“Words are not going to address climate change, actions are essential. To turn things around, we need policies and actions that lead to actual change and that are being implemented, rather than just being talked about.”
While the political class and its media enablers engage in more distraction and theatre on climate, the adults in the room at the Reserve Bank have been spelling out the nature of climate risks to the Australian financial system. In a speech yesterday, deputy RBA governor Guy Debelle specifically referred in his words above to companies engaging in greenwashing and the problem of verifying the green claims made for products. But they were perfectly applicable to the farce in Canberra.
Climate change isn’t just another risk, Debelle told an investment conference. “Climate change is a first-order risk for the financial system.” That’s even without the various financial policies that have been proposed by members of the government, such as removing the deposit guarantee from banks that refuse to fund coalmines or forcing Australians to pay higher interest rates so that sinister international financial forces don’t dictate policy to us.
While Debelle focused on what the RBA is doing with other financial regulators in Australia, and with other central banks internationally, to address the first-order risk, he also explained how climate change would threaten financial stability.
First, via the major banks, which are, with their cooperation, being subjected to a “climate vulnerability assessment” that looks at the potential impacts of climate risk on their lending. The RBA thinks they’re pretty well placed: the risks to residential housing stock from extreme weather events is, in the RBA’s view, manageable for the banks overall. And, interestingly, the big banks have relatively low “transition risk” — e.g. losing money from lending to the owner of a stranded asset like a coal-fired power plant. That’s because “their portfolios appear to be less emissions intensive than the economy as a whole” — the big banks are already abandoning emissions-intensive borrowers. And they tend to lend to business over relatively short periods, when we know some climate impacts won’t fully manifest for a decade or more.
It’s a different story for asset managers. It may not be a good idea to lend to the owner of a coal-fired power station but it’s a bad idea to own one — or own the company that owns one. Investors already want to know their exposure to emissions-intensive activities, so there is a strong incentive for companies to disclose their exposure. But the RBA wants to make sure disclosure is both useful and comparable internationally, and is engaged in an international process to achieve much greater “global consistency and comparability of sustainability reporting”.
It’s also working on “climate taxonomies” which allow investors to properly assess the sustainability of products, recognising that not every product will be about zero emissions, but might result in net lower emissions that enable an appropriate transition to net zero in the longer term.
The broader risk to the economy as a whole is investor appetite for emissions-intensive economies and companies. “Climate comes up in most conversations I have with foreign investors,” Debelle said. “This is a marked change from a few years ago. Australian companies with an international investor base experience the same, as do the government debt agencies…” On that point, Debelle revealed that Sweden’s central bank, the Riksbank, stopped investing in Queensland and West Australian state government bonds “a few years ago”. Both states are big exporters of carbon, and both have also been slow to act on emissions reduction (WA more so than Queensland).
Debelle warned that the threat of losing investment will only accelerate:
Investors will adjust their portfolios in response to climate risks. Governments in other jurisdictions are implementing net zero policies. Both of these are effectively increasing the cost of emissions-intensive activities in Australia. So, irrespective of whether we think these adjustments are appropriate or fair, they are happening and we need to take account of that. The material risk is that these forces are going to intensify from here.
Like the laws of physics driving climate change, it’s happening whether Scott Morrison and Barnaby Joyce like it or not. The adults in the room get it. Too bad no one in the government does.
If it wasn’t so serious it would be laughable. Here we have the putative government of free enterprise and market forces suddenly going full on socialist when it comes to protecting the financial interests of their sponsors. Was it not ever thus – to socialise the losses and privatise the profits? We really are a nation of dunces sometimes.
How many ponzi investment properties does it take for a pork-barreled AussieOzzieOstrich to feel an invincible immunity/impunity against the approaching accelerating climate changing big bad wolf ..!?..
The real test for the PM and friends will be the short term political effect of what the various State governments have announced re net zero targets. I suspect (and hope) there is no ‘long term’ for this Fed government.
I find it laughable despite it’s serious!!!
It’s called buying votes with other people’s money namely the taxpayers .Just another coalition rort. In the absence of policy this is the best the Liberal/National coalition can come up with. Still not a policy on Climate Change insight as we tick down to Glasgow
The PM believes”HE” who created the world in 7 days has the solution and the PM is waiting for the message .
Furthermore both the large international Insurance and Money organisations, some 4 – 5 years ago warned that unless companies factored Climate Change into their Risk Analysis and Financial Plans and Operations they risked losing their Insurance covers, either partially or completely. And over in the Corporate Governance area they risked major lawsuits from both within and without their organisations.
Obviously the likes of Barnaby and Matt couldn’t follow the big words or mildly complex concepts.
The Libs be should wake up and dissolve the COAlition. A few years in the wilderness will help them, more than hinder, in the long term. The so-called National Party will wither away from the feeder vine.
We’re not even out of the woods from the 2008 financial crisis. Still in QE infinity to substitute losses. Now that the stock market is ridiculously overpriced because of it, and house prices sky rocketing there is nothing left. Watch the inflation go up.
Nothing left to invest in.
Yes, but inflation and the resulting interest rate rises should put the kybosh on the inflating bubbles of the stock market and housing.
Or will it? I don’t know, we reached uncharted waters long ago and all my map says is “here be dragons.”
Well it was only the 1950s that scientists saw that Coastal Zone Management was a huge thing and recommended that development NOT occur within (nominally) 100 metres of the high water mark.
Houses being washed into the ocean is a recent thing. Sensible people don’t live on the beach. Bad luck for councils who should quite rightly be sued for developing these impact zones.
Also, try getting home insurance these days for less cost than a house. I just made myself LOL.
And golly aren’t those coastal dwellers squealing now and demanding their properties be defended! Planned retreat would have been a sensible thing but we don’t so sensible here in Oz.
The Gold Coast may become our very own Venice, but with waves and sharks for added entertainment.
When it becomes warm enough crocs also – then the Mad Hatter’s warning of someone being torn apart every fortnight will be valid down south.