Date posted: 6/11/2019 3 min read

Climate change as a systemic risk

Climate change requires a collaborative approach as it is a significant global challenge that affects everyone.

In brief

  • Investors are actively managing climate risks
  • Climate change is a risk that is a significant global challenge
  • Investment and finance representatives gathered for the Climate Change Finance and Investment Summit

The Investors Group on Climate Change (IGCC) in Sydney on 14 and 15 October to discuss climate change initiatives. IGCC's Chief Executive, Emma Heard, noted in her summit opening address that "investors and financial regulators have identified [that] climate change is a systemic risk to the economy, the financial system and the long-term returns for superannuation holders."

The summit focused on insights, updates and experiences from a range of speakers on policy, investment and the risk management impacts of climate change.

The program included a mock board meeting of the Perfect Storm Super Fund where the board was required to consider a sustainable investment opportunity, including the impacts on surrounding communities. The session outlined the real issues board members needed to discuss and the board consisted of Stephen Dunne of Cbus, Sarah Barker of MinterEllison, Louse Davidson AM of Australian Council of Superannuation Investors, Dr Rosemary Kelly from First State Super Trustee Corp, Ian Learmonth from Clean Energy Finance Corp and Michael Traill AM from Business & Social Purpose.

A consistent message throughout the summit was that climate change is a risk to organisations and requires a global collaborative approach as it is a significant global challenge that affects everyone.

Insights were shared by the Hon. Matt Kean MP the NSW Minister for Energy and Environment who stated that NSWs long-term strategy is to be a net zero carbon emitter by 2050. In 2018, the NSW government, under the Sustainability Bond Programme, successfully raised $1.8 billion in capital through its first issue of green bonds. Its next issue is planned for 2020.

"Around the world, investors are actively managing climate risks and momentum is growing. However, much more needs to be done."
Emma Heard, IGCC CEO.

Geoff Summerhayes, Executive Board Member of APRA, and Herd unpacked the latest developments, which included current local, regional and international initiatives. "Some parts of the economy will be much harder hit than others," Summerhayes noted. "There are also going to be organisations that make an enormous amount of return from those transitions as there has been from every structural adjustment that's occurred in the economy." Summerhayes also called for a community approach to what is an "unbelievably complex issue" that requires "better data, better engagement and more honest conversations".

Dr Michael E. Maan, Distinguished Professor and Director from the Earth System Science Center of Pennsylvania State University described the effects climate change has already had, from the vanishing ice in the Arctic to the more frequent extreme weather events such as the angry summers of 2013-14 and 2016-17 in Australia. In 2013-14, for example, 123 extreme weather records were broken over 90 days and in 2016-17, more than 205 record-breaking extreme weather events happened in just 90 days.

The rise of extreme weather events (such as floods and storms) have insurers predicting that large areas of Australia could become uninsurable and thus unaffordable.

Climate Action 100+ (in which IGCC is a member of the steering committee) has seen a significant increase in global investors from across the world with more than 373 investor signatories representing more than $35 trillion in assets under management.

A recently published progress report for Climate Action 100+ shows that it has grown to be one of the most influential and significant investor initiatives on climate change, with 161 companies across 33 markets aligning with the goals of the Paris Agreement. But the journey has only just begun.