From Business Risk to National Risk: Decarbonising Finance and Mainstreaming Climate Change

Tanya Fiedler, chair of last month’s Business Making of Climate Change series, reflects on the seemingly simple affirmation that ‘the fastest path to decarbonisation is in the framing of climate change as a financial and economic risk’.

Image via Shutterstock ID:1019160793

Throughout May and July, I had the privilege of chairing the Business Making of Climate Change series of public talks. The panellists I worked with over this series are a deeply knowledgeable group of investment and corporate professionals as well as scientists, who all understand one very simple equation: The fastest path to decarbonisation is in the framing of climate change as a financial and economic risk.

This is not to deny the effects climate change will have on our natural and social systems, or the existential threats to our own survival these effects represent. Rather, this reframing appeals instead to the threats that environmental and social breakdown pose to individual, corporate and sovereign wealth.

The motivation behind this shift in perspective is that financial markets and systems can move quickly. And they are moving quickly – as already observed in movements towards divestment by investors such as BlackrockVanguardHSBC and more recently the Norwegian Sovereign Wealth Fund.

Alongside this shift in market sentiment is an equally important shift towards the financial regulation of climate risk that one of our panellists, Dr Sarah Barker (Minter Ellison) describes as ‘vol-andatory’. This shift commenced with a speech in 2015 by Mark Carny, Governor of the Bank of England and Chair of the G20s Financial Stability Board (FSB)1, that led to the publication of recommendations for the disclosure of climate risk in “mainstream financial filings” by the FSB’s Task Force on Climate-related Financial Disclosures (TCFD).The concerns voiced by Carny, and the guidance provided by the TCFD, were quickly taken up in Australia, starting with an influential legal opinion on “Climate Change and Directors’ Duties”.This was followed by the Australian Prudential and Regulation Authority, the Australian Securities and Investment Commission and the Reserve Bank of Australia all calling for the measurement and disclosure of climate-related risks, while the Australian Accounting Standards Board and the Auditing and Assurance Board issued joint guidance relating to such disclosures.4-7

It is the convergence of these points that three of our panellists, Emma Herd (Investor Group on Climate Change), Jillian Reid (Mercer) and Kate Bromley (QIC), spoke to as driving the momentum behind businesses responding to climate change. And this momentum is clear, as noted by former Treasury secretary and outgoing National Australia Bank chairman Ken Henry recently, in a discussion around energy:

“Leaders of businesses in the energy sector are having to take investment decisions, on behalf of their shareholders, right now. And the shareholders obviously don’t want to see stranded assets…”8

It is also clear in the changes in strategy and subsequent investment decisions our panellists have witnessed. Dr Brendan Cullen, (University of Melbourne) and Dr Nick Wood (Earth Systems and Climate Change Hub), for example, spoke of their work with the dairy and wheat sectors, while Sharanjit Paddam (QBE) and Kate Simmonds (WillisRe) spoke of their work in the insurance industry and Cecile Walton (Commonwealth Bank) and Dr Wood spoke of their work for the banking sectors. In addition, Kate Bromley and Zoe Whitton (CitiBank) spoke of the ways in which investors are also beginning to factor climate change into their decision making.

However, and as discussed within our panels, this work is beset by several key challenges. First, as noted by Jillian Reid, “there is a lot of money at stake”. And these stakes bring with them considerable complexity. Amber Johnston-Billings (KPMG), for example, posed a question that oil companies might ask of themselves: should they “go into managed decline for the betterment of society, and erode their shareholder value?” In responding to this point, Kate MacKenzie (European Climate Foundation), argued however, that “shareholder value is […] not the only mechanism through which companies act; companies have massive power and influence, simply in their words”.

Second, and as noted by all of the panellists, the work required by the boards of publicly listed companies, by the chief financial and risk officers, by financial modellers and analysists and by the preparers and auditors of financial reports, requires a sensitivity to, and an understanding of, climate science and its models. This is because, and as explained by Professor Andy Pitman AO (ARC Centre of Excellence for Climate Extremes), climate models and climate science were not built with business risk in mind. Accordingly, while it can’t be said that there is a deficit of climate data, there is a deficit in understanding how the science and its models can be applied to business decision-making. Difficulties then also arise, according to Theo Comino (AGL), at the individual corporate level, when layering “various governmental policies attempting to achieve the outcomes of reliable and affordable electricity”.

