Thursday, 1 March 2018
Senator RHIANNON: In explaining how Efic works and what it can do, you used the phrase, 'It's when banks don't have the appetite.' You also said something about it not appealing to the banks. You've described it that way, but is another way of describing it when banks judge that it's so risky that their profits might be at risk so that's why they don't do it?
Ms Dave : If I could just explain? When we're talking about the SME sector, quite often banks want tangible security—which SMEs don't always have. What we tend to do is look at their capacity and their capability to actually deliver on an export contract. That's the difference in risk appetite between what we do and what banks do.
Senator RHIANNON: You've talked about SMEs, but—
Ms Dave : Yes.
Senator RHIANNON: But that's like you've got all those huge big projects that you do.
Ms Dave : Yes.
Senator RHIANNON: Efic often plays that critical role in getting those big projects off the ground in low-income countries, because a bank won't underwrite it because it's so risky and the profits are not assured.
Ms Dave : The reason we get involved in large projects is because if it involves a developing or an emerging market banks don't have the capability. Most of the banks in Australia are very much focused on their home markets, so that will tend to be in Australia. Their reach into some of the emerging and developing markets is nonexistent, so that's where Efic needs to step in to support those larger companies.
Senator RHIANNON: Thanks for that. I want to follow on from some of the questions Senator Gallacher asked. You spoke about it being mid-February when those talks were held. Were these exploratory talks with Adani and the office of the trade minister?
Ms Dave : No, these were just exploratory discussions between us and Adani representatives.
Senator RHIANNON: Right, so they are exploratory talks. So you are saying there was one meeting about Adani and the other meetings were more general ones? You used the words 'we had a chat'.
Ms Dave : The meeting I referenced was the only one which was specific in respect of the project.
Senator RHIANNON: But, separate from that, there are a number of discussions between Adani and Efic?
Ms Dave : There have been, over a period of years—that don't relate to the project that Senator Gallacher was asking about.
Senator RHIANNON: A period of years. Is that three years, six years?
Mr Hopkins : I think we have gone back about five or six years.
Senator RHIANNON: And how many meetings?
Mr Hopkins : I would have to look again.
Senator RHIANNON: Can you take it on notice and provide the details.
Mr Hopkins : I'm happy to take it on notice.
Senator RHIANNON: You say it is not about Adani, but I assume the information they would be gleaning from those discussions would help them with any project—whether it is Adani or another coalmine or another project. Would that be a fair assumption?
Mr Hopkins : We don't necessarily need to focus on Adani. If anyone comes to Efic and seeks information about what we can and can't do, it could apply to any of the activities that they are engaged in in their business.
Senator RHIANNON: So what are they discussing in that? Are they just discussing how Efic works?
Mr Hopkins : Any exporter comes to Efic and we explain what our mandate is and what our capabilities are, as we would do for anyone seeking our assistance.
Senator RHIANNON: You have taken it on notice to tell us how many meetings there were and when they were held. Can you also tell us what was discussed at those meetings?
Mr Hopkins : We are unable to talk about the topics that were discussed. I have broadly described to you the types of things that we would discuss with companies coming to seek information from Efic—and they are of a general nature—but we can't really talk about discussions that we have with exporters.
Senator RHIANNON: Why is that? Is that because of the famous phrase 'commercial in confidence'?
Mr Hopkins : No. There is actually a secrecy provision in our legislation—section 87—so we're limited in disclosing information about activities that take place in relation to the activities that we do. There are criminal sanctions imposed on a breach of that legislation, so we are quite sensitive to it.
Senator RHIANNON: I want to explore an answer that you gave before. Ms Dave, you said there was no application from coalminers before Efic.
Ms Dave : That's correct.
Senator RHIANNON: And in answers to questions on notice from the last estimates hearing you said Efic 'was not currently considering funding any coal projects'. So you have said you do not have an application, but are you currently considering any coal projects?
