Published 11 June 2019
Last week, SEI hosted a panel of academics, businesses and consultants who came together to tackle the challenges around responding to investor pressure on climate change. The discussion, part of the Business Making of Climate Change series, was convened by Dr Tanya Fiedler and produced by SEI deputy director Michelle St Anne.
Dr Fiedler highlighted the big issues impacting businesses around climate change, including the move to a low-carbon economy, which will also generate shifts in technology, policy and consumer sentiment. As a consequence, Dr Fiedler noted that investors are now expecting far greater insight and transparency in the way businesses are preparing for shorter and longer-term risks. Key to this transparency, of course, is the way businesses use various scenarios, modelling and disclosure. At the same time, boards have to balance shareholder returns with the longer-term climate risks.
For panellists Amber Johnston-Billings, director of climate change and sustainability at KPMG, and QBE chief risk officer Sharanjit Paddam, the challenge comes down to having consistency around standards. In 2017, the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) provided global disclosure recommendations on climate change risks.
Disclosure on climate change is an important way for investors to understand that a business is addressing these risks, but for Paddam, the standards of the TCFD set a low bar, and gauging the level of progress between industries becomes difficult. “The last thing you want is that no one can meet the standards and no decisions are made. But the flipside is that [disclosure] is not heading in the same direction. Climate change is global,” Paddam said. He spoke about different global warming scenarios that can be applied across different countries based on 3 degree or 1.5-degree scenarios. “It’s a very complex space. We have to find a way to get comparability and consistence in what we disclose, otherwise it is just corporate rewash”.
KPMG’s Johnston-Billings works with listed companies to help them understand the risks and opportunities form climate change. Building “credible scenarios” to assess the impact of climate changes is key, but for Johnston-Billings the challenge is around the lack of consistent data;
“[In developing transition scenarios] not a lot of data is available outside of the energy sector on how to decarbonise different sectors. A lot of the time we spend is finding different research pools that would accurately and plausibly describe the decarbonisation trajectory for different sectors”.
Johnston-Billings also spoke about the challenges around explaining the transition cost of removing emissions compared with the physical costs of not transitioning. For example, reducing the production of meat is key to cutting carbon emissions in the agricultural sector however, the consequences are different for businesses selling meat. “It’s difficult [to] explain to management teams the short-term costs in transitioning to a low carbon scenario is different to the physical costs.”
Board responsibility was also another hot button topic addressed on the panel. The conundrum here was that the costs in tackling climate change could challenge the short-term obligations to deliver shareholder value. However, as Paddam noted, businesses must remain focused on the long-term, it was the only way to ensure sustainability.
“Ensuring the long-term value of a company is the right thing to do. We as a business need to make sure we can continue to sell insurance. That will help us ensure we deliver on shareholder value. We also need our communities and we need to ensure our interests are aligned.
If we don’t solve climate change, then there is nothing to insure. We as a business lose, people will lose as they can’t get insurance anymore and the government will lose as they will be forced to bail out people. On the other hand, if we are all committed and work together on the climate change challenge, we can achieve a win-win situation.”
Christine St Anne is a business journalist with over 10 years experience writing and editing publications for institutional and retail investors. She is the author of A Super History: how Australia’s $1 trillion+ superannuation industry was made, a comprehensive book about Australia’s compulsory superannuation system.
The Business Making of Climate Change series brings together investors, lawyers, insurers, corporates, consultants and scientists, as they collectively consider why climate change is increasingly relevant to the business community, as well as how businesses can make sense of climate change in a way that is relevant to them.
Part three of the series: Adapting climate science for business, will be held on Wednesday June 19th. The panel, convened by Dr Tanya Fiedler, will feature Dr Brendan Cullen, Senior Lecturer in the Faculty of Veterinary & Agricultural Sciences at The University of Melbourne; Andy Pitman, Director of the ARC Centre of Excellence for Climate Extremes and Professor in Climate Science at UNSW; Catastrophe Analyst Kate Simmonds from Willis Towers Watson; and Nick Wood, Director of Climate Policy Research and Chair of the Stakeholder Advisory Group of the Earth Systems and Climate Change Hub within the Commonwealth National Environmental Science Program.