Around 1400 directors and senior business leaders gathered in Sydney and virtually, for the first Climate Governance Forum - the first major event of the Climate Governance Initiative Australia, hosted by the AICD. The key message - momentum is shifting from the “what” to “how” on climate governance. These are the primary themes and major moments.
The climate debate within Australia’s boardrooms has shifted rapidly — and dramatically — from considering whether climate change is a risk they need to address to considering how best to respond to, plan and execute for it, in a decarbonising global economy, the AICD’s Climate Governance Forum heard. In a keynote address opening the forum, National Australia Bank chair Philip Chronican GAICD said climate change was one of, if not the most significant, long-term challenges and opportunities we all face — and it would take a concerted effort by all. Stakeholder interest in climate change is intensifying, fuelling Australia’s commitment to the shift to net zero, both from government and business.
“Australians, including our customers, want action,” said Chronican. “They have provided a clear mandate to the new federal government for more action on climate and want to be part of the journey. It is getting us closer to clarity on the path for business to be able to invest effectively and with certainty. To get to net zero, every business in every industry will have to evolve. Every household will need to make changes,” he said.
Chronican cited NAB and Deloitte Access Economics research on the scale of economic opportunities in the transition to a net-zero economy. He said Australian governments and industries will invest around $20 trillion to 2050 — regardless of whether we become net zero. But in becoming net zero, that $20 trillion will be allocated differently — out of emission-intensive activity and into new low-emission activity.
What are the priorities?
“So, the question isn’t ‘how much will net zero cost?’ or ‘where does the money come from?’,” he said. “The question becomes ‘where are we shifting our economic and growth priorities — and what new capital is needed in that investment mix?’ The Australian economy is going to grow and increase investment anyway. What we are changing is where we will invest and what will create economic growth.”
The introduction of legislation enshrining Australia’s 2030 emissions reduction target of at least 43 per cent (See AICD media statement here) means directors should accept they are going to start to see structural economic changes implied by transition to a low-carbon economy, noted managing director of investment and advisory firm Pollination, Zoe Whitton. “This is happening now — and it is real. That means you should expect changes in the economy that sit around the entity that you are responsible for,” she told the Sydney and online audiences. “This predicts that we are moving to a world… where we're trying to produce goods and services in a way that allows us to reduce our footprint.”
The day-long forum heard from directors, investors and experts on pathways to get to net zero, the latest scientific modelling, perspectives on delivering for stakeholders, and how boards can build competency and lead on climate change.
The conference also heard about the importance of scenario planning, with Sarah Baker, head of climate risk governance at law firm MinterEllison, saying directors can’t presume or assume how climate change will affect their businesses.
“We have to form a conscious understanding of what are the physical, economic transition and liability risks associated with climate change that impact on our business over the short term, the medium term, and the long term,” she said. “Then strategically, how do we continue to thrive and to maximise wealth — in that context?”.
Barker highlighted the need for directors to engage with and understand the science so they can make informed decisions, rather than relying on unlikely or hopefully climate scenarios.
Scenario planning can help
While this is difficult, scenario planning can help because it’s a risk management tool, not about directors pinning themselves to a prediction about the future.
Diane Smith-Gander AO FAICD, chair of Zip and a director of AGL, said the core role of the director doesn’t change as they address climate change: “You need to understand the risks as they apply to your company, you need to get a risk appetite, and then you need to make some decisions about how you're going to invest in the mitigations that it's going to bring you back there within your risk appetite.”
Lynas Rare Earths chair Kathleen Conlon FAICD said the company makes calculations based around what a baseline scenario looks like and then arranges around that. ““When you think about returns, you can't have returns that assume that there's no impact of climate change — either climate change itself or climate change policies.”
In discussion around building directors’ “climate competency”, AMP Capital Funds Management chair Ming Long AM GAICD said that in considering directors to join one of her boards, she wants to see that they genuinely care about climate change, because they will have the curiosity and desire to learn more. “You also understand that if you're just getting your education from the management team, they have a vested interest, and they have a shorter time-frame in terms of how they look at things [than directors],” she said.
While being a director carries collective responsibility, Long urged directors to take on accelerating climate change as a personal responsibility and to accept that the way businesses have been structured in the past have focused on profit maximisation, without enough consideration of stakeholder impact.
In a panel on climate disclosure and reporting, ASIC deputy chair Karen Chester pointed to the watchdog’s information sheet on climate reporting obligations, noting the regulator has some surveillance activity underway around climate disclosures. “We feel now's the time for us to make sure that people are meeting their current regulatory obligations,” she said. “There'll be different ways we'll deal with that. Some people might get a phone call. Where we see some egregious examples of greenwashing, where we think there's harm from that, then we're probably [will be] taking some enforcement action.”
Ms Chester highlighted ASIC’s support for the global push towards International Sustainability Standards indicating that Australia would likely adopt domestically. She encouraged boards to start to get ready for that transition, while highlighting that the new Albanese Government has a strong interest in climate reporting. What was essential from ASIC’s perspective was that companies had a plan to meet any stated net zero targets rather than companies making aspirational statements without having done the necessary homework.
For more content and resources on climate governance, see the Climate Governance Initiative content hub here.
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