Ms Dave : No, we're not. Could I also clarify—because there is a lot of discussion around a Danni in particular—that we would not normally discuss any transactions in this sort of forum. The only reason we are talking about Adani is because it has been in the press and we need to clarify some things.
Senator RHIANNON: Will you rule out providing public money, taxpayers dollars, to Adani through Efic?
Mr Hopkins : That is a hypothetical question.
CHAIR: That is hypothetical, Senator Rhiannon.
Senator RHIANNON: It is not hypothetical; it is a very relevant question. As Ms Dave herself just said, they need to clarify—
CHAIR: Senator Rhiannon, I have listened very carefully to what the CEO and her officials have said and I think it is very clear that you are asking a hypothetical question about something that does not exist or ha not happened.
Senator RHIANNON: Ms Dave, you said you have been speaking about Adani because of the need to clarify matters. Is there anything else you need to clarify about Adani that I may not have asked?
Senator MOORE: That's a good question.
CHAIR: I think that's also—
Senator RHIANNON: It's a totally fair question.
Senator McGrath: It's a fishing question.
CHAIR: It's not only a fishing question, it's almost a preposterous question.
Senator RHIANNON: Don't run a protection racket for Adani! It's a really legitimate question.
CHAIR: Maybe you can ask something with a little specificity, Senator Rhiannon.
Senator RHIANNON: I thought of the question because Ms Dave made a comment to explain why and how they're answering the questions. I will ask the question again; it's very straightforward: are there any other matters that you would need to clarify about Adani that my questions have not elucidated?
Mr Hopkins : If I might step in, the universe of clarifications that we would have to consider to respond to that question, or to have my CEO respond to that question, in the context of what you're asking is enormous. I would say that it's an extremely difficult question for her to respond to accurately, not knowing what that universe of issues are.
CHAIR: I would say that not only is it a hypothetical but it is a trawl, and it is impossible to answer.
Senator RHIANNON: I'm happy to move on, Chair. Efic said its board has discussed APRA's statements on climate and energy transition risk. Does Efic have an internal policy or framework for considering and assessing climate risk?
Mr Parsons : Efic funds projects for individual transactions. When we look at a transaction or a project we would look at the climate risks associated with that specific project. These could be physical risks for the project itself, such as effects of climate change like increased storm activity or increased inundation. Then we would also look at the emissions from the project. For the emissions from the project, we use our benchmark, which is the IFC performance standards. They set out a process for looking at greenhouse gas emissions from significant emitters, which are defined as more than 25,000 tonnes of greenhouse gases a year. So, we have two ways of looking at it: the physical risks and then the emissions from the project.
Senator RHIANNON: I was asking about an internal policy or framework you have for risk and emissions. In terms of how you undertake that work, is the framework public? There must be some framework for how you move ahead?
Mr Parsons : Our policy for environmental and social review of transactions is public, and that nominates IFC performance standards as a normal benchmark. At the project level, that information is public.
Senator RHIANNON: But you don't have an internal policy that's public on how you undertake this?
Mr Parsons : Our internal policy is the same as our external policy, which says we will use IFC performance standards. That is our benchmark for examining greenhouse gas emissions.
Senator RHIANNON: You have a general environmental and social policy on your website; why can't you release your climate policy in the same way?
Mr Parsons : As I mentioned, we look at projects. We're looking at the climate impact on the project.
Senator RHIANNON: I appreciate that. But you have environmental policies and social policies, and, as we know with the history of Efic, it took a long time for that to happen. It's now there and that's good, but you still haven't released your climate policy. Why is that?
Mr Parsons : One correction: we've had an environmental and social policy since 2000. That's 18 years, so we've had one for quite a long time.
Senator RHIANNON: Yes, but people have been battling with Efic for a long time.
Mr Parsons : Our policy for how we review it is public and it is in our policy and procedure.
Senator RHIANNON: Your climate policy?
