Australia’s poor environment and biodiversity outlook caused by climate change, habitat loss, invasive species, pollution and mining activity, underscores how environmental issues are developing into key financial risks for investors.
Published last week by the Australian government, the five-yearly State of the Environment report paints a damning picture of the health of Australia’s environment and biodiversity with the near collapse of close to 20 ecosystems. It highlights the impact on the environment from changes in rainfall patterns and the intensity and frequency of bushfires and heatwaves with average temperatures climbing close to 1.5 degrees Celsius since records begun.
“Investors will be welcoming the transparency and good governance that is on display with the release of this crucial State of the Environment report, but the content itself is cause for grave concern according to a spokesperson for the Investor Group on Climate Change, an alliance representing Australian and New Zealand institutional investors with over $36 trillion of assets under management.
“For millions of Australian investors’ beneficiaries, their long-term financial security and the stability of our economy is enmeshed with the health of our land, air and water,” he said.
The report also brings the importance of nature and biodiversity to the fore. “Investors have been focused on climate change for the last decade years but the discussion on biodiversity and nature has largely been absent,” said Michael van Niekerk, managing director of consultant Peakview Strategy.
“While climate change clearly impacts nature, the impact of biodiversity loss could be more significant than climate change.”
The report also highlights the importance of improving disclosure on the impact of nature-related risks under the framework of the Taskforce for Nature-related Financial Disclosures (TFND). Currently in draft form, the TFND is expected to be an important area of disclosure in the coming years.
To date, the more-established Taskforce for Climate-Related Financial Disclosures has raised investor awareness of climate risk and is now firmly embedded in the reporting regimes of many companies. The adoption of the TCFD has been accelerated by countries such as the UK and New Zealand making it mandatory.
Elsewhere, the International Sustainability Standards Board is currently developing a global baseline of sustainability disclosures for the capital markets that will further improve disclosure and transparency standards for investors.
Despite the dire findings in the report, it also highlights new investment opportunities in areas such as decarbonisation and climate resilience.
“Over time, the importance of considering nature-related investment risks and opportunities will only grow as the world either addresses these issues or does not. We already see investors seeking more sustainable investments and we believe that this trend will only strength in the future,” said Claire Molinari, head of ESG at CareSuper.