Australia slow to tackle financial impacts of climate change

Australia has been slow to recognise the potential impacts of climate change on financial markets and the economy, according to a presentation at last week's Climate Leadership Conference in Sydney.

In his address, Sam Hurley, Policy Director of the Centre for Policy Development, highlighted the fast pace of change of attitudes in international markets towards climate change impacts and the surprisingly conservative nature of the drivers of this change.

Among the most influential climate leaders, Mr Hurley identified Mark Carney, Governor of the Bank of England, who in 2015 gave a speech entitled 'Breaking the Tragedy of the Horizon' warning about the financial risks of climate change.

“From the Australian perspective it is unusual to think of people from big staid institutions such as the Bank of England leading so influentially, but that in part reflects the political toxicity of the issue in Australia,” he said.

In his speech, Mr Carney stated that even if the impacts of climate change were going to be long-term in nature, the role of financial markets is to translate those long term changes into prices now – changing share prices, changing asset prices, changing asset allocation.

“His point was that even if these changes are happening in 10, 20 or 30 years, the price impacts are happening now and they are risks that we have to think about if we care about financial stability and growth,” Mr Hurley said.

The Task Force on Climate-Related Financial Disclosures (TCFD), chaired by Michael R. Bloomberg, had a similar perspective.

“The premise there is that, without accurate information provided to markets, markets cannot do their job of funnelling money to the investments we all know we need.

Mr Hurley said that the leadership of these conservative groups had been so decisive because “until then, the conventional wisdom was that it was safe to ignore the issues, the feeling that they were so uncertain or complex that you had a free pass for not grappling with them. But what this mainstream conventional leadership has done is inject them right into the centre of the conversation that boards, trustees,investors and shareholders are all having around medium and long-term economic and financial issues.”

He said that while Australia had been slow in recognising the issues, there had been growing leadership over the past 12 months.

“Geoff Summerhayes from APRA gave a couple of speeches outlining the ways in which climate fits into APRA's agenda for promoting financial stability, for making sures our banks, our super funds, our insurance firms are all thinking carefully about climate and factoring it into their business models.

“Over the past couple of months the Reserve Bank has confirmed it is working with APRA and a few of the other key regulators in Australia on understanding how climate impacts financial stability, the future of the financial sector and the economy, and coordinating their responses and their game plan for regulating and dealing with it.

"The first cab off the rank in that conversation is around disclosure which will be particularly important over the next 18 – 24 months as different institutions grapple with the new requirements for CCFDs (Climate Change Financial Disclosures) and raised expectations there.”

Mr Hurley concluded that while drawing attention to the issues surrounding climate change was important, it was the easy part.

“The harder part is what comes next. Rather than relying on conventional framing of how these issues fit into financial sustainability, it will require doing a lot of things differently – thinking about new forms of partnerships, thinking about new ways making sure our financial systems are sustainable, making sure our growth is sustainable.”

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