OPINION | The wave of uncertainty ushered in across the globe recently is something investors will need to get used to. One of the many areas this ‘new normal’ has affected is discussions on climate policy, in Australia and worldwide.
What remains clear for investors is that if Australia is going to make a smooth transition to a low-carbon economy, policy certainty and clarity are required.
The Australian Council of Superannuation Investors engages with Australia’s top listed companies on behalf of our 35 Australian and international members, which collectively manage about $1.5 trillion on behalf of their beneficiaries, including more than 8 million Australian fund members and retirees.
One of our major engagement priorities is to find out how companies with significant exposure to climate risks are planning for medium- to long-term climate-change scenarios to enhance the sustainability of their businesses. There is a clear need for greater transparency from Australian companies on how they factor these issues into their strategic planning, risk management and capital allocation.
This is vital. As the Investor Group on Climate Change (IGCC) stated in its Investor Briefing on The Taskforce on Climate-related Financial Disclosure at the end of last year: “The market has the capacity to absorb the significant structural adjustments required to de-carbonise the economy over time if there is a reasonable level of carbon risk disclosure. Inadequate disclosure could lead to sudden movements of capital or the abrupt devaluation of assets with the potential to impact the broader market.”
We’ve seen some marked improvements in these areas in recent years, as companies come to grips with the realities of global warming.
An increasing number of companies are articulating their position on climate change, as well as taking steps to assess and mitigate specific climate risks.
Now, in a welcome intervention, the Australian Prudential Regulation Authority has also firmly put the case for climate change risk in the investment process.
In a speech in February, APRA executive board member Geoff Summerhayes made it clear that climate risk can no longer be seen as a future, or non-financial, risk. “Some climate risks are distinctly ‘financial’ in nature,” Summerhayes said. “Many of these risks are foreseeable, material and actionable now. Climate risks also have potential system-wide implications that APRA and other regulators here and abroad are paying much closer attention to.”
Even louder calls for clarity
Momentum continues to build, but as a nation we need to do more.
The federal government must clarify our national energy and climate policy. Even putting aside the overwhelming proof of climate change, and the modelling that shows dire consequences for the environment, the lack of a clear policy framework for managing the impact of carbon and energy is undermining investment. That goes for renewable energy, as well as coal and gas related infrastructure beyond 2030.
We keenly anticipated December’s release of the terms of reference for the 2017 Climate Policy Review, and were disappointed when an emissions intensity-reduction trading system for the electricity sector was taken off the table.
The Australian Council of Superannuation Investors has written to Australia’s political leaders, as has the IGCC, calling on them to come together to agree to a long-term climate-change policy framework.
In line with Australia’s commitments under the Paris Agreement, that framework must integrate the energy sector and emissions reduction goals.
It’s not just ACSI and IGCC. There is growing urgency in calls for policy clarity from business, industry, the energy sector, and environmental and social groups.
The 2017 Climate Policy Review terms of reference provide an important opportunity to agree on a way forward. All of us, whether in government, industry or investment, seize it as a genuine opportunity to engage productively to deliver the policy certainty vital for environmentally sustainable economic growth. Mechanisms such as an emissions intensity reduction-trading regime should be part of the discussion.
We in the investment sector are calling on government to develop policy that includes appropriate pricing of climate risks, which would lead to a more sustainable allocation of capital. These issues and more will be debated at the upcoming ACSI Conference, to be held in Melbourne on May 4, 2017.
Louise Davidson is the chief executive of ACSI. This article first appeared in the April print edition of Investment Magazine. To subscribe and have the magazine delivered CLICK HERE. To sign-up for our free regular email newsletters CLICK HERE.