Report: Climate Action in 2017

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The report “Climate Action in 2017 – Insights into the readiness of Australian business to disclose climate-related financial risks and opportunities” is based on research by SBA using the CDP climate disclosures from the ASX200 and analysis and insights by leading environmental and energy management advisory firm, Energetics.

The report calls on business to disclose carbon liabilities; for transparency about emission reduction strategies and, for climate response strategies to be integrated into core businesses. The report provides insights into how Australian business is evaluating and disclosing their material climate risks and opportunities that are most relevant to their business activities and asks how well prepared they are to meet the increasing level of disclosure being demanded by investors and shareholders.


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Reports cited in 2017 Report

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NEWS RELEASE #1

AUSTRALIAN BUSINESS SWINGS BEHIND PUSH TO USE CARBON PRICING INTERNALLY

Around half of Australia’s major businesses will be using an internal carbon price to help manage their business and reduce risk within two years, as momentum builds within the corporate sector to have net zero carbon emissions by mid-century.

The findings come from research conducted over the past 12 months involving 41 per cent of ASX200 listed entities. The research was conducted by Sustainable Business Australia, the country’s peak business body for sustainable development, and found approximately a third of businesses surveyed have already implemented an internal carbon price and this is forecast to grow to 50 percent in the next two years.

Further, there has been significant improvement in recent years in the number of companies setting targets for emissions reductions. Of those providing data, 85 per cent of companies globally and 60 per cent of Australian companies have already set targets to reduce their greenhouse gas emissions.

The research is published in a new report aimed at increasing knowledge amongst the ranks of Chief Executive Officers and other C-Suite leaders of the need for business to have a coherent and comprehensive approach to full decarbonisation and coping with an increase in average temperatures of between 1.5 and four degrees Celsius in the coming decades. The report calls on business to disclose carbon liabilities; for transparency about emission reduction strategies and, for climate response strategies to be integrated into core businesses.

The research also found:

    • 94 per cent have climate change integrated into their business strategy
    • 87 per cent have the board as the highest level of direct responsibility for climate change management
    • 77 per cent provide incentives for the management of climate change issues, including:
      • Sustainability performance related remuneration, such as achievement of greenhouse gas emission reductions
      • Employee sustainability awards
      • Employee rewards for sales of sustainability products and services
      • Mechanisms to encourage employee adoption of low-carbon behaviours

In relation to Greenhouse gas reduction targets in Australia:

    • 60 per cent of reporters to the 2016 CDP had either absolute or emissions intensity targets.
    • 13 per cent of reporters have a science based target.
    • 32 per cent of reporters anticipated setting a science based target sometime within the next two years.

A key concern identified by the research is the need for Australian business to improve their level of reporting on carbon risks and opportunities. Only 41 per cent of ASX200 companies reported using the globally recognised and well-established CDP framework in the last 12 months. The financial, energy and utility sectors had the highest levels of proportionate representation (averaging around two-thirds). Whilst this is relatively high, they are the most carbon sensitive. Information technology, healthcare and consumer discretionary sectors were poorly represented with between only 10 and 20 per cent reporting to CDP.

To date, companies have not provided comprehensive descriptions of the impact of climate risks and opportunities on organisations’ strategy and financial planning or their resilience to those impacts. In addition, they do not state whether the information that is provided is considered to be material. This makes it hard for investors to make informed decisions using the current level of climate disclosures.


NEWS RELEASE #2

NEW INSIGHTS ON BUSINESS READINESS FOR THE PATH TO DECARBONISATION

Australian business is being urged to accelerate efforts to act on climate risk and meet growing demands from investors, community, government and international business, for greater transparency, accountability and commitment from the nation’s chief executives.

Sustainable Business Australia (SBA) today released a report for C-Suite executives to assist with business in becoming more transparent with their investors about climate-related financial risks and opportunities, transitioning to a zero-carbon economy.