Mr Parsons : Yes, the climate policy for looking at projects is part of our public policy and procedure. It's one and the same thing.
Senator RHIANNON: So I would find it in your public policy and procedure?
Mr Parsons : Yes, that's correct.
Senator RHIANNON: Efic is required to give consideration to Australia's international agreements including the Paris climate agreement. When Efic funds projects, does it use scenarios that are consistent with the goals of the Paris Agreement—either Australia's commitments or the global goal?
Mr Parsons : The Paris Agreement is difficult to look at at the project level. As I said, Efic funds projects. The Paris Agreement is an agreement between countries on limits and actions that countries will take within their spheres. It doesn't actually go down to the level of individual projects, so—
Senator RHIANNON: I think that's really splitting hairs—
Mr Parsons : I don't think so.
Senator RHIANNON: We're operating within Australia. You're using public money. You're part of the government and the government signed on to the Paris Agreement.
Mr Parsons : That's correct, yes. We look at the international obligations, which are part of our act, and we assess whether those are relevant to any specific transaction we'd be looking at.
Senator REYNOLDS: I think Senator Rhiannon raises a very good point. To clarify: as far as I understand it, the Paris Agreement relates to our domestic targets and domestic requirements. In terms of Efic consideration—and I have heard this publicly—people are asking: 'How can you possibly invest in these companies? How can we meet our Paris targets?' To me it seems to be a fallacious argument, because you're not looking at companies to invest in keeping resources here; you're looking at companies that will export. Is that correct? So the question for the Paris targets is for the country who receives our product?
Ms Dave : That's correct.
Senator RHIANNON: Still, with the way you've set it out, doesn't it mean that Efic is undermining the Paris Agreement?
CHAIR: I think I may have just clarified that.
Senator RHIANNON: I can ask the question.
Mr Parsons : I don't like to repeat myself, but we look at individual projects. The Paris Agreement doesn't look at individual projects; it looks at country levels, whether it's Australia or any country that we'd be exporting to. That country decides how it intends to meet its obligations under the Paris Agreement. If it has approved a project within its country, then by inference you could assume that it's considered the implications for its Paris Agreement obligations.
CHAIR: And not ours for Australia?
Mr Parsons : Yes.
Senator RHIANNON: You've said that a market gap might exist for some projects due to reputational risks. If nearly all major commercial banks have pulled out, in your view, for representational risks, will Efic still consider funding it?
Ms Dave : I think that's a hypothetical question.
Senator RHIANNON: No, it goes to the essence of how you work with these reputational risks. I'm just trying to understand how you make the decisions. You started off by explaining how Efic works. You were very helpful at the beginning, and, again, this is just trying to understand how Efic undertakes its work. Efic over the years has had a reputation of being very secretive. I've felt in more recent times that it's become a bit more transparent, and I think that's a fair question.
Mr Hopkins : We are always trying to be helpful to the committee. In respect of the question that you ask about reputational risk: again, as my colleague said earlier, we look at transactions and projects. We would need to assess the particular reputational risks of a particular transaction or project.
Senator RHIANNON: How does Efic consider representational risks to the Australian government? How do you consider those?
Mr Hopkins : It forms one of the issues that make up the decision as to whether we will proceed with a transaction.
Senator RHIANNON: No, the question was, 'How do you consider it?' not, 'Do you do it?'
Mr Hopkins : It's considered in lots of different ways, because reputational risk has a number of different impacts. It wouldn't always have the same type of impact. For example, a reputational risk involving slave labour with children will have a different reputational risk to something that may impact the environment. It may have a different reputational risk in terms of the location of the world where it is—a First World country verses a non-First World country. There are a number of different factors.
Senator RHIANNON: Whose opinions do you take into account, even if you give me examples? How does it work? Whose opinions do you take into account?
Mr Hopkins : Again, I can't give you that answer, because we don't have something to benchmark against.
Senator RHIANNON: Thank you, Chair.