Climate policy vacuum boosting investor focus on low-carbon assets

Lumps of coal in federal parliament and dodgy emissions accounting have done little to dampen investor appetite for low-carbon opportunities in Australia, a new report from Investor Group on Climate Change has found.

Instead, Australia’s perpetual federal climate policy vacuum appears to be having the perverse effect of focusing investor interest in what companies, themselves, are doing to shield their business and their shareholders from climate risk.

The report, based on a survey of institutional Australia and New Zealand investors managing more than $1.3 trillion in assets, found between 50-80 per cent were undertaking or actively considering low carbon investment across most asset classes.

More than 70 per cent of investors said that had or were considering climate-aligned targets for their portfolios, while 90 per cent said they were implementing low carbon strategies.

“Despite recent political upheavals, investors in Australia and New Zealand are focused on finding low carbon opportunities and getting deals done”, said IGCC CEO Emma Herd in a statement accompanying the report on Tuesday.

“Climate-aligned investment is continuing to accelerate. Investors are actively looking for opportunities to support climate solutions and embed climate change into whole of portfolio management.”

But the federal government’s ongoing failure to take climate action seriously, or to look beyond the energy status quo, is having an investment impact – of sorts.

According to the survey, when faced with policy uncertainty, more than 40 per cent of investors chose to redirect investments to jurisdictions, sectors or markets with less uncertainty.

And nearly 60 per cent of those surveyed said that would increase company engagement to manage climate-risks across their portfolios.

Another 80-plus per cent said they were actively considering reporting under the Taskforce on Climate-related Financial Disclosures.

It’s an outcome that’s analogous to Australia’s rooftop solar boom, where consumers have responded to consistently escalating power prices by taking matters into their own hands.

In Australia, this “pro-sumer” driven shift has been so widespread and so fast, it has forced governments and the incumbent industry to face up to the changing grid.

“When faced with increased policy or regulatory uncertainty in key markets, investors go offshore to find climate investment opportunities, and they ratchet up active engagement with companies they own,” Herd notes in the IGCC report.

“Recent company engagement by investors with companies, such as Glencore, Rio Tinto, BHP Billiton, Shell and BP, are beginning to build the resilience to companies and the investors who own them have to growing climate-related risks.

“In the absence of clear policies to achieve net zero emissions in line with the Paris Agreement investors are likely to increase company engagement to reduce their exposure to an uncoordinated and ad hoc policy response,” Herd says.

And the industry agrees.

“The (IGCC’s) Accelerating Change report documents, on an industry-wide scale, what we’re hearing from our own investors, and seeing in our communities,” said  the head of renewable infrastructure at  Impact Investment Group, Lane Crockett.

“There is a demand for investments that integrate a response to climate science, contribute to climate action and find the opportunities for financial returns in the transition to a zero-carbon economy.”