbon emissions. The bank also upholds the ethical values of honesty by not engaging in operations likely to harm the natural habitat, as evident in the increasing climate change cases worldwide. The action of ANZ bank is also ethically correct based on how it can be understood from the egoism theory. The ethical theory argues that an action is morally right if it meets the long-term expectations of the agent (Rachels, 2012). In this case, the decision by ANZ bank is ethically correct since it aims at meeting the bank’s long-term interests of net-zero emissions as stipulated in its plan. The bank thus followed all the ethical expectations when making the decision.
From the perspective of the Port of Newcastle, the decision of ANZ Bank was undoubtedly unethical since it had more negative impacts on the port and its operations. The port may feel that ANZ did not consider the economic influences of the decision. This could lead to reduced financial performance of the port in the future. One of the theories that supports this argument is utilitarianism, which notes that it is always important to act to produce the best possible good for everyone affected by our actions (Gustafson, 2013). In this context, in its actions, ANZ could not balance the most significant interest of all its stakeholders, especially the Port of Newcastle. The fact that the decision affected the port negatively shows that the actions of ANZ were not ethical. Nevertheless, it is arguable that ethics in this context is subjective, as long-term ethical considerations include economic interests and environmental and social welfare. Such instances mean that ANZ’s decision reflects the moral obligation of financial institutions to consider the broader impact of their actions on the planet and future generations.
Conclusion
The analysis has analyzed the case of ANZ Bank’s decision to withdraw its funding from the Port of Newcastle. What is evident is that the bank primarily took the step due to its commitment to addressing climate change and reducing its exposure to carbon-intensive industries. The research has also identified some key drivers behind this decision: climate risk awareness, concerns about stranded assets, and the need for strategic alignment. The work has further revealed that the decision had some economic repercussions based on clashing with commercial targets and stakeholder interests. As a reaction to the dilemma, ANZ sought to employ strategies such as conducting risk assessments and diversifying its loan portfolio toward sustainable ventures. The last part of the study focused on analyzing the decision from the perspective of ANZ Bank and the Port of Newcastle. The analysis shows that the decision was ethical because it focused on meeting expectations of environmental ethics and the egoism theory. From the view of the port, the step was unethical since it created more negative impacts, such as reducing the organization’s financial capability.
References
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