The report “Climate Action in 2017 – Insights into the readiness of Australian business to disclose climate-related financial risks and opportunities” is based on research by SBA using the CDP climate disclosures from the ASX200 and analysis and insights by leading environmental and energy management advisory firm, Energetics.

The report calls on business to disclose carbon liabilities; for transparency about emission reduction strategies and, for climate response strategies to be integrated into core businesses. The report provides insights into how Australian business is evaluating and disclosing their material climate risks and opportunities that are most relevant to their business activities and asks how well prepared they are to meet the increasing level of disclosure being demanded by investors and shareholders.

The latest report follows several warnings from Government and international regulators on the need for greater climate-risk disclosure. The Australian Prudential Regulation Authority in February warned that “some climate risks are distinctly ‘financial in nature’” adding “Many of these risks are foreseeable, material and actionable now”. In April 2017, the Senate Economics References Committee published its findings and recommendations from an inquiry into carbon risk disclosure in Australia. In June 2017, the Task-force on Climate-related Financial Disclosures (TCFD), established by the Financial Stability Board (FSB), finalised its recommendations to help business identify and disclose the information needed by investors, lenders and insurance underwriters to appropriately assess and price carbon risks and opportunities.

SBA Chief Executive Officer, Andrew Petersen said Australian businesses will have to have a coherent and comprehensive plan for a scenario of full decarbonisation and adapting to higher temperatures.

“Carbon-intensive operations need to be treated like the soon-to-be-stranded assets they must, and will, become,” Mr Petersen said.

“Australian corporate strategies need to begin with science-based evaluation; evolve into a transition strategy and result in net zero emissions based on 100 per cent clean energy. The strategy needs to be embedded in every part of the organisation, sponsored, announced and led by the chief executive, and become a defining part of a company’s DNA.

“To make informed financial decisions, investors, lenders and the businesses themselves need to understand how climate risks and opportunities are likely to impact the future financial position and the resilience of its strategy against such impacts. Financial regulatory authorities, fund managers and shareholders are asking for better information to help them understand complex climate related investment risks. Investors are taking notice. Dissatisfied investors are increasingly launching shareholder resolutions and legal challenges.

“The public, including your customers, are looking for business to play a leading role in providing for a sustainable world. A sustainable business is a good business – one welcomed by other businesses, government, the community and, most importantly, the planet and future generations,” Mr Petersen said.

Energetics Chief Executive Officer, Tony Cooper said the most urgent issue for business is the escalation in energy costs. “As energy budgets have blown out, businesses are seeking to hedge against the persistent volatility in our east coast energy markets,” Mr Cooper said.

“Some of the most attractive options come from the boom in renewables, with a number of large energy users investigating corporate renewable power purchase agreements or on-site generation projects. Australia’s energy mix is changing and decarbonising. The energy investment landscape has shifted dramatically: outdated, inefficient, carbon-intensive energy generation is giving way to renewable energy and innovative storage solutions,” Mr Cooper said

CDP Chief Executive Officer, Paul Simpson said the Paris Agreement and the adoption of the Sustainable Development Goals marked the start of a new strategy for the world, with a clear message for businesses: the low-carbon revolution is upon us.

“The choice facing companies and investors has never been clearer: seize the opportunities of a carbon-constrained world and lead the way in shaping our transition to a sustainable economy; or continue business as usual and face serious risks,” Mr Simpson said.

CDP is the most widely used voluntary carbon disclosure framework and the largest source of carbon emissions data in the world. In 2016, over 1,000 companies responded to the climate change questionnaire, representing 12 per cent of global greenhouse gas emissions. In Australia, 80 ASX200 companies made climate submissions to CDP in 2016, of which 68 are public. This report focuses on these disclosures.


FACT SHEET #1

KEY POINTS FROM THE RESEARCH

Who responded to the 2016 CDP Climate Questionnaire?

The questionnaire was sent by CDP to the ASX200 and 41 per cent responded. The largest proportional representation of disclosing companies from each sector were from the financial, materials, energy and utilities sectors and the lowest proportional representation from each sector was from IT, healthcare and consumer discretionary sectors.

