The dangers of climate change are clearer than ever, and while impact investors are successfully allocating capital towards a more sustainable economy, a lack of effective government policy is slowing the potential of progress.

The IPCC has shown us the huge task ahead to avert disaster, and recent surveys from ACF and IGCC have shown us there’s demand from the public and investors alike, but so far, government policy hasn’t risen to the challenge. 

Sustainable Investing Is Just The Start

The ex-CIO of Sustainable Investment at Blackrock made headlines recently when he wrote a manifesto about the short-comings of sustainable investing, and more specifically ESG, to make a real impact on climate change. 

While his critique went deep, it hung on the premise that focussing on sustainable investing as a solution to climate change is diverting attention away from the real imperative, which is the need for a regulated price on carbon. 

In reality, there’s ample evidence that the sustainable investment community is aware of the need for better policy, and it implies a certain lack of intellectual breadth, suggesting that investors are unable to chew gum and ride a bike at the same time. 

Despite those details, it was a profound provocation, and it has ignited an important discussion about the imperative of putting a price on carbon, and better regulating pollution.

Investors Pushing for Policy Action

It makes sense for investors, who have an interest in companies poised to benefit from the transition to a clean-energy economy, to push policy makers to go in that direction. For those building renewable energy infrastructure, and innovating in solutions to climate change, then a price on carbon represents a major tail-wind. 

As Robyn Parkin, Head of Sustainability and Advocacy at Ethical Partners, says; “We firmly believe that Australian corporates need a clear, detailed and stable policy environment to be able to make the necessary decisions to mitigate their transition risk, and to maximise the opportunities presented by the transition to a low carbon world, which is obviously in the interests of the shareholders and our clients.”

But beyond these very pragmatic investment decisions, there’s also the stark reality that a world that sees global warming push above the Paris Agreement’s 1.5°C threshold will be increasingly inhospitable – as defined by the latest IPCC report – and that’s detrimental to both our lifestyles, and the prospects for our economy. 

“We definitely believe that investors can, and should, play an important role in advocating for better climate policy.” Robyn says. 

Investors like Ethical Partners have a clear purpose, and they recognise that capital allocation is only one lever through which they can drive positive change. 

“At Ethical Partners we see policy advocacy as an important aspect of our advocacy for two reasons: our responsibility to minimise risk to our clients capital, and, as part of stewardship responsibilities as an Ethical Investor.” Robyn says.

The geopolitical landscape also plays a role in this calculus. An economy like Australia is heavily reliant on export income, much of which is emissions intensive, and so the lack of a carbon price at home means producers will likely be taxed at the other end of the trade. 

“We believe that Australia needs a climate policy aligned with the rapidly changing climate policies and commitments of our trading partners and the wider global economy, in order to be able to attract and maintain investment. It is very clear that we operate in a global economy, and that a lack of alignment with global climate policy creates economic risks for the whole Australian economy, and again, our client’s capital.” Robyn adds. 

But of course investors are private entities. Unlike our elected representatives, they can’t make unilateral decisions, but Robyn explained the ways that Ethical Partners have chosen to make their voice heard. 

“Our advocacy on climate policy has included: making parliamentary submissions on the Climate Change Bill and corresponding with several MP’s on this matter, appearing before the parliamentary inquiry on Prudential regulation of the export industry,  speaking with Treasury and Parliamentary secretaries through our participation in IGCC working groups, and advocating for better climate policy with ASIC and APRA.” 

The Rise of the Climate Activists

This sentiment was echoed in a survey released by the Investor Group on Climate Change (IGCC) last week. The results showed a resounding sense of frustration at a lack of consistency in climate policy from the Australian government, with 70% of investors highlighted policy uncertainty as a key barrier to investment, up from around 30% the previous year. 

Both investors and business owners struggle to make long-term plans when policy settings are uncertain, and while there’s a stereotype that business owners will always be resistant to regulation, the preference tends to be for consistency over uncertainty. 

