The Reserve Bank says the disclosure of climate change risks in the sale of government bonds would create significant challenges and costs for governments, but has welcomed the inclusion of any meaningful risks to better inform investors.
Activist investors have signalled that companies and governments face growing risks of litigation over their climate change disclosures and emissions-reduction policies.
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CBA’s Martin Whetton says green bonds do not come at the detriment
of existing debt.
Louie Douvis |
In response to questions on notice from Greens leader Adam Bandt about the need for such disclosures, the RBA has highlighted the burden issuers would face if they had to outline such risks.
“From the perspective of the issuing entity, there is some cost to gathering and presenting additional information,” the bank said. “This is a particularly challenging exercise for sovereign bonds.”
The Reserve Bank, like the AOFM, emphasised that no other country discloses climate change risks in its sovereign bonds.
“Disclosure of climate change risks relating to sovereign bonds is not currently common practice,” the RBA said in its response.
Sovereign bonds do not even outline interest rate risk, considered a far more tangible factor in calculating the risk for bond investments.
A matter of government policy
The RBA did suggest, however, that investors would benefit from the knowledge of “meaningful” and “material” risks from climate change.
“For the financial system as a whole, meaningful and useful disclosure of material climate change-related risks allows investors and institutions to assess and price climate-related risks and opportunities,” the RBA said.
However, the bank said the need to disclose such risks would be solely a matter of government policy.
By financial year 2023, the federal government is expected to have $1 trillion in total debt on issue.
Mr Bandt said the RBA’s comments might not have shown support for such disclosures, but they were an admission of sorts that more could be more done to assess the risks of climate change.
“Although the RBA thinks the Morrison government won’t be owning up to the climate risks of its spending anytime soon, it is keeping an open mind about whether that’s the right approach,” Mr Bandt said.
“The RBA is giving the government a gentle prod on climate action, leaving the door open to factor in the climate risk of government spending.”
Commonwealth Bank head of fixed income and FX strategy Martin Whetton said trying to incorporate the risks of climate change into disclosures would be difficult for existing bonds.
“It would be impossible to rewire $930 billion of debt with tenors stretching out for 30 years so that they are ESG compatible, as bond proceeds would have to be for specific purposes,” Mr Whetton said.
He said investors were not demanding such disclosures on existing bonds and that those more conscious of risks to do with environmental, social and governance (ESG) were investing in new green bonds, at no detriment to existing debt.
“Investors are not showing any concerns about ESG compatibility on existing debt,” he said.
“There is a whole new market going up in green bonds which does not affect the pricing of existing government bonds. In fact, what we have seen is that it lowers the overall cost of funding for government, for example as has been seen in Germany.
“What could be looked at is a program of ESG debt into future years. The UK has recently announced a program of green debt alongside its existing debt.”
Links
- Companies, directors, governments face wave of climate change lawfare
- Law student raises the stakes in case against government
- (AU) Financial System Faces 'Considerable' Risk If Climate Change Not Tackled: RBA
- (AU) Reserve Bank Warns Of 25% GDP Loss By 2100 Unless Action Taken On Climate Change
- (AU) Australia's Reserve Bank Fuels Call For Post-Pandemic Renewables Push
- AU) Corporate Climate Risk Disclosures Must Show More: IGCC
- (AU) Investors Are Trying To Shut Down Fossil Fuel Companies From The Inside — This Is What They're Doing
- (AU) Australian Banks ‘Undermining Paris Agreement’ With $7bn In Fossil Fuel Loans
- (AU) Why It Will Pay For Investors To Go Green
- (AU) 'Breakthrough Moment': Woodside Investors Revolt On Climate Change
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