Australia’s top companies’ failure to manage climate risk highlights investor and regulator weakness

PRESS RELEASE

Monday 18 February, 2019:A new study released today by environmental finance group Market Forces reveals many of Australia’s largest ‘climate risk-exposed’ companies continue to defy regulators and investors by failing to effectively manage risk.

Of the 72 ‘high risk’ ASX100 companies analysed in ‘Investing in the Dark’:

• Barely half (57%) identify climate change as a material business risk;
• Only 32% disclose detailed discussions of specific climate risks and opportunities facing their businesses;
• 14% have disclosed detailed scenario analysis demonstrating their viability in a 2 degree policy pathway, as set out under the Paris Agreement;
• Only 24% have a clear plan to reduce greenhouse gas emissions.

Market Forces released the first iteration of ‘Investing in the Dark’ in March 2018. The new findings take into account announcements and changes from companies that have reported or updated disclosures in the last year. On most metrics, there has been almost no progress to report, in spite of increasing rhetoric from investors and regulators.

“Investor engagement and regulator rhetoric are failing to ensure robust climate risk disclosure, let alone effective climate risk management,” said Market Forces Analyst Will van de Pol.

“Over the past year, progress on the most important elements of climate risk disclosure across the Australian business landscape has been glacial.

“The Royal Commission showed just how devastating poor governance and toothless regulation throughout our financial system can be. If we’re going to prevent a repeat of wealth destruction as climate risks take hold, we need regulators like ASIC to take meaningful action on companies they already know to be breaking disclosure laws, and financial institutions to steer our economy away from the catastrophic impacts of climate change.”

“Plain and simply, companies have had enough time to comply with the TCFD. Those that continue to fail in this regard are becoming uninvestable,” said van de Pol.

Key trends from the past year include:

• 86% of companies now place overall responsibility for climate risk management with the board, up from 73% a year ago
• the number of companies encouraging emissions reduction through remuneration has doubled to 32%.

However, the TCFD’s more meaningful disclosure recommendations have remained largely unfulfilled:

• just 14% of companies provide any detail around 2°C scenario analysis, only a marginal improvement from 10% in March 2018.
• the proportion of companies disclosing clear plans to reduce greenhouse gas emissions has only risen slightly from 16% to 24%.

Australian and international regulators have repeatedly labelled climate change as a major systemic financial risk, and as far back as 2016 a legal opinion from Noel Hutley SC stated “company directors certainly can, and in some cases should be considering the impact on their business of climate change risks – and that directors who fail to do so now could be found liable for breaching their duty of care and diligence in the future.”

ASIC Commissioner John Price in June 2018 stated the Hutley opinion “is reflective of our understanding of the position under the prevailing case law,” while fellow regulators APRAand the ASX Corporate Governance Councilhave been similarly vocal in their calls for improved climate risk disclosure.

A September 2018 ASIC reportwent so far as to conclude many companies were breaking the law by failing to adequately consider and disclose climate risk. Yet regulators have taken no action to enforce corporate disclosure laws when it comes to climate risk. It has fallen to shareholdersand beneficiariesto take matters into their own hands to try to ensure climate risks are properly managed and disclosed.

Market Forces is calling on investors to drastically increase the ambition and impact of their corporate engagement programs, demanding companies produce Paris-aligned transition plans and divesting from those that cannot or will not.

Additionally, regulators must back their rhetoric up with action to enforce climate risk disclosure and management.

Read Investing in the Dark