What if...: Annette Sampson
Joe Biden’s determination to tackle global warming increases the pressure on Australia to play a greater role
THE US IS CRITICAL
The election of Joe Biden as US president has dramatically shifted the goalposts. One of his first acts was to bring the US back into the Paris climate agreement, and the appointment of former presidential candidate and big hitter John Kerry as his climate envoy signals that the administration views climate action as a key priority.
In January, Biden signed executive orders aimed at achieving totally carbon-free energy by 2035 and zero net greenhouse emissions by 2050.
It’s a big ask, but by positioning itself as a global leader on climate action the US has ramped up pressure on other governments – including our own – for a more determined and co-ordinated approach to addressing this issue.
FINANCIAL IMPLICATIONS
In Australia, climate debate has long been partisan and negative, focusing on the costs of action rather than the opportunities or the longer-term costs of not doing anything.
But businesses have increasingly been factoring climate action into their plans. In November, KPMG Australia found our top 100 companies were ahead of their global peers in climate risk reporting. It found 58% are following the global Taskforce for Climate-related Disclosures recommendations compared with less than half the G250 companies and up from just 16% three years ago.
Jenn-Hui Tan, the global head of stewardship and sustainable investment with Fidelity International, says it will ultimately cost businesses more not to address the impacts of climate change, as it will affect their business models and the feasibility of their assets. He says Fidelity recently looked at the net zero ambitions of the companies it covers, and while European companies are leading the way, the Asia/ Pacific region is quickly catching up.
Last year Fortescue Metals announced a target of net zero emissions by 2040 with a goal to cut emissions from existing operations by 26% this decade. And it is significant that business groups have been key backers of proposed legislation for a 2050 net zero target put forward by the independent MP Zali Steggall.
For investors, Tan says opportunities obviously exist in companies that are driving the decarbonisation push, such as green energy suppliers.
“But we’re not going to get to a low-emissions future if all we do is own low-carbon stocks. Emissions come from high-carbon emitters, so if you’re looking to make a real impact, you have to own high emitters and influence them to drive transition.”
Super funds are under pressure to do more about climate change following a lawsuit last year when a 25-year-old member sued the super fund REST over the issue. The case was settled before trial, but REST agreed to align its investments with a 2050 net zero target and publicly disclose its holdings and climate risk exposure.
Funds such as AustralianSuper, CBus, HESTA, UniSuper and Aware Super also made climate commitments last year.
GREENWASHING
However, a recent report by the Australasian Centre for Corporate Responsibility found super funds were quietly moving to meet their targets simply by divesting higher-carbon stocks rather than using their financial muscle to influence change.
Tan says investors also need to ensure the companies and funds they invest in behave consistently with their stated goals. “Greenwashing” occurs when action doesn’t live up to those claims.
He says this can be a complicated issue, particularly for funds, and regulation will probably be needed to determine what can, and can’t, be called sustainable.
However, he sees three criteria for determining whether a fund is genuine.
Firstly, does it genuinely subscribe to sustainable investment? While there can be a variety of approaches, Tan says red flags would include simplistic measures such as screening out certain industries and outsourcing the process rather than making it an integral part of the business.
Secondly, he says, funds should be actively engaging to promote change rather than just stating targets.
Thirdly, it should be “walking the talk” by making its own business sustainable.