AFR
- Jacob Greber
Australian government bond issuers, companies and boardrooms face an
accelerating global push towards forced disclosure of climate risks that
investors warn could hamper or raise the cost of the
country’s access to global capital.
A major meeting late last week of central bankers – organised and hosted by the
Switzerland-based Bank for International Settlements – and a
separate G7 finance ministers’ meeting
in London on Sunday also put Australian regulators as well as state and federal
treasurers on notice that international scrutiny of carbon risks and emissions
could soon become mandatory.
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US Treasury Secretary Janet Yellen and OECD Secretary-General
Mathias Cormann at this weekend’s G7 summit that included a new call
for better climate change financial disclosures. AP
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The global shift, which has
quickened following the election of Joe Biden and ahead of this year’s UN
climate summit in Britain
later this year, raises the stakes for Australian money managers, particularly
if the country fails to counter a
deepening global perception that it is a laggard on climate policy.
“There’s active discussion going on at the G7, G20 and central banks are
co-ordinating, and if Australia is not careful and takes a wait-and-see
approach, many of our international institutions are going to be covered by
mandatory regimes,” said Erwin Jackson, director of the Sydney-based Investor
Group on Climate Change, whose members include industry and retail super funds
overseeing more than $2 trillion in assets.
“We’ll have a dog’s breakfast for investors and companies because we won’t have
the clarity we need to play in those markets,” Mr Jackson said.
While Australia’s prudential regulators are increasingly telling companies that
expectations on disclosures are rising – including remarks last week by ASIC
commissioner Cathie Armour to resources companies – Mr Jackson said there is an
urgent need for a co-ordinated approach.
“There’s an exponential rate of growth in these kind of measures going on
globally and we need clarity from Australia and Australian regulators about what
Australia’s role is going to be.”
G7 pledges to ‘green the financial system’
The Reserve Bank of Australia and Treasury are understood to be monitoring
developments closely and have found themselves answering questions about
Australia’s fossil fuel exports from foreign counterparts that buy sovereign
debt. So far, the Australian government has been silent on the latest global
developments.
Group of Seven finance ministers and central bank chiefs declared after their
meeting that there is a growing need to “green the financial system so that
financial decisions take climate considerations into account” and backed calls
for mandatory climate-related financial disclosures on a uniform basis.
The group said in a post-meeting statement that there is growing demand for more
information on the impact that firms have on the climate and the environment.
“We recognise that many jurisdictions and organisations are already developing
impact reporting initiatives, including but not limited to reporting on net zero
alignment and broader sustainability metrics.”
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Officials pose after the G7 meeting. From left: EU Economy
Commissioner Paolo Gentiloni, Eurogroup President Paschal Donohoe,
World Bank President David Malpass, Italian Finance Minister Daniele
Franco, French Finance Minister Bruno Le Maire, Canadian Finance
Minister Chrystia Freeland, British Chancellor of the Exchequer
Rishi Sunak, IMF Managing Director Kristalina Georgieva, German
Finance Minister Olaf Scholz, US Treasury Secretary Janet Yellen,
Secretary-General of the OECD Mathias Cormann and Japanese Finance
Minister Taro Aso.
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The G7 push was bolstered by the world’s most powerful central bank chiefs, who
attended the BIS’ virtual Green Swan summit, underscoring a twin challenge for
Australian governments and companies; momentum is growing for global standards
of disclosure, and that costs may rise for sovereign debt issuers in economies
with high carbon emissions.
European Central Bank President Christine Lagarde told the BIS summit that
central banks would be failing to do their jobs if they didn’t account for
climate when understanding and measuring inflation.
“We would be failing on our mandate if we do not measure the impact that climate
change has on the assets that we hold, on the assets that we buy, and on the
collateral that we have in stock,” Ms Lagarde said.
US Federal Reserve chairman Jerome Powell said that “anything that can affect
the outlook for the economy can, in principle, affect monetary policy”.
“So climate change would certainly qualify for that.”
China to make climate disclosure mandatory
People’s Bank of China Governor Yi Gang urged the world’s politicians to ramp up
efforts to make global finance more green and revealed China has plans to make
disclosure of climate and carbon emissions mandatory in future.
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“Our goal is to make a uniformed disclosure standard, and in the
future, we will go in the direction of mandatory disclosure of
climate-related information,” said People’s Bank of China governor
Yi Gang. AP
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“Our goal is to make a uniformed disclosure standard, and in the future, we will
go in the direction of mandatory disclosure of climate-related information,” Mr
Yi said on Friday.
The remarks underscore the degree to which central banks and regulators are
becoming entangled in questions of how and whether to manage the consequences of
climate change on financial markets and assets. Such comments were rare even a
year ago.
France’s central bank governor, François Villeroy de Galhau, told the
Financial Times
last week that talks between government and central bank officials on new
climate risk disclosure rules were progressing faster than expected.
He also implied an international framework could be agreed in time for
November’s UN COP26 climate conference in Glasgow.
“Proper disclosure should become mandatory – I would expect this as a first
step,” he said. “Nobody expected six months ago for us to go as quickly as we
did and to say perhaps we could have a positive conclusion on mandatory
disclosure at the COP26.”
Developments are ‘significant and fast moving’
Bank of England
governor Andrew Bailey said the central bank’s interest rate setting committee
for the first time discussed the economics of climate change.
“When it comes to climate change, we cannot stand still,” Mr Bailey told the BIS
conference. “We need to continue to be bold and learn from our work so far to
deepen our understanding and inform future actions.”
Simon O’Connor, chief executive of the Responsible Investment Association
Australasia – which led the establishment of last year’s Australian Sustainable
Finance Initiative to help banks and insurers increase transparency on climate
risks – described the weekend’s BIS and G7 meetings as “significant and fast
moving”.
“You’ve got the major global central banks sitting around talking about climate
change and the financial consequences,” Mr O’Connor said. Meanwhile, the
“climate conversation in Australia misses the global shift”.
I would be boggled if we are immune from those trends and we’re already
showing we’re not.
— Tennant Reed, Australian Industry Group
“But unfortunately, our capital markets are linked globally. All our banks and
insurers have to navigate this and it’s made difficult for our country not
having strong nationalised targets in place.
“It means we have to navigate global regulatory requirements without a strong
net zero trajectory in Australia.”
Australian companies are already adjusting to the looming changes,
particularly across resources and energy sectors, said Tennant Reed,
Australian Industry Group’s principal national advisor on public policy.
“And that’s been happening more or less in the absence of a national policy
requirement,” he said. “This has been happening in the private sector and a
sense of growing awareness from financial regulators and [Australian state]
treasuries that this was important.”
Creating standard governance and disclosure rules around climate will also
depend on the size of businesses involved, Mr Reed said, adding the government
is already encouraging voluntary reporting.
Whether those efforts are enough for offshore jurisdictions is an open
question.
“If these expectations become cemented overseas, inevitably that is going to
affect Australian finance and businesses which are deeply intertwined with
overseas operations in overseas jurisdictions.
“I would be boggled if we are immune from those trends and we’re already
showing we’re not.”
Mr Jackson cautioned there is a significant financial danger for Australia in
taking a wait-and-see approach to the global developments.
“Traditionally we’ve allowed [global] regulatory standards to sit for a while
and p
lay out – we’re no longer in that environment.”
“We need financial regulations to keep up, and it’s emerging as one of the key
planks for the role governments can play unlocking trillions in low-carbon
investments.
“Global capital markets will come to Australia when they feel more confident
the disclosures being put forward are real and actionable,” Mr Jackson said.
“Investors aren’t going to come to countries where disclosure is very
poor.”
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