On Friday 4 May, AMP announced the appointment of climate change-denying former Commonwealth Bank CEO and Future Fund Chairman David Murray as its new chairman, ahead of the company’s annual general meeting in Melbourne on Thursday.
Murray’s appointment is in response to the loss of AMP’s Chairman, CEO and Company Secretary, who left in the wake of scandals that have emerged from the Royal Commission into the financial sector.
If AMP’s Board is after forward-thinking leadership to tackle the challenges ahead for the financial sector, Murray’s views on climate change and even climate scientists give a clear indication mean we can abandon hope from day one about how the company will handle climate risk.
In an October 2013 interview on the ABC Latelineprogram, Murray said “the climate problem is severely was overstated” and, when asked what it would take to convince him of the science, he replied: “when I see some evidence of integrity among the scientists themselves”.
This was condemned by the Australian Meteorological and Oceanographic Association, who labelled the remarks a ‘serious slur’.
In June 2011, Murray said in an Australian Financial Reviewinterview: “There is no correlation between warming and carbon dioxide”.
In March 2012 he referred to the carbon tax introduced under the Gillard Governmentas “the worst piece of economic reform I have ever seen in my life in Australia”.
The importance and imperative of climate risk management
Whilst some may argue climate is not high on AMPs list of priorities, in fact investors and regulators have become increasingly concerned in recent years that companies disclose and manage the risks to their business as a result of climate change.
This is particularly the case for companies operating in sectors that the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) considers high risk, and especially financial services companies.
In September 2015, Bank of England Governor Mark Carney cited evidence of the increasing financial impact of extreme weather events on the insurance sector at Lloyds of London.
He stated – “the challenges currently posed by climate change pale in significance compared with what might come”, and that “once climate change becomes a defining issue for financial stability, it may already be too late”.
In February 2017, APRA Executive Board Member Geoff Summerhayes told the Insurance Council of Australia “Some climate risks are distinctly ‘financial’ in nature.
Many of these risks are foreseeable, material and actionable now. Climate risks also have potential system-wide implications that APRA and other regulators here and abroad are paying much closer attention to.”
This sentiment was escalated in November 2017, as Summerhayes warned climate change would jeopardise the stability of banks and insurance companies and if financial institutions fail to disclose climate risks they may face regulation.
There is also a strong legal argument that financial risk be considered by directors and trustees.
In October 2016, Noel Hutley SC issued a legal opinionthat Directors were legally obliged to consider climate change risks. The following June this opinion was extendedto cover superannuation trustees.
From investors there are clear signs that expectations of climate risk management are growing. The TCFD itself is supported bymore than 100 companies with $11 trillion of assets.
In an update to its investor expectations for listed Australian companies in November, the Australian Council of Superannuation Investors (ACSI) recommendedthat companies materially exposed to climate change risk make substantive improvements in their reporting with reference to the TCFD recommendations.
Unfortunately, Murray does not even seem to acknowledge the reality of an issue that poses widespread and systemic financial risk.
For this to be the case at a financial services company, exposed to climate risk through its banking, superannuation and insurance operations, is unacceptable.
This opens AMP up to material financial risk, along with reputational risk that also contains a material component.
Board members need a range of skills, qualities and experience that enable them to serve the company and secure its future, and I’m not denying Murray’s CV in finance.
But the pool of available talent in Australia is deep enough for many suitable candidates to exit, without having to resort to one who barely attempts to veil his contempt for climate change science.
Thursday’s annual general meeting was already set to be something of a bloodbath for AMP. If the company fails to manage climate risk properly then we can expect the pain to continue a lot longer than the aftermath of the Royal Commission.