There is a heightened focus on ESG and the role issuers play in creating and preserving a sustainable future. The UN Principles for Responsible Investment now has over 500 asset owner signatories who have a combined US$90 trillion in assets under management. This includes the global index funds and over 40 Australian asset owners.
Issuers, who are active participants in the transition to a low carbon future, are being pressed for answers by investors about climate change and what threat it poses to ‘business as usual’.
The spotlight is firmly on Australia following the devastating bushfire emergency over the 2019-20 summer. According to the Bureau of Meteorology, 2019 was Australia’s hottest year on record and the first time an annual anomaly was two degrees above the average. Rural areas across Australia burned resulting in tragic loss of life and significant damage with thousands of properties destroyed. Air quality in Sydney, Melbourne and Canberra was at dangerous levels for extended periods of time.
According to UBS, ASX-listed stocks with exposure to the retail, insurance, tourism, transport, food and beverage sectors are likely to experience negative effects. This is directly as a result of the bushfires, the associated downturn in Australia’s consumer confidence and our desirability as a holiday destination to overseas visitors.
Issuers, who are active participants in the transition to a low carbon future, are being pressed for answers by investors about climate change and what threat it poses to ‘business as usual’.
Investors are addressing climate risk in their portfolios by engaging with issuers, supporting climate-related resolutions at AGMs or even voting with their feet by divesting ‘risky’ investments. To attract and retain capital, issuers must demonstrate their understanding of risk and detail the steps taken to mitigate these risks — climate change included.
Of the 12 ASX300 constituents that received a shareholder proposal in 2019, nine received climate-related resolutions which either demanded enhanced disclosure or firmer commitments to mitigation. Although activists are targeting emitters and their financiers, it is clear climate risk is far-reaching across the economy. Issuers need to demonstrate their readiness for what the future may hold and address the concerns of their long-term investors.
Key takeaways
- As you would with any other potential risk, assess what risk climate change poses to you
- Speak to your investors about risk, ESG-aligned investors may have different areas of focus to those simply seeking share price growth
- Disclose your risks and what you’re doing about them
- Consider reporting against the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations
- Engage with ESG organisations such as Climate Action 100+ and the CDP