10 September 2018
If you've been following our work closely over the last couple of years, you'll know we've put a lot of effort into forcing companies to come clean on the financial risks they face from climate change. If this is news to you, you may want to have a quick read over our climate risk disclosure info page.
We've just updated our Investing in the Dark research, finding that Australia's largest and most exposed companies are making painfully slow progress towards climate risk disclosure. While improvements are being made in companies' general governance and discussion around climate risk, integral information about climate change scenario planning and emissions reductions is still extremely limited.
Why does this matter? Well, when companies fully and accurately disclose the risks they face from climate change, along with strategies and plans to reduce those risks, investors can determine which companies have a future in a world in which global warming is held well below 2°C.
And, more importantly, investors can make in informed decision to divest from companies that are unable or unwilling to demonstrate alignment with the Paris climate goals.
CommBank a surprise leader
Commonwealth Bank surprised many, including us here at Market Forces, with relatively comprehensive climate disclosures in its 2018 annual report.
There are of course plenty of good reasons for Commonwealth to be amongst the leaders when it come to climate risk disclosures. Commonwealth is Australia's biggest company, and has significant exposure to a range of climate change risks across various business arms. For example, CBA's insurance operations and massive mortgage portfolio could be hit by the physical impacts of climate change, such as rising sea levels and increasingly severe extreme weather events. And Commonwealth is Australia's second biggest lender to fossil fuel projects and companies, which face financial risks as the world transitions towards a cleaner energy system.
Commonwealth Bank has definitely come a long way in the last year, proving that even very large and complex companies can get this work done in a fairly tight timeframe. But with the company continuing to pour money into the fossil fuel sector, Commonwealth clearly still has a long way to go in turning its understanding of climate risks into concrete action to reduce those risks.
Financial sector lagging, but shareholder action getting commitments
The TCFD noted the financial sector's significant exposure to climate risk, recommending more detailed disclosures for banks, insurers and investors. But our new research shows just 7 of the 20 financial sector companies in the ASX100 identify climate change as a material business risk, well below the rate of most other sectors.
After lodging resolutions at company annual general meetings, shareholders have been able to drag climate risk disclosure commitments from some of Australia’s biggest financial companies - QBE, Macquarie and IAG.
The QBE resolution was lodged and secured 18.6% of the shareholder vote at the annual general meeting in May. This was the most support a climate-related shareholder resolution had ever received in Australia. Recognising this clear sign from investors, QBE in August published a TCFD action plan, committing the company to meet each of the recommendations over the next couple of years.
Having seen the success of the QBE resolution, and with shareholders ready to lodge similar resolutions, both Macquarie and IAG published their own TCFD commitments ahead of their annual general meetings.
Needing some convincing
Whitehaven Coal could perhaps be described as the elephant in the Australian Stock Exchange room. As Australia's largest pure play coal miner, the company's business model solely relies on the world continuing to burn coal. If strong action is taken to curb emissions in line with the Paris climate goals, coal demand could dry up quickly. For example, in one of Whitehaven's biggest markets, South Korea, the government is curbing coal imports as part of a push to replace coal-fired power with renewables.
Yet Whitehaven discloses next to nothing about the risks it faces from climate change, or what the company is doing to address those risks.
Market Forces has coordinated shareholder resolutions calling on the company to disclose climate risk in line with the TCFD recommendations, and to take steps to align its strategy with the climate goals set out in the Paris Agreement.
Investors, including our super funds, now have the chance to prove their commitment to climate action by voting for these important resolutions at Whitehaven's AGM in October.
There are concerns ANZ and NAB may not follow Commonwealth Bank's climate disclosure lead when they release their annual reports later this year. Both ANZ and NAB were early supporters of the TCFD recommendations, and have joined 14 other banks from around the world in a TCFD implementation pilot program.
While that looks good on the surface, participation in the program may be used by the banks to delay providing detailed disclosures such as those we have seen from Commonwealth Bank.