For the most part, UniSuper’s recent climate risk report closely resembles other reports that large entities publish on a regular basis.
It’s more than 70 pages long and talks about the long-term risks climate change poses to economic growth, the Super Fund’s commitment to a net-zero portfolio by 2050, and how it’s aligning its actions with the goals of the Paris Agreement.
But at the end of the report, one detail caught the attention of climate experts.
In a section assessing the physical risks UniSuper’s portfolio faces from climate change, it said the analysis was based on a projection known as RCP8.5 – a “worst-case” future scenario that does nothing to mitigate Rising emissions and global temperature increase of 4.3 degrees by 2100.
“We consider the overall risk profile of our portfolio to be acceptable,” concluded UniSuper.
That conclusion puzzled some climate experts.
“The risks inherent in high emissions pathways are unacceptable,” said Karl Mullen, chief executive of consultancy Climate Risk. “For physical risk disclosure, it is important to acknowledge that a global warming trajectory towards 4.3 degrees of warming would have cascading social, economic and natural system impacts beyond our adaptive limits.”
“No sector of the Australian economy is at ‘low risk’ under the pathway with the highest concentration of greenhouse pollution.”
It also worries Harriet Kater, head of climate at the Australian Center for Corporate Responsibility, who is very concerned that UniSuper said a 4.3-degree rise in temperature was an acceptable risk for its members’ retirement savings.
“The sooner UniSuper accepts that the economy will not warm by 4.3 degrees, the safer its investment will be,” she said.
In response, UniSuper said RCP 8.5, a standard measure commonly used to assess worst-case physical risk, was used to test physical risk exposures in its portfolio.
“Based on the weighting of asset sectors in our portfolio, we believe our portfolio is insulated from physical risk from extreme weather events,” a spokesman said. “We continue to raise the bar in climate risk management through industry-leading engagement and reporting to our members through our annual Climate Risk Report.”
As the government launched a process this week to mandatory disclosure of climate information For large corporations and financial institutions, corporate Australia has taken note that this kind of reporting could soon become the norm. But, as the concerns raised by the UniSuper analysis show, the analysis is complex, complex, and constantly evolving.
“This is not a challenge unique to Unisuper,” Mallon said. “All of us are trying to understand the full range of risks to the Australian economy and how this is factored into individual company and investor disclosures.”
‘There will be some strong engagement’
This week, the federal government took the first step towards establishing Australia’s climate disclosure system. For many in the sustainable finance space, this is a process that cannot happen quickly.
Overseas, such moves are already underway – New Zealand and the UK have passed legislation to compel certain companies to disclose climate-related information, and the US, Switzerland and Singapore are developing similar requirements. Those left behind face serious risks.
“It is now generally accepted that proper disclosure of these financial risks and implications is not icing on the cake,” Treasurer Jim Chalmers said this week.
While there is broad support for the goal of developing reliable and comparable disclosure standards, much work remains to be done on the details.
A consultation document issued by the Ministry of Finance to the industry for comments indicates that large listed companies and financial institutions will be the first to be bound by the mandatory reporting rules, which will be implemented in phases and eventually expanded.
It also raises a series of questions about how the system will work: How big should businesses be before they comply with the mandatory reporting rules? Should it include only public companies and financial firms, or should it be expanded to include large private businesses and federal entities? Who will provide oversight and which regulator will enforce it?
There are also questions about the indicators that will be used. The International Sustainability Standards Board (ISSB), which is developing new global standards to replace a confusing mix of climate disclosure practices, concluded in October that companies would be required to disclose not only Scope 1 and Scope 2 emissions, but also Scope 2 emissions. Required disclosures for scope 3 – those tracking indirect emissions and supply chain emissions.
The Australian Government has proposed to apply some of the Scope 3 disclosure requirements, but is seeking advice on this and whether businesses should be given more time to report.
Data availability and collection can be one of the biggest challenges businesses face, experts say. This can be notoriously difficult, especially when it comes to scope 3 emissions, they said.
