Warning on lack of green options
RESERVE Bank deputy governor Guy Debelle has warned of a growing risk that climateconscious global investors will move to “significantly divest” from Australia, as global financial markets gravitate towards greener opportunities.
As the pressure for Australia to adopt a net zero by 2050 emissions target grows ahead of a global leaders summit on climate change in Glasgow at the end of this month, Dr Debelle also warned that “simply shutting down parts of the economy is unlikely to deliver a socially optimal transition”.
“It is not necessary today to go down such a path, though the time we have before such a path might be necessary is decreasing,” he said.
Dr Debelle said “countries and economies need to transition sustainably. Some projects that are not ‘green’ will nevertheless be needed to assist an economy transition to net zero”. “Investing in a reduction in carbon emissions can still be an important part of the transition, even if the immediate outcome is not zero emissions,” he said.
In a speech to the CFA Australia Investment Conference detailing the work the RBA and regulators are doing to assess the risks to the Australian banking system from climate change, Dr Debelle said “climate comes up in most conversations I have with foreign investors”.
“To date, these discussions have not led to any obvious change in investor appetite for Australian bonds or equity, with only a few small exceptions,” he said.
Those exceptions included Swedish bank Riksbank discontinuing its investment in Queensland and WA state government debt a few years ago.
“There is a risk we will see more of these divestment decisions sooner rather than later,” Dr Debelle said.
“Investors will adjust their portfolios in response to climate risks.
“Governments in other jurisdictions are implementing net zero policies. Both of these are effectively increasing the cost of emissions-intensive activities in Australia.
“So, irrespective of whether we think these adjustments are appropriate or fair, they are happening and we need to take account of that. The material risk is that these forces are going to intensify from here.”
The RBA is watching for divestment announcements as soon as later this month, with Dr Debelle flagging the risk of COP26 providing a focal point for countries to heap pressure on Australia.
“(Divestment) is a risk. We haven’t really seen much manifestation of it, (but there is a) slight concern that we may see some announcements of decisions in this space around COP26,” he told the conference.
“To date they’ve been small, but we are seeing increased noise around it. Whether that noise translates into action remains to be seen.”