“Investors are already pricing in the cost of climate risk, and they see the opportunities a net zero economy offers them. They want to be part of the solution and reap the economic benefits. Our members represent $2 trillion in assets under management in Australia, so together the industry has a powerful voice to government, advocating for the climate policy needed to unlock new investment in net zero industries and infrastructure.” Says IGCC CEO, Rebecca Mikula-Wright.

The IGCC also recently released a report making the case for mandatory climate reporting for Australian companies. It showed that the TCFD framework has been broadly accepted as a benchmark, and that having a level playing field will reduce regulatory burden on companies, and allow for genuine comparisons by investors. 

“As universal owners in the economy, institutional investors will not be able to fully hedge against the systemic nature of climate risk with traditional portfolio management techniques alone. Engaging constructively in policy discussions should therefore be a part of any investor’s climate response. Through their stewardship activities, investors should also be engaging with companies to ensure the latter’s climate policy lobbying, or that of their relevant industry groups, is also aligned with the Paris Agreement.” Rebecca says. 

IGCC is just one group of many who are working in parallel with sustainable investors, to understand their needs, and influence decision makers about the economic and social benefits of being climate leaders rather than laggards. 

A broad cross-section of ‘Innovative Activists’ were highlighted in a recent research project by impact communications specialist Fergus Pitt. He outlined the new generation of innovative organisations that are building memberships, raising funds, and agitating for change.

Groups like the Australasian Centre for Corporate Responsibility (ACCR); which leads shareholder activism through legal approaches as well as shareholder resolutions. 

The Sunrise Project; which fights for climate justice through grant-making and capacity building. 

And Beyond Zero Emissions; a think tank which is producing some of Australia’s leading research on the huge economic potential of rapidly decarbonising our economy. 

“These organisations are having an impact, and that is annoying vested interests.” Fergus Pitt’s report says. “They’re making powerful and influential enemies: Christian Porter and Matthew Canavan, conservative members of the federal government, have gone on the record looking for opportunities to pass laws preventing some of the tactics and methods used by this group of innovative activists.”

The importance of the work these organisations are doing stems largely from the fire-power that is held by the incumbent fossil fuel industries, who resist the implementation of a carbon price. 

“Public opinion is largely behind these organisations and a lot of their opponents know that. Polls show widespread concern for climate, inequality, and the erosion of a fair society. So, whereas five years ago climate activists might have needed to make the basic case for climate action, the most dangerous companies and politicians won’t fight that argument, instead they change their rhetoric, spin, obfuscate, and greenwash.” The report says. 

Australians, of all Voting Persuasions, Want Climate Action

This week the Australian Conservation Foundation (ACF) released a survey that showed 28% of Australians rate climate change as their primary concern when voting in a Federal election, while 73% of voters believe the government should set a target to reach net zero emissions before or by 2050.

The survey, which included 15,000 respondents, took a decidedly political perspective in presenting its data. Results were compared across state lines, but they also segmented respondents by their voting record. Results from city voters were compared to those in regional areas, while specific electorates were selected to show that climate action is now a key issue for even conservative voters. 

Voters in the Prime Minister’s own electorate of Cook showed 59% want him to do more to combat climate change, while only 35% of Cook voters support his plans for new coal and gas-fired power to supply Australia’s energy needs going forward.

“Across the country, Australians are experiencing climate damage and demanding action from their elected representatives,” said ACF Chief Executive Officer, Kelly O’Shanassy. “This polling shatters the myth there’s one view in the bush about climate change and another in the city.”

Counting the Cost of Being Left Behind

A confluence of voices are coming together to demand better climate policy. It’s driven as much by ethics and values, as it is by sound economic fundamentals across trade, productivity and efficiency metrics. 

If Australia hopes to remain competitive in a carbon constrained world, there needs to be a plan of action that goes beyond the government’s current ‘Technology Roadmap’. There’s a vibrant mix of entrepreneurs and investors in Australia that are poised to be at the forefront of the new economy, if only we had planning and policy that was equally ambitious. We should aspire to get-ahead, not just keep-up, and in the end, that’s going to be central to ensure a continuation of the prosperity we enjoy today.

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