“One issue may be the availability of data that provides high-quality disclosures,” said Aletta Boshoff, national leader of ESG and sustainability at accounting and tax consultants BDO Australia.
“Companies will need to develop and implement additional data collection protocols and assurance measures to ensure they can effectively identify and report their climate-related claims.”
Emma Herd, EY climate change and sustainability partner and former chief executive of the Climate Change Investment Group, said that while there was strong industry-wide support, businesses would want to have significant input on the details of the regime.
“I think there will be some strong engagement in the details of how to do it, but I don’t think we’ll see significant resistance at all to the need to do that,” she said.
Definition of Scope 1, 2 and 3 Emissions
- Scope 1: Covers direct GHG emissions from own or controlled sources.
- Scope 2: Covers indirect GHG emissions from purchased electricity, steam, heating and cooling consumed by the reporting company.
- Scope 3: Includes all other GHG emissions that occur upstream and downstream in the company’s value chain.
Source: Ministry of Finance
Industries with less mature climate reporting will have to significantly increase resources and investment to meet the requirements, she said.
“Voluntary reporting and mandatory reporting require completely different levels of resources, internal policies and procedures. So I think a lot of companies are going to have to really invest in data and resources and skills to really produce compliant, high-quality reporting.”
Many large businesses and financial institutions in Australia have reported climate risk, including banks and superannuation funds. Hurd noted that mining and resource companies have been at the forefront of the climate change debate, with some of the most sophisticated and mature reporting on the issues.
“But some industry sectors that have so far not dealt with these issues will need to look at the robustness of their reporting and invest time in the next few years to address them,” she said.
Business Council chief executive Jennifer Westacott said she supported clear standards for climate disclosure and wanted to work with the government to ensure red tape was minimized and a transparent framework provided.
‘The demand for accountants will continue to increase’
Jane Rennie from CPA Australia said Australian businesses needed a transition period as they familiarized themselves with the practical implications of the standards.
But she said the bigger challenge lay in the accounting department.
“The accounting profession is building its capacity to measure, report and secure climate risk, but more needs to be done. There is a global shortage of accounting professionals, not just those with ESG skills,” she said.
“As the focus of environment-related disclosures shifts to biodiversity and ecosystems, the demand for accountants with ESG technical skills will increase…This trend will continue and accountants will face increasing pressure to measure and ensure sustainable sexual performance needs.”
“There are not enough auditors to ensure sustainability reporting works. There is no quick fix to this problem and we acknowledge the growing pressure to provide assurance on sustainability and other non-financial information.”
Rennie said part of the solution would be addressing the national skills shortage and a concerted effort to upskill local accounting and finance professionals.
“We need to make sure the accountancy profession is prepared to deal with the extra workload in reporting and assurance of any new standards. Accountants are already under pressure,” she said.
Michaela Morris, a consultant at climate change and human rights consultancy Ndevr Environmental Consulting, said it was something the industry was grappling with. In their consulting firm, they provide a very professional service, they regularly hire engineers and then train them in climate skills.
“There are real gaps in the Australian economy in terms of emissions accounting, education and wider knowledge for a number of reasons, but clearly there has been no federal signal over the past 10 years that this could be a prudent career choice,” said Morris Say.
“Demand is clearly exploding. We’ve been through it.”
“It will touch most, if not all, of Australian businesses”
If you’re a business of any size or in any industry and haven’t started thinking about these issues, now is the time, Morris said.
“It doesn’t matter who gets covered initially [by mandatory rules] Who gets covered later or not covered at all because those requirements will filter through to all the businesses that are looking for investments and loans,” she said.
“When financial institutions make mandatory reporting requirements in a standardized form, they will ask for investment information because they have to put it together. transition plan.
“So in the end, it’s going to touch most, if not all, of Australian businesses.”
This is not a quick process and businesses need time to learn and improve their strategies.
“If you haven’t thought about your carbon footprint, now is the time,” she said.
“If you haven’t planned the transition to a low carbon economy or climate change [and] If climate change has had a wider impact on your business for at least the past five years, it wouldn’t be wise to start, no matter what industry you’re in. “
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