Last week, APRA Executive Board member Geoff Summerhayes warned the transition to a low carbon economy is already underway and "institutions that fail to adequately plan for this transition put their own futures in jeopardy, with subsequent consequences for their account holders, members or policyholders."
The speech followed a Centre for Policy Development discussion paper on how companies can follow the recommendations of the Financial Stability Board's Task Force on Climate-related Financial Disclosures (TCFD).
The TCFD has set the standard for climate risk disclosure since its draft recommendations were released a year ago. Its final recommendations were backed by over 100 companies with a combined market capitalisation of over $3 trillion, which should give an idea to how seriously the TCFD is being taken.
But is it though? Market Forces has just examined the ASX top 50 companies' responses to the TCFD. Only seven had delivered on the key recommendation to disclose information on how their company performs in a scenario where global warming is held below 2??C, while 31 don't even mention the TCFD recommendations, let alone implement them.
It isn't the first warning sign that corporate Australia is failing to manage climate risk. The Australian Council of Superannuation Investors' (ACSI) own research shows just 48 companies in the ASX200 have set climate targets.
Both the Investor Group on Climate Change (IGCC) - a group of Australian and New Zealand investors focusing on the impact that climate change has on the financial value of investments - and ACSI called for the implementation of the TCFD recommendations well before the vast majority of ASX companies published their annual/sustainability reports this year.
But responses to questions at annual general meetings suggest these calls are falling on many deaf ears.
Earlier this year, Santos said that, despite being supportive of the Paris climate change goal of holding global warming below 2 degrees, it was actually basing its own scenario analysis on a future where global warming increases by 4 degrees.
Similarly, Whitehaven Coal laid claim to a bright and prosperous future at their AGM, citing a 10 per cent increase in electricity generation from coal by 2040 projected by the International Energy Agency (IEA).
This stat is plucked from the IEA's "Current Policies" scenario, consistent with up to 6 degrees of global warming and in no way reflective of reality.
These are two ASX 200 companies telling investors they're planning for a future where the world succumbs to runaway global warming.
Karoon Gas Chairman David Klingner wasn't willing to set a greenhouse gas reduction target, claiming it would be meaningless, despite this being another key TCFD recommendation. However, when asked if the company would keep offering executive bonuses for meeting exploration targets, effectively incentivising the search for likely stranded assets, "You betcha!" was the answer.
Boral appears exposed to multiple climate risks, with an energy bill of $300 million per year, annual greenhouse gas emissions of 2.5 million tonnes and having lost $10 million this year due to the impacts of US hurricanes. The company described climate change at its AGM as a mega-risk that will affect all businesses yet, moments later, admitted it didn't consider climate change a material business risk when preparing the financial reports.
Having it both ways
Others, like Oil Search, seem to want to have it both ways. Oil Search is currently analysing how its portfolio performs in a 1.5 degrees Celsius and 2 degrees Celsius economy. While this move is laudable in and of itself, Carbon Tracker had already found Oil Search was on track to spend more than half of its upstream capex on oil and gas that could not be burned within the 2 degrees carbon budget, meaning the scenario analysis would likely make for nervous reading for investors.
Since then, Oil Search has announced a planned expansion of the PNG LNG project, and taken a stake in an undeveloped oil field in Alaska, increasing its likely exposure to stranded assets in a low carbon economy.
Perhaps most stunningly, despite Australia's big four banks moving to adopt the TCFD recommendations in the second half of the year, Macquarie Bank's Chairman Peter Warne admitted at the company's annual shareholder meeting in July that he didn't know what the TCFD was.
These are just a few examples but, on the whole, the mis- or non-management of climate risk is rampant in corporate Australia.
Whether the situation stays like this is up to investors. They have options available to force the issue with the companies they hold, take punitive action such as voting against directors or remuneration packages, or simply divesting from companies that won't get with the program.
But after a year of companies calling investors' bluff on their own expectations, what happens next will tell us whether investors are prepared to match their words with outcomes.
Julien Vincent is the executive director of Market Forces.
