After a brutal climate report, Australian investors fear ‘falling behind’ without a net zero target and green disclosure rules

After a brutal climate report, Australian investors fear ‘falling behind’ without a net zero target and green disclosure rules
  • After Monday’s harrowing IPCC climate report, a major group of climate-focused investors fear Australia could be left behind in the global transition away from fossil fuels.
  • “We need to move with where global capital is moving,” said Erwin Jackson, director of policy at Investor Group on Climate Change.
  • Strong net zero goals from the federal government and green disclosure rules are some ways to bridge that gap, he said.
  • Visit Business Insider Australia’s homepage for more stories.

A major investor group has doubled down on warnings the Australian economy could be left behind as the planet transitions from greenhouse gas emissions, after a landmark report found some drastic consequences of climate change are now unavoidable.

On Monday night, the Intergovernmental Panel on Climate Change (IPCC) revealed the global average temperature is likely to rise by 1.5°C before 2040, with human activity and greenhouse gas emissions the primary cause.

The report, and its claims that Australia could face more frequent and extreme bushfire events, has reiterated the need for urgent action to avoid the most catastophic impacts of a warming planet.

Australia’s investment community is keenly aware of those risks, said Erwin Jackson, director of policy at the Investor Group on Climate Change (IGCC), whose members count over $2 trillion in funds under management.

“We’ve already seen many large Australian companies commit to achieving net zero emissions by 2050,” Jackson told Business Insider Australia.

“And that’s in response to investors, wanting to understand how that company is going to have a long term future.”

But the Australian government, major corporations, and regulators could do more to adopt climate-centric goals, while also providing clarity to investors keen to support a widespread green transition.

Renewed calls for net zero commitments

The IGCC is one of countless stakeholder groups calling on the federal government to both adapt its 2030 emissions targets and commit to net zero carbon emissions by 2050, if not sooner.

Despite the harrowing IPCC report, Prime Minister Scott Morrison on Tuesday signaled a 2030 update is still in the works, and voiced no further commitment to a net zero by 2050 target.

Avoiding a firm 2050 target puts Australia companies in “a very, very vulnerable and exposed situation,” Jackson said, as the nation risks falling behind international peers like the United States and the United Kingdom, whose markets are already aligning behind more ambitious goals.

“We need to move with where global capital is moving. We need to unlock that capital in Australia,” he said.

“This is mainstream investor practice now. The risk is more the other way: how far do we want to fall behind before we start running to catch up?”

Morrison did address changes in the global economy in his Tuesday press conference, saying, “we’re seeking to position Australia to be successful in it, to address the very real and environmental risks that are set out in these reports, but also to ensure Australia is economically competitive.”

Jackson credited Morrison for taking that stance, but maintained hard targets were vital to provide market certainty, international compatibility, and a safeguard against rising emissions.

“What the government needs to do is set ambitious and strong 2030 targets but also a clear goal to reduce emissions by 2050,” he said.

Mandatory climate risk disclosures a priority

Beyond some local fossil fuel concerns maintaining the “indefinite” viability of their products and unintentionally “damaging the reputation of Australian oil and gas companies in global markets,” Jackson said many major Australian firms have independently committed to net zero emissions by 2050.

But more could be done to ensure those goals are met, with companies still guilty of ‘greenwashing’ — where companies pad out their green credentials while obscuring their emissions and other environmentally-damaging practices.

“While we’ve seen those commitments, we still need to see greater clarity from companies around how they’re aligning their capex decisions, their executive remuneration, and their corporate strategy to actually achieving those goals,” he said.

Increasing regulatory authority would help separate the pretenders from the real deal, allowing investors to back environmentally sound projects and encouraging latecomers to adapt.

By all accounts, local regulators are already keenly aware of climate-based risks to investment and financial stability.

In February, the Australian Investments and Securities Commission (ASIC) said it had assessed the climate risk disclosures of several listed companies, based on the standards laid out by the Financial Stability Board’s Taskforce for Climate-related Financial Disclosures (TCFD).

ASIC also informed several “laggards” of their statutory requirements.

The Australian Prudential Regulation Authority (APRA) in April released draft guidance to banks, insurers and superannuation trustees on the looming financial risks of climate change.

On behalf of the big banks, APRA is also assessing the physical climate-related risks faced by the nation’s top companies. That research will be made public later in 2021.

“We’re seeing the financial regulators warning that these kinds of impacts the IPCC have outlined are material risks to the economy, financial stability, and various entities that they regulate,” Jackson said.

“But we need to really need to see the government moving forward and implementing a mandatory climate related disclosure regime aligned with the TCFD, because that would actually provide more information.”

Aligning those disclosure rules with other international markets would stop further market fragmentation, he said.

“It’s in the [market’s interest] to make sure that we’re adequately pricing the kinds of risks that the IPCC has outlined.”

Jackson hoped the latest report would not only highlight specific risks of a changing climate, but outline the economic opportunities of the necessary green transition.

“There is a huge opportunity in Australia,” he added.

“We are blessed with vast renewable energy resources. We are blessed with many of the resources that are required to drive the zero emission economy like lithium, copper… There’s a lot of pros to invest in Australia in climate change solutions.”