- Superannuation giants have backed the new Australian startup Emmi, which grades companies on their exposure to the transition to a carbon-constrained economy.
- Carbon constraints will come into play whether investors believe in climate change or not, said founder Michael Lebbon.
- Emmi hopes to help investors navigate that transition by grading a business’ revenue, leverage, and liquidity against its carbon output.
- Visit Business Insider Australia’s homepage for more stories.
Superannuation heavyweights have thrown their clout behind Australian startup Emmi, a new financial analysis firm which grades how likely companies are to thrive during the transition to a carbon-constrained economy.
Instead of focusing on the material risks posed by climate change, Emmi judges how financially exposed businesses are to that economic transformation — a change which founder Michael Lebbon says is coming, regardless of investors’ own beliefs.
“It doesn’t actually matter if you believe whether climate change is happening or not,” Lebbon told Business Insider Australia.
“We are going to decarbonise in some way, shape or form. So you kind of need to understand what it is and how that affects your risk.”
His statement has some significant backing. While carbon pricing remains a highly contentious issue at home, Australia’s prudential regulator has warned the financial community to brace for policy changes worldwide.
Changing market expectations, the threat of climate-centred litigation, and missed opportunity costs also threaten the value of Australia’s largest businesses through the transition period.
To address these concerns, Emmi’s model digs into twelve financial metrics, gauging variables like a company’s revenue, leverage, and liquidity against its carbon output. This includes Scope 3 emissions, or the emissions caused by end customers.
The resulting figure is represented as a score out of 100, where a higher score equals a lower exposure to carbon — and, ideally, fewer hiccups when carbon constraints come into play.
Those scores are also benchmarked against global warming scenarios. A company with a low Emmi score is aligned with an environment in which the global temperature is expected to rise between three to four degrees Celcius over pre-industrial levels, while a firm boasting an Emmi score of 100 correlates with smaller temperature rises and a lower-carbon economy.
The score provides a more accurate read on a company’s low-carbon credentials than pledges to cut down in emissions, Lebbon said, which can be taken as tokenistic ‘greenwashing’.
“There’s just been so much pandering and greenwashing over the last 15, 20, 30 years, that the market almost doesn’t trust a lot of the time when companies say what they’re going to do,” Lebbon said. “So that’s why we focus purely on the data.”
“So many times people say, “This is what we’re going to do, and these are our stated targets,'” Lebbon said. “But then what generally happens, it’s just a bit of a sugar hit, but then they’re not held accountable.”
Analysing the same key metrics allows the score to be applied across industries, Lebbon said, allowing investors to quickly and easily compare the transition risks faced by firms in wildly different sectors.
Firms with a high emissions are not necessarily condemned to have low Emmi scores for life, either, with the score accounting for massively productive companies.
“Another way to look at it is, if we divvied up the carbon budget globally, are you doing the fair share of your work?” Lebbon said.
“So if you’re a highly profitable, highly valuable company, and you’re bigger and bigger, yeah, you probably do have a bigger claim on the carbon budget, because you’re generating more economic value for the community abroad.”
But Lebbon stressed “these carbon constraints will start going down, you know, it’s getting tighter and tighter, and you can’t forever do this.
“This is a transition path.”
Aware Super, Energy Super, and Future Super have now joined asset managers Melior, Hyperion and Perennial in backing Emmi, which launched commercially last month after incubation in the Startmate accelerator.
Liza McDonald, head of responsible investments at Aware Super — which hopes to make its portfolio wholly carbon neutral, and achieve net zero emissions by 2050 — said the startup will help the fund reach those goals.
“Having a tool like Emmi gives us valuable insights into our carbon exposure and climate risks to ensure our investments are sustainable and continue to deliver for our members in not just years to come, but decades to come,” McDonald said in a statement.
Lebbon praised the superannuation industry for taking strides towards a lower-carbon future.
“Capital is the biggest lever we have to pull around the transition,” he said.
“If we can actually create a system where the whole financial system can easily understand carbon and deal with the risk, and deal like it deals with credit ratings, that’s actually how you can get speed the transition towards zero as fast as possible”.