Investors Recognise Financial Risks Of Climate Change

An alliance of investor groups from Australia and Asia have put out a guide for institutional investors on climate change disclosure.

The guide, Transparency in Transition: A Guide to Investor Disclosure on Climate Change, was developed by the Investor Group on Climate Change (IGCC Australian/New Zealand) and the Asia Investor Group on Climate Change (AIGCC Asia).

CEO of IGCC Emma Herd described it as “a practical step forward for organisations”.

“Climate change is now widely recognised as a major financial risk for business,” she said.

“Building the right tools to measure and report on the financial impacts of climate change is just as important for investors as it is for all companies.

“We believe this guide can help investors navigate available reporting options and translate them into practical applications.”

The guide builds on best practice investor reporting practices and aims to improve transparency and better inform stakeholders on how climate change risks are being tackled by institutional investors, according to the IGCC.

The IGCC said the guide’s practical framework is organised around three key foundations:

• Core principles: “Help investors describe their perspective and approach on managing climate change risks and opportunities, while highlighting the attributes of good quality disclosure.”
• Effective narrative: “Ensure stakeholders have the information they need to appropriately assess the practices of the investor by providing important context on governance, strategy, and priorities.”
• Appropriate metrics: “Ensure that investors present a balanced and material picture of climate change performance.”

Companies already making moves in relation to climate change

Many large businesses are already attempting to attain a better understanding of their prospects in a climate change-conscious future, according to new research from KPMG and the Climate Institute.

The Climate Institute said businesses are becoming increasingly sophisticated in their response to climate risk, despite what the Climate Institute describes as “significant barriers to effective action”.

KPMG’s Head of Sustainability, Adrian King, says, “From virtually no activity two years ago, more than 200 companies worldwide – including three large Australian companies – have begun to evaluate and disclose how they might fare with the sharp drop in emissions required over the next few decades under the Paris Agreement.”

According to Mr King, the need for businesses to act on climate change has been made more tangible by APRA’s recent announcement to take climate risk into consideration when supervising financial institutions.

“Additionally, businesses are facing pressure from investors, who are increasingly aware that climate risk is a financial risk that is already believed to be affecting asset values, revenues and operational costs in some sectors,” he said.

According to the Climate Institute’s Head of Finance and Investment, Kate Mackenzie, our government’s relative inaction on climate policy isn’t helping the already-difficult task.

Ms Mackenzie says that “on a practical level, policy uncertainty makes it more difficult for businesses to plan for a decarbonising economy”.

“Investors want to know how companies will look as the world acts to limit global warming – policy uncertainty doesn’t need to be another barrier when problems like short-term incentives and misunderstandings of the significance of climate impacts are already in play,” she said.