What did they say about risks and opportunities?

The results show that active management of climate risks and opportunities is recognised as valuable. Not only in anticipation of greater government-mandated requirements and increased investor scrutiny, but for the opportunities to innovate, reduce costs and engage more closely with business stakeholders such as suppliers and communities.

Opportunities are mostly focused around product and service innovation as well as cost reduction. Risks are more varied and include increased costs, physical damage as well as changing customer behaviour and supply chain impacts.

Across the group of interviewees there was some concern expressed for the integrity of data and systems. Ahead of improving the disclosure of climate risks and opportunities, the management fundamentals need to be right. Companies need confidence in the accuracy of their energy and carbon data, management and reporting systems must be robust, and engagement with staff across all levels of the company is critical.

What’s driving the change?

Interviewees cited the drivers for managing climate risks as including regulation, international agreements, risks already being realised through the impacts of climate change from extreme weather, as well as a general shift towards reporting becoming the norm. There is also recognition that there are benefits in managing climate risk such as reduced costs, the opportunity to pursue innovative thinking and more robust planning.

Nearly 30 per cent of companies are assessing risks and opportunities for less than six years into the future. As several are in the energy, materials and financial sectors, this timeframe is considerably shorter than these organisations’ investment horizons.

Seven Australian organisations have committed to set emissions reduction targets consistent with the global effort to keep temperatures well below the 2-degree threshold through the Science Based Targets initiative of CDP, UN Global Compact, WRI and WWF.

Who is accountable and how are they doing it?

The highest level of direct responsibility for managing climate issues often rests with the board, while other reporting companies cite senior management as responsible. Attention is being given to a supportive organisational culture in which employees and managers are incentivised to drive initiatives that lower emissions.

Climate scenario analysis is still in its infancy in Australia. In 2016, only 15 per cent of ASX CDP reporters made mention of the tool in their submission. One of the previous challenges of undertaking scenario analysis was the lack of a standardised methodology and framework. With the TCFD recommendations and guidance we anticipate seeing a significant increase in its uptake over the next few years.


FACT SHEET#4

FSB – TASK-FORCE CLIMATE-RELATED FINANCIAL DISCLOSURE

Who’s who

The Financial Stability Board (FSB) is chaired by Mr. Mark Carney, the Governor of the Bank of England. The FSB is an international body that monitors and makes recommendations about the global financial system. The Task-force on Climate-related Financial Disclosure (TCFD) has 32 members; is global; its members were selected by the Financial Stability Board and come from various organisations, including large banks, insurance companies, asset managers, pension funds, large non-financial companies, accounting and consulting firms, and credit rating agencies. The Chairman of the Task Force is Michael Bloomberg, the prominent US business person and former Mayor of New York City.

What does TCFD do?

To help identify the information needed by investors, lenders, and insurance underwriters to appropriately assess and price climate-related risks and opportunities, the Financial Stability Board established an industry-led task force: The Task Force on Climate-related Financial Disclosures (Task Force). The Task Force was asked to develop voluntary, consistent climate-related financial disclosures that would be useful to investors, lenders, and insurance underwriters in understanding material risks.

What did it release in June this year?

In June 2017, the Financial Stability Board’s Task Force on Climate Related Financial Disclosure (TCFD) published a standardised international framework of recommendations to assist organisations to identify and assess how climate related impacts can and may affect the financial performance of their business. Proactive climate risk and opportunity disclosure and management will generate insights for the reappraisal of business models in view of the realities of physical impacts of climate change and the transition to a low carbon economy. Making this change will lead to more efficient markets and a more stable, resilient and sustainable economy.

What are the four key recommendations?

  • Governance: Disclose the organisation’s governance around climate-related risks and opportunities.
  • Strategy: Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning where such information is material.
  • Risk Management: Disclose how the organisation identifies, assesses, and manages climate-related risks.
  • Metrics and Targets: Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material.

Further information


ENDS