Climate change could cost Australia $US117bn and investors would be among the casualties
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A major investor group with over $2 trillion under management, covering 7.5 million people, say investors have an obligation to manage climate change risks.
In its monthly policy update, the Investor Group on Climate Change (IGCC) said climate change was a systemic threat.
“The economic impacts of climate change present material risks to the investment returns of long-term asset owners and their underlying members,” the group said.
“Ultimately, institutional investors invest across the economy for the long-term and are exposed to the growing impact of climate change on the companies, industries, property and infrastructure assets they own.”
The IGCC noted that over the last five years global financial institutions, central banks and some regulators have become increasingly aware of climate change. They now require proactive responses from corporations.
The G-20 developed taskforce on Climate-related Financial Disclosures (TCFD) is one such body.
But Australia’s government has not been as proactive. Erwin Jackson, director of policy at the IGCC, told Stockhead now was the time to act.
“Australia’s decades of political disagreement on climate change just needs to end,” he said.
“We need a sensible conversation on how we manage climate risks that brings together investors, companies, communities and governments to develop long-term solutions to growing climate change impacts and the transition to a net zero emissions economy.
“We have been asking governments to undertake a national assessment of infrastructure, communities and economies at risk from climate change.
“Investors are doing some of this themselves, but to have a national assessment that everyone can use would be helpful.”
He argued that any costs of action would be cancelled out by the costs of inaction.
“Recent economic analysis suggests that, conservatively, warming of 2.5-3 degrees Celsius could reduce global economic output by 15 per cent to 25 per cent and more than 30 per cent for 4 degrees Celsius warming,” he said.
“These economic impacts are material to the investment returns of long-term asset owners and their underlying superannuation holders.
“The associated costs will be significant. Even when only considering a limited number of climate change impacts, projected economic impacts on Australia and New Zealand are over $US117 billion ($171.7 billion) and $US4 billion ($5.9 billion) a year with unmitigated climate change.”
The IGCC cited a legal opinion from senior barrister Noel Huntley that not acting on climate change risks could amount to a breach of directors’ duties.
Under the Corporations Act, directors owe a duty of care to the company and to act in its best interest.
Huntley suggested it would only be a matter of time before there was a consequential litigation.
The IGCC also suggested directors of trustees should source, consider and weigh risks of climate change and make decisions accordingly.
“Climate change risks’ may be relevant to a directors’ duty of care and diligence to the extent that those risks intersect with the interests of the company,” IGCC said.