Aus­tralian share­hold­ers should be told of cli­mate risk to prof­its, says think­tank

The Guardian Australia - - Opinion/Finance/The Guardian View - Gareth Hutchens

Aus­tralian com­pa­nies need to start de­vel­op­ing so­phis­ti­cated sce­nario-based analy­ses of cli­mate risks, and in­cor­po­rat­ing them into their busi­ness out­looks so share­hold­ers know how cli­mate change will af­fect prof­itabil­ity, a think­tank has said.

How­ever, the Cen­tre for Pol­icy De­vel­op­ment (CPD) said com­pa­nies needed to do so in a stan­dard­ised way, so in­vestors and reg­u­la­tors were able to eas­ily un­der­stand econ­o­my­wide risks to whole in­dus­tries.

The pro­gres­sive think­tank urged Aus­tralia’s big­gest busi­nesses to use the Paris cli­mate agree­ment as the cen­tre­piece for their sce­nario plan­ning, say­ing it pro­vided a cred­i­ble, long-term an­chor for poli­cies that limit global warm­ing to well below 2C.

The group has re­leased a dis­cus­sion pa­per, called “Cli­mate hori­zons: next steps for sce­nario anal­y­sis in Aus­tralia”, ex­plain­ing the best way to do so.

Aus­tralia’s fi­nan­cial reg­u­la­tor warned in Fe­bru­ary that cli­mate change posed a ma­te­rial risk to the en­tire fi­nan­cial sys­tem and urged com­pa­nies to start adapt­ing. Ge­off Sum­mer­hayes, from the Aus­tralian Prudential Reg­u­la­tion Au­thor­ity (Apra), told the In­sur­ance Coun­cil of Aus­tralia’s an­nual fo­rum in Syd­ney in Fe­bru­ary that Apra wanted com­pa­nies to start in­cor­po­rat­ing “sce­nario-based anal­y­sis” of cli­mate risks into their busi­ness out­looks.

He said Apra in­tended to start run­ning stress tests of the fi­nan­cial sys­tem to see if it would sur­vive var­i­ous cli­mate shocks, and all Apra-reg­u­lated en­ti­ties would need to adapt to the com­ing reg­u­la­tory changes. “I think the days of view­ing cli­mate change within a purely eth­i­cal, en­vi­ron­men­tal or long-term frame have passed,” Sum­mer­hayes said.

The CPD’s new dis­cus­sion pa­per sug­gested how Aus­tralian busi­nesses could be con­sis­tent with the coun­try’s in­ter­na­tional cli­mate com­mit­ments un­der the Paris agree­ment and with the lead­ing in­ter­na­tional frame­work for ro­bust cli­mate dis­clo­sures, the Fi­nan­cial Sta­bil­ity Board’s task­force on cli­mate-re­lated fi­nan­cial dis­clo­sures (TCFD).

It said busi­nesses ought to try to de­velop a stan­dard­ised ap­proach to sce­nario-based anal­y­sis, and that all sce­nario analy­ses should in­clude:

A sce­nario that is gen­uinely con­sis­tent with Paris tar­gets. It should there­fore in­cor­po­rate a high prob­a­bil­ity of lim­it­ing warm­ing to below 2C, and to­wards 1.5C

A sce­nario that in­cludes the phys­i­cal im­pacts of cli­mate change, not just tran­si­tion risks

En­gage with the most rel­e­vant sec­toral or re­gional sce­nar­ios and re­sources avail­able

Be trans­par­ent about as­sump­tions and pa­ram­e­ters used to de­velop the sce­nar­ios, in line with the TCFD dis­clo­sure frame­work

Show ev­i­dence that man­age­ment is over­haul­ing their busi­ness mod­els in re­sponse to sce­nario anal­y­sis re­sults

Sam Hur­ley, the CPD’s pol­icy direc­tor, said share­hold­ers, courts and reg­u­la­tors like Apra clearly ex­pected busi­nesses and in­vestors to pre­pare for cli­mate change and also for the ma­jor phys­i­cal im­pacts that are likely even if se­vere global warm­ing of 2C or more is avoided.

CPD fel­low Kate Macken­zie, a coau­thor of the pa­per, said many of the cli­mate ref­er­ence sce­nar­ios used by busi­nesses only had a 50% chance of keep­ing global warm­ing to 2C or less.

“Busi­ness-as-usual ap­proaches have us on track for warm­ing of three de­grees or more, which would be in­cred­i­bly dam­ag­ing both eco­nom­i­cally and en­vi­ron­men­tally,” she said. “Sce­nario anal­y­sis work that does not fac­tor in ro­bust Pariscon­sis­tent sce­nar­ios will mean com­pa­nies and in­vestors un­der­es­ti­mate the scale of the risks present and tran­si­tions re­quired to meet Paris tar­gets – and the op­por­tu­ni­ties that this tran­si­tion will also cre­ate.”

The CPD dis­cus­sion pa­per will be dis­cussed at a pub­lic fo­rum in Syd­ney on Wednesday. Sum­mer­hayes will be speak­ing at the event, along with Steven Skala, the chair of the Clean En­ergy Fi­nance Cor­po­ra­tion, Christina Tonkin, the manag­ing direc­tor of spe­cialised fi­nance at ANZ, and new CPD board mem­ber Sam Mostyn.

Busi­nesses in Aus­tralia have been urged to in­cor­po­rate cli­mate risks into their out­looks so share­hold­ers can see the po­ten­tial im­pacts. Pho­to­graph: Lukas Coch/AAP

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.