The Paris agreement’s pledge was to keep global warming to “well below” 2 degrees. (ABC News: Lisa Millar)
Australia’s biggest companies are ignoring calls from regulators and investors to do more to mitigate the risks of climate change, with a new study finding that many of the nation’s top 100 companies still do not identify climate change as a material business risk.
- Of 72 big listed companies operating in sectors, more than half (57 per cent) identify climate change as a material business risk
- Investors have been voting against companies not taking action and regulators have warned businesses that don’t mitigate risks could be held liable
- Companies have pledged to do more to meet global guidelines aimed at reducing carbon emissions.
The report, to be released on Monday by environmental campaign group Market Forces, is based on public information from 72 big listed companies operating in sectors considered high-risk on climate change.
It found that just above half (57 per cent) identify climate change as a material business risk, and just 32 per cent of the companies disclose detailed discussions of specific climate risks and opportunities facing their businesses.
Market Forces released the first iteration of its report, ‘Investing in the Dark’, in March 2018. The new findings take into account announcements and changes from companies that have reported or updated disclosures in the last year.
Market Forces analyst Will van de Pol said despite increasing rhetoric from investors and regulators about climate change risks, on most metrics, there has been almost no progress to report.
“Companies are willing to make general statements recognising climate change as a potential risk but very few have gone into the detail of how climate change risks might materialise for their business and what they are doing in response,” he said.
No planning to meet Paris pledge
The Market Forces study follows a report by the Australian Securities and Investments Commission (ASIC) in September that found that out of 60 listed companies in a sample of the ASX 300, just 17 per cent identified climate risk as a material risk to their business.
The ASIC review found in some cases “climate risk disclosures to be far too general, and of limited use to investors”.
The study also comes off the back off global guidelines to help investors understand their financial exposure to climate risk and help companies better disclose this information.
The G20-backed Task Force on Climate-related Financial Disclosures (TCFD) guidelines, released in June 2017, take into account the Paris Agreement’s pledge to keep global warming to below 2 degrees.
The Market Forces study found just 14 per cent of Australia’s top 100 companies have disclosed detailed scenario analysis demonstrating their viability in a 2-degree policy pathway. This is a marginal improvement from the 10 per cent recorded in March 2018.
Only 24 per cent have a clear plan to reduce greenhouse gas emissions (up from 16 per cent a year earlier).
Mr van de Pol said investors should demand companies produce Paris-aligned transition plans, and divest from those that cannot or will not.
Investors vote for a cleaner future
A number of ASX 200 companies have recently faced shareholder resolutions on their failure to address climate change risks.
“It shouldn’t take a shareholder resolution to bring laggard companies into line,” Mr Van de Pol said.
In October, 40 per cent of Whitehaven Coal’s investors supported a resolution demanding the company reveal the financial risks it faces as a result of climate change.
It was one of the biggest votes for climate action at an Australian AGM ever, and the first resolution in Australia that explicitly called for a company to ensure its strategy is aligned with the goals of the Paris Agreement on climate change.
“Whitehaven currently lags its peers when it comes to climate risk disclosure,” Mr Van de Pol said.
“It discloses minimal detail about the risks it faces from climate change, or what the company is doing to address those risks.”
A spokesman for Whitehaven said climate change is an issue requiring coordinated international action and the company was committed to playing a role in reducing carbon emissions.
This would happen by “promoting increased use of Whitehaven’s high quality, low-emissions coal”.
The company was also reviewing the TCFD recommendations and would incorporate these into its annual reporting later in the year, he said.
Insurer’s fossil fuels exposure
In May, QBE also faced pressure from investors, with a resolution calling on the company to disclose the risks to its business from climate change. It was backed by 18.6 per cent of shareholders.
In August, the insurer released its plan to implement the TCFD recommendations.
According to Swiss Re, 2017 was the costliest year in the history of the insurance industry and QBE itself reported a $US1.2 billion loss, mainly due to extreme weather including floods, storms and wildfires.
“QBE is falling behind its European competitors, like Axa, Allianz and Zurich, which have recognised the need for climate action,” Mr Van de Pol said.
“They [those global companies] dumped their coal company shares and are restricting their insurance for coal mines and power stations.”
But he said QBE was still an underwriter of fossil fuel projects and had invested in other companies with climate exposures.
A spokesman for QBE said “climate change is a principal risk for our business”.
QBE was committed to completing the work required to implement the TCFDs recommendations.
“This work is already well advanced,” he said, and the company would give an update its progress in its upcoming annual report.
On Friday, Suncorp chief executive Michael Cameron said the Federal Government should force businesses to adhere to climate change action plans, after the company reported its half-year profit dived 44.7 per cent, largely as a result of extreme weather events.
Call for regulators to take ‘meaningful action’
Regulators have recently signalled that companies failing to take action to mitigate risks could ultimately be held liable.
In a speech in June, ASIC Commissioner John Price said directors “would do well” to carefully consider a 2016 legal opinion by Noel Hutley SC and Sebastien Hartford-Davis that they could face lawsuits for failing to consider risks related to climate change.
And in November 2017, APRA executive Geoff Summerhayes warned that “should extreme weather events become more frequent and intense as scientists predict”, there could be “adverse economic impacts” that threaten financial system stability.
Mr van de Pol called on ASIC to “back its rhetoric” and take “meaningful action” against companies breaking disclosure laws.
He said more extreme weather events including floods, fires and droughts show that there is an urgent problem to address.
“Financial institutions need to steer our economy away from the catastrophic impacts of climate change,” he said.
“When the financial impacts hits home investors are left with a company that’s devalued and will be looking for someone to blame.”
Boards given responsibility for climate risks
The Market Forces study found 86 per cent of companies now place overall responsibility for climate risk management with the board, up from 73 per cent one year ago.
The number of companies encouraging emissions reduction through remuneration has doubled to 32 per cent.
This is in sync with a recent survey showing company directors are taking a more active interest in the issue.
In October, the Australian Institute of Company Directors’ (AICD) survey of more than 1,200 company directors found they had for the first time nominated climate change as the number one issue they want the Federal Government to address in the long term.
Responsible Investment Association Australasia (RIAA) chief executive Simon O’Connor said investors were increasingly setting decarbonisation targets for their investment portfolios.
“Many responsible investors are rightfully concerned about this low level of disclosure,” he said.
“More and more responsible investors are considering divestment from fossil fuel companies as an option on the table.”
The association’s finance sector members would be reporting line with the TCFD recommendations.