As was widely reported last week, large swathes of Houston’s oil and gas, and chemical sectors were flooded by unprecedented rainfall following Hurricane Harvey, resulting in the suspension of operations at some plants, and severe damage to others.
Most notable of these impacts were the explosions at an Arkema chemical plant in Crosby, just outside Houston, after flooding prevented the refrigeration of chemical compounds that need to be kept cool.
Arkema, a French listed chemical company, actually disclosed the risk to its Crosby plant in its 2016 Annual Report. The company identified a total of 22 sites that were “exposed to seismic and/or climate risks such as floods, droughts and storms, the extent and frequency of which may evolve as a result of climate change”.
Though the awareness of climate risk disclosure has become more prevalent, such disclosures by Australian companies are still the exception rather than the norm.
Despite Arkema’s relatively good disclosure, compared to Australian companies at least, investors won’t be satisfied for long knowing simply how many plants are exposed to increasingly extreme weather events. At some point, the company will have to explain to investors how it intends to manage these risks, through adaptation or perhaps even relocation.
Australian super funds are exposed to similar risks, yet members may not even know it. Due south of Houston, the Freeport LNG terminal is under construction, in which numerous Australian super funds are invested, including AustralianSuper, Cbus and HostPlus.
Construction was halted at Freeport LNG during the hurricane and subsequent flooding, and from what limited reports are available, the plant suffered only “minor” damage.
How many of these funds’ members would even be aware of their investment in Freeport LNG, let alone any impacts from Hurricane Harvey?
Such is the nature of a globalised investment portfolio, that Australian workers are invested in infrastructure halfway across the world, complicating the assessment, and perhaps more worryingly, the communication of climate risk.
The lack of transparency doesn’t just apply to Freeport LNG. Few super funds have disclosed the risks that climate change poses to any of their infrastructure investments.
This is not to say that they haven’t assessed it, though there certainly will be funds ignorant to climate risk. But without adequate disclosure, how can members trust that their retirement savings are in safe hands?
The Australian Institute of Superannuation Trustees meets for their annual conference this week on the Gold Coast.
One of the forums asks “How exposed to carbon are your infrastructure investments?”
It is the only hour across the three day conference dedicated to any aspect of climate risk management, which seems odd given the systemic risk that climate change poses to investment portfolios.
Ironically, infrastructure investments like Freeport LNG are significantly exposed to carbon (i.e. transition risk), as well as the physical risks exhibited by Hurricane Harvey. And yet how many super trustees will be asking those questions this week?
Last month, Market Forces published a legal opinion from Noel Hutley SC and James Mack, which found that “climate change risks can and should be considered by [super fund] trustee directors to the extent that those risks intersect with the financial interests of a beneficiary”.
Clearly, trustees had better educate themselves about both the physical and transition risks from climate change. And while there is currently no legal obligation to disclose climate risks or how they are being managed, members must begin to ask difficult questions of their funds.
Trustees must also ponder the ultimate question: how much longer will they be prepared to profit from the expansion of the fossil fuel industry, be it Freeport LNG in Texas, or Australia Pacific LNG in Gladstone?
If weather events like Hurricane Harvey are exacerbated at 1 degree of warming, what will 2 degrees of warming bring?
Trustees must ask themselves: are these investments in “members’ best interests” if they are driving planetary chaos?
Author: Daniel Gocher, Analyst/Campaigner, Market Forces. Reproduced with permission.