In 2017, all of the listed companies in the world emitted 18 gigatonnes of carbon dioxide, or just over half of emissions produced from energy, according to AXA Investment Managers.

Statistics on the contribution by ASX companies aren’t available but as Stockhead has reported, the walls are beginning to close in around stocks that don’t take investors threatening climate activism seriously.

Furthermore, the size of the global CO2 contribution from listed companies suggests that if and when emissions legislation for corporate Australia is enacted, the financial blow, even if softened by favourable terms, could still be heavy.

But AXA is arguing that jumping the gun on carbon intensive companies, or selling down to greenify a portfolio, is risky.

The investment manager argues that divestment increases risk in a portfolio by narrowing diversification, and also claims that selling out removes all ability for leverage over a company’s operations.

It says investing in companies on a pathway towards decarbonisation can be better than a zero-sum sale of high carbon emission intensity companies.

“This ‘footpath’ approach means investors can … potentially benefit from the upside of investing in the climate change leaders that are better able to navigate the rapidly tightening regulatory landscape,” Kathryn McDonald, AXA head of sustainable investing, said.

“It is important to note that aiming to reduce point-in-time carbon footprint through a divestment-led approach is an effective but blunt tool that may not be sophisticated enough for such a complex issue.

“Instead of leading with divestment, we need to incorporate several types of information to form a more holistic view of a company’s behaviour towards tackling the need to reduce global carbon emissions and protect the environment so that we can more concretely anticipate their pathway towards transition.”


So much CO2

Last year the International Energy Agency showed global energy-related CO2 emissions flattened in 2019 at around 33 gigatonnes, following two years of increases.

READ: The shift to renewables is working, carbon dioxide emissions stopped growing last year

Australia produces about 540m tonnes of carbon dioxide a year.

Currently the Liberal government is sticking with a 26-28 per cent reduction by 2030 compared to what the country produced in 2005. Labor has committed to carbon neutrality by 2050.


Speak out, listen up CEOs?

Currently at most risk of climate risk investor activism are coal and other energy intensive companies, as Stockhead has covered.

READ: How long before climate change risk becomes an issue for small caps?

But one group says CEOs should be even more active.

The Global Compact Network Australia has released a report urging CEOs to become more outspoken on issues such as climate change, or risk reputational damage to their business and long-term decline in revenue.

It believes “authentic public action” will “raise a leader’s visibility, reinforce social licence to operate and demonstrate action beyond business as usual”.

Conversely, business leaders who remain quiet will find themselves “outcompeted by purpose driven leaders and companies,” the report said.

“Their silence will likely lead to reputation damage, loss of customers and long-term decline in revenue.”

The report does not explain how CEO activism will improve the bottom line, but does point out that since 2015 there have been over 40 shareholder resolutions against Australian companies on human rights due diligence and climate change risk matters.

“Whilst none of these resolutions passed, they highlight the need for business to understand and disclose their climate related risks through initiatives like the Task Force on Climate-related Financial Disclosures (TCFD),” it said.

NOW READ: Climate change is a multi-billion-dollar opportunity