Local Australian resource firms say financial institutions—driven by climate change—are constricting the industry by withholding vital insurance and loan services crucial for new mining projects.
Leading some companies to warn that global mining conglomerates—who can go offshore for financial support—will become more entrenched as smaller businesses risk closing. This comes as a parliamentary inquiry examines the impact the financial sector is having on Australian exports.
Chair of the Joint Standing Committee on Trade and Investment, George Christensen, said mineral exports generated billions in revenue for the country, and any impact on the industry needed to be scrutinised.
Norah St George, the chief financial officer for the Bloomfield Group—an 80-year-old firm that employs 550 people in the New South Wales Hunter Valley region—noted in a submission to the inquiry that mining projects were dependent on banks or insurance companies to help fulfil environmental rehabilitation obligations.
“In recent years, following concerted campaigns by climate activist groups, many insurance companies globally have turned away from insuring risk in the coal mining industry to such an extent that insurance cover is prohibitively expensive if it can be obtained at all,” St George wrote (pdf).
Typically, when a company receives a mining lease, they need to provide financial security for the cost of rehabilitating the area after the project is complete. These securities usually come in the form of bank guarantees, insurance, or cash and are normally provided by banks and insurers.
“We understand the following insurers have withdrawn from insuring coal mines in the past three years: Allianz, Chubb, Liberty, QBE, CGU, Vero, Zurich, certain Lloyds syndicates, Swiss Re, Munich Re. Sterling, FM Global, Axis, and AXA,” St George added.
In 2020, Bloomfield had to find 13 different insurers to cover one policy, with each insurer taking a percentage.
They are not alone in their challenges.
The Resource Industry Network—a peak body based in the coal-rich central Queensland region—said one member’s indemnity insurance ballooned 300 percent over the past four years.
“The current insurer has stipulated the business cannot have more than 40 percent of its revenue come from thermal coal mining clients,” according to its submission (pdf). “This is despite the fact our business also does work for the renewable power sector.”
“Insurance is our single biggest spend on a single item each year. We spend more on insurance than we do on diesel.”
The Network also warned that restricting local businesses from insurance and finance would provide an “unfair advantage” to global conglomerates, who can easily source similar services from overseas.
The point was echoed by Australia’s largest, independent coal miner Whitehaven who said, “While the large multinationals have long enjoyed access to diversified international funding, local players such as Whitehaven have been more reliant on local banks and, subsequently, have a greater exposure to Australian banks placing restrictions on exporters.”
Louise Davidson, CEO of the Australian Council of Superannuation Investors (ACSI)—which represents 36 superannuation firms—argued that climate change presented significant risks to the global economy, and companies needed to adjust accordingly.
“If Australia does not align its climate-related policies with its international trading partners, the competitiveness of Australian exports will be at risk,” she wrote (pdf). “Australian company directors and investors have a legal obligation to consider climate change in their assessment of financial risk and manage this risk in their decisions.”
“It is estimated that the likely damage to Australia’s economy of leaving climate change risks unchecked is a reduction in GDP of 6 percent by 2070, equivalent to $3.4 trillion (US$2.6 trillion) in present value terms, and 880,000 jobs lost,” she added.
Nathan Findley of Lime Financial Planning said banks did not want to be left with debtors (mining companies) who could not pay back their loans.
“Investors do not see fossil fuels as valid long-term options to create or preserve capital,” he wrote.
In recent years, banks and superannuation funds have been withdrawing support and investment from coal-related industries, with Australia’s “Big Four” banks all setting targets—varying between 2025 to 2030—for divesting from the industry altogether.
Last month, ACSI announced that it would recommend its members vote against the re-election of company directors deemed “moving too slowly” on climate change action.
The CEO of Brisbane-based New Hope Group Reinhold Schmidt said moves to divest from the coal industry was to “pacify the vocal minority of activists.”
“In New Hope Group’s case, we have seen superannuation funds and major investment firms take a small position in the company only to sell the shares in a very public announcement to create the perception of being a responsible investor,” Schmidt said his submission (pdf).
The Group employs 750 people across regional towns in New South Wales and Queensland.
The New South Wales (NSW) government and Australian Small Business and Family Enterprise Ombudsman backed the concerns of mining firms.
Ombudsman Bruce Billson said financial institutions should be obligated to “show cause” for a decision to deny financial support to mining companies.
“Where denial of these essential services occurs, for example, in industries like live animal exports and resources, this hinders small business’ export opportunities and therefore Australia’s economic recovery from the impacts of COVID-19,” he wrote (pdf).
The NSW government echoed these concerns saying restrictions would stymie the state’s recovery from COVID-19.
“The coal mining industry is likely to remain an important employer in certain regional communities in NSW for some decades,” according to the NSW submission (pdf).
“However, the NSW coal industry has reported it is already reporting difficulties accessing finance and financial services as investors make the independent and prudent assessments of risk to which they are entitled,” it continued.
“Differing understandings and assessments of future demand for coal may be impacting on investment decisions.”