Banks are taking the lead on the risk around climate change
Finance professionals are taking the lead on the risk around climate change, FINSIA’s first webinar of 2020 heard.
NAB Sustainable Finance director Alison Chan highlighted how the industry was taking a leading role during the session delving into the data behind the headlines.
And the panel which also included Responsible Investment Association Australasia CEO Simon O’Connor and carbon accounting specialist Dr Robert Charnock noted how consumers were voting with their feet when it came investing in sustainable finance.
“The unprecedented impact of the bushfires on lives and livelihoods, flora and fauna and health is quite hard to put a price on,” Chan said.
“But if you drill down into the impact on the insurance industry, on tourism, on business confidence, that's where people are starting to quantify the impact and it's safe to say it will be billions of dollars.
“That's estimated to be a 0.4 of a percentage point off the GDP to start with.”
Another significant impact on risk comes in the form of “stranded assets”such as proven oil and gas reserves currently priced into share prices that may well go un-extracted.
But the panel pointed to the other side of the coin, saying there were opportunities too including the roaring success of companies like Tesla who are taking advantage of electrification.
Chan also highlighted the statements from the world’s biggest fund manager BlackRock that sustainability and climate-integrated portfolios can provide better risk adjusted returns to investors which echoes RIAA's research published in 2019 showing that responsible investment funds outperformed mainstream funds over most timeframes and most asset classes.
“It's driving growth in the sustainable finance market and it's driving demand for new products,” she said.
There were 35 green bonds, social bonds and sustainability bonds brought to the Australian market in 2019 - all with consistent oversubscription.
Internationally the real growth in sustainable finance occurred within sustainability linked loans, where corporates have the opportunity to achieve margin incentives for reaching their agreed sustainability targets.
While there have only been four of those loans in Australia and two New Zealand, the market is expected to take off.
Webinar host O’Connor, also Co-Chair, Australian Sustainable Finance Initiative, has previously told InFinance about the shift towards sustainable investing and how it has seen a meteoric rise.
Almost half the $2.24trillion managed by professional investors is in a climate aware portfolios, he told us last July. That compared to just 17 per cent of the total in 2013, when responsible investments accounted for $178 billion.
And the interest isn’t showing signs of slowing up.
“In the last month alone where we have an online tool for consumers to find super funds and investment products that match their values and interests, we’ve seen a doubling of traffic,” he said.
“Consumers are starting to engage, joining the dots between bushfires and climate change and wanting to take action - understanding that where they bank their money, where they invest their super all has a massive role in terms of shaping the economy society.
“There's a very rapid shift occurring where climate change has shifted from something that is a nice to have - something that we should be considering - to a compliance based requirement for much of the financial services sector.
“And it’s really been elevated by ASIC and APRA.
“Right now as a board member or a trustee or an investment committee or a director, you are likely to be monitored and supervised by your financial sector regulator on how well you are managing climate change risk exposures.”
Dr Charnock, a Lecturer in Accounting at Birmingham Business School who is touring the APAC region advising on carbon footprint reduction, said there were moves to even greater regulation.
“The conversations that I've had with various regulators emphasises there's a lot of learning that needs to take place,” she said.
“But there seems to be a real deep commitment to making sure that this response is going to be fairly swift.
“If you went back beyond 10 years, you could say it was a case of will the policies ever come online to tackle climate change? That has largely shifted now towards saying at some point in the future there will be policy intervention.”
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