What we heard then in these three panels is that the financial and corporate sectors are grappling with the transition to a low-carbon economy, but that this transition is very much under way. This contrasts with, and as Theo Comino indicated, is often in the face of conflicting government policy,begging the question, if the Australian government’s primary role is to ensure the security and safety of its citizens, what is it currently doing to protect its citizens from the physical, social and financial consequences of climate change? What is it currently doing to de-risk Australia?

Given market transitioning is very much under way, but given also the Federal government’s undermining of that transition in its support of projects such as Adani or the continued generation of electricity from aged coal infrastructure, carbon majors could be forgiven for thinking they are protected in Australia. As APRA Executive Board Member Geoff Summerhayes recently reminded us, however, “Companies that delay or avoid adjusting to new economic realities, no matter how famous or successful, can quickly find themselves on the verge of a Kodak moment”.9

In other words, while those industries may perceive themselves to be protected, the market is already beginning to make adjustments that places those industries and others threatened by the physical and transitional effects of climate change at risk.

A question that arose in the third panel discussion on June 19, Adapting Climate Science For Business, spoke to the potential scale and depth of the risks facing the Australian economy by ignoring the risk to stranded assets and industries. What would a global investor in 2040 think, when faced with an offer to buy 10 billion dollars of Queensland government debt? Are they going to get that paid back, with no cows, no coal, no tourism? As reported in the journal Nature Climate Change last year (Matthiessen, 2018), “credit ratings agencies are now accounting for climate change risks in their ratings of credit worthiness”. The de-risking of Australia’s economy is a project then that actually needs needs attention now. If we don’t de-risk Australia, what impact would that have on the triple-A credit rating Canberra is so fond of reminding us of?

And if we lose our triple-A credit rating, what else might we lose?


I would like to thank each and every one of the panellists who gave so freely of their time, as well as the SEI, and in particular Deputy Director Michelle St Anne, in supporting and producing these events.

I would also like to acknowledge my co-author Professor Wai Fong Chua, with whom I have been researching the ways in which climate science is increasingly infiltrating business decision-making, as well as the generous support of the Chartered Institute of Management Accountants in that research.

1. Carney, M. (2015). Breaking the Tragedy of the Horizon – climate change and financial stability. Bank of England.
2. TCFD. (2017). Recommendations of the Task Force on Climate-related Financial Disclosuresi Letter from Michael R. Bloomberg
3. Hutley SC, N., & Hartford-Davis, S. (2016). Memorandum of Opinion: Climate Change and Directors’ Duties
4. Summerhayes, G. (2017a). Australia’s new horizon: Climate change challenges and prudential risk| APRA. Retrieved January 16, 2019.
Summerhayes, G. (2017). The weight of money: A business case for climate risk resilience. Australian Prudential Regulation Authority.Retrieved July 9, 2019.
5. Price, J. (2018). Climate change. Retrieved July 9, 2019.
6. Debelle, G. (2019). Climate Change and the Economy. Retrieved July 9, 2019.
7. AASB and AUASB. (2018). Climate-related and other emerging risks disclosures: assessing financial statement materiality using AASB Practice Statement 2
8. ABC News. (2019). Extended interview with Ken Henry
9. Summerhayes, G. (2019). Buy now or pay later.Speech made at International Insurance Society Global Insurance Forum, Singapore.

Tanya Fiedler is a lecturer in the Discipline of Accounting. Tanya’s current research interests lie in the field of carbon accounting, strategy, valuation and market making.Tanya completed her PhD at the University of New South Wales (UNSW), Australia in 2016. Tanya’s thesis examined the making of Australia’s first nation-wide carbon market, by means of a longitudinal analysis of archival documents spanning 15 years. Tanya’s research also examined the calculative practices and technologies by which greenhouse gas emissions were quantified by engineers for that market, so that they could be valued by accounting. Prior to her academic career, Tanya worked as a consultant for Energetics, a specialist carbon and energy consultancy.

The Business Making of Climate Change series brought 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. The three events, Why investors are worrying about climate change, How are businesses responding to investor pressure on climate change? and Adapting climate science for business, were held in May and June of 2019.