Is your stock portfolio at risk from climate change?
Climate change risks are on regulator radars but few of the ASX’s most vulnerable companies are talking about it yet.
Stockhead looked at the statements and annual reports of 27 companies working in climate-affected sectors such as aquaculture, farming, honey, hemp and vegetables — and found only a handful made mention of climate change.
Agribusiness supplier Ruralco (ASX:RHL) identified climate change as a key risk in its 2017 annual report and highlighted efforts to mitigate the effects on its business.
Fish farmer Tassal (ASX:TGR) has produced a sustainability report since 2014.
But there aren’t too many other small cap stocks talking about climate change.
Small caps don’t really care yet
While the biggest companies on the ASX are beginning to report their climate risks, such as energy company AGL and the bank CBA, it has not yet filtered down to the smaller companies on the ASX.
The ASX does not have official guidelines on climate risk disclosure yet.
But a consultation draft on its Corporate Governance Principles and Recommendations last year identified “carbon risk” and climate change as a material issue companies should report on an “if not, why not” basis — that is if they’re not going to report they should explain why.
These included the risk of assets being destroyed and business operations being disrupted by extreme weather events or long term shifts in climate patterns; changes in government policy; the need to adopt new technologies to mitigate the effects of climate change; and liability risks.
>>Scroll down for a list of key agri-focused companies that could be at risk from climate change
Of the agri-focused stocks Stockhead looked at, Angel Seafood (ASX:AS1) mentioned climate change in a sentence in its prospectus in February.
Australia’s best known beef stock Elders (ASX:ELD) mentioned climate as a factor when considering goodwill write downs.
Beef stocks this season are reporting problems due to the persistent drought, but they’ve resisted identifying climate change as a risk.
“Rainfall was below average and we are experiencing a significant shortfall against ten-year averages on a number of our properties,” said Australian Agricultural Co (ASX:AAC).
Huon Aquaculture (ASX:HUO) did not mention climate change in its annual report last month but did admit that higher sea temperatures reduced its fish haul over the summer.
And NZ King Salmon (ASX:NZK) does not address climate change specifically in its latest annual results, but admitted this year that it’s affected by the issue and is taking steps to mitigate it.
“Certainly we are in a business that is affected by climate change,” NZ King Salmon chief Grant Rosewarne told Stockhead.
“We did a calculation on when we would start to be seriously affected and we thought it would be round 2050. But we were really surprised last year that we had a historically hot summer.”
Water temperatures 3 to 6 degrees celsius higher than normal was a “huge wake up call for us”, and while consultations with the NZ Met Office suggested that it was caused by an extreme weather event and exacerbated by climate change, they began to start implementing changes.
They’re moving their farms further out to sea, further to the south of New Zealand, and breeding greater temperature resilience into the fish as part of a range of practices to protect the business.
Mr Rosewarne says they’re not considering report in a standardised way yet but are watching the companies like Tassal are doing so, and creating a bespoke reporting system for their investors.
Company directors across the board will soon need to start thinking about how climate change risks will affect their business and how they tell investors.
Banking regulator APRA, corporate regulator ASIC, the RBA, the ASX and a Senate committee in April last year have all outlined early stances, all in some respect referencing recommendations last year from the Task Force on Climate-Related Financial Disclosures (TCFD) led by former UK Reserve Bank governor Mark Carney.
A conclusion is that directors could be legally liable for not acting on climate change risk.
“It is likely to be only a matter of time before we see litigation against a director who has failed to perceive, disclose or take steps in relation to a foreseeable climate-related risk that can be demonstrated to have caused harm to a company,” said prominent barrister Noel Hutley SC in his 2015 legal opinion on the issue.
Australia already has the second highest number of current and past climate change-related litigation, says Norton Rose environment and planning, and climate change partner Elisa de Wit.
There have been 80 cases in Australia, following the US’s 654 lawsuits, she said at a climate change risks seminar in Melbourne on Wednesday.
They are followed by the UK with 49 lawsuits and New Zealand with 16.
She said a class action against CBA last year for failing to adequately assess climate risk is “a sign of things to come”.
Investor Group on Climate Change chief Emma Herd says climate change risk covers a range of issues, from understanding how a shopping centre
such as whether a business which owns shopping centres can withstand a heatwave, as people flock to the air-conditioning, or whether a company’s contract manufacturer is set up in a flood plain.
Here’s a list of key agri-focused companies that could be at risk from climate change:
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