By Ray Wilson, CEO.
The royal commission into banking sector misconduct will overshadow earlier announcements that Commonwealth Bank (CBA) is being sued by shareholders for what they say is 'inadequate' disclosure of the risks to the business posed by climate change.
Shareholder’s claimed the CBA knew, or ought to have known, that climate-related risks could seriously disrupt the bank’s performance. Therefore, investors should have been told the CBA’s strategies for managing those risks so they could make an informed decision about their investment. Shareholders have since dropped the suit, however, such action was a world-first and put climate risk disclosure under the spotlight.
According to Geoff Summerhayes from the Australian Prudential Regulation Authority, Australia has been slow in prompting corporations to identify and disclose their climate-related risks to investors. Some climate risks are distinctly ‘financial’ in nature; many of these risks are foreseeable, material and actionable now.
The CBA is not alone. In September 2018, ASIC surveyed ASX listed companies and found only 14% of companies included ‘climate change content’ in their annual reports. Of those, many disclosures were too general and not comprehensive enough to be useful for investors. The figure was higher (65%) for the ASX top 1001 presumably because of higher levels of adoption of integrated reporting.
Directors of Australian companies have a fiduciary duty to consider climate-related risks to their business. AMP, one of Australia’s largest financial institutions, made a stunning admission at its 2016 AGM, that the board had not discussed the global climate change goal. According to Market Forces, AMP is one of over 30 ASX 100 companies that have not done scenario analysis, emissions reduction plans or targets.
Why do these companies, with diverse business activities and assets, need to be dragged kicking and screaming into disclosing risks to investors?
Physical risks faced from climate-induced droughts, rainfall events and temperature extremes include disruption of production capacity, increased risk of property damage, increased likelihood of bushfires and reduction of water availability.
Consumer behaviour change risks include increased costs and changes in consumer spending, consumers not purchasing insurance products due to price increases, increased credit risk and loss of revenue from lending portfolios.
It’s not all about risk. Opportunities include new investment in products and services that assess climate change exposure, increase asset resiliency that reduces operational costs, and increased demand for new low carbon, energy efficient and climate resilient products and services.