Climate action is good business

WHILE politicians argue, big business is acting on climate change, writes Sarah Barker. And they’re not doing it for the love of the Earth, they’re doing it because it makes financial sense.

YOU may have noticed a change in the emphasis of your morning coffee read.

The press has begun to devote serious column space to the issue of ‘climate change’ — including in the business pages. The banks are talking about climate change in their annual reports. As are companies with household brand-names, from Nike and Unilever to BHP. Even market watchdogs, such as the Australian Prudential Regulation Authority (APRA), recently warned that, left unmanaged, climate change poses risks to our economic stability.

So why this business-sector interest on what was, historically, an issue only for ‘environmentalists’?

In short, leading businesses recognise that climate change presents significant economic and financial risks (and opportunities) which can no longer be ignored. These risks and opportunities arise not only from the physical effects of climate change such as increase in extreme weather, increase in global temperatures, rising sea levels due to water expansion and ice melt, and a change of rainfall patterns, but also government policies, technological developments and changes in general attitudes.

From a policy perspective, the Paris Agreement signed on 12 December 2015 is a very strong signal to the market. The importance of that Agreement should not be underestimated. It represents a commitment by the Governments of 196 countries to a goal of limiting the ‘increase in the global average temperature to well below 2 °C above pre-industrial levels’ and to pursue ‘efforts to limit the temperature increase to 1.5 °C above pre-industrial levels’.

Electric car company Tesla now has a share market value approaching that of General Motors, and higher than Ford. (Pic: Justin Sullivan/Getty)

And, perhaps most significantly, a commitment by those governments to shift the global economy to net zero emissions by 2050. In order to meet the Paris goals, each country, including Australia, needs to significantly reduce its emissions and the global economy, which has been heavily reliant on fossil fuel combustion since the industrial revolution, needs to transform, at scale and with speed.

At the same time, technology’s moving fast — from battery storage to electric cars. For example, electric vehicle pioneer, Tesla, now has a share market value near that of General Motors — and higher than Ford.

And market stakeholders — from customers to investors, insurers and lenders, are now asking tough questions of business about how their strategy stacks up in the transition to a low-emissions economy. Just last week, the ‘Climate Action 100+’ coalition of investors, collectively representing more than US$26 trillion in assets, announced a campaign to engage with the world’s largest corporate greenhouse gas polluters to improve their position on climate change, reduce their emissions and strengthen their reporting of climate-related financial risks and opportunities.

So, what do these developments mean for business? Irresistible strategic pressure. Increasingly, an understanding of the risks associated with climate change, and a proactive approach to their management, is key to continued financial success.

In the words of APRA board member Geoff Summerhayes, ‘It’s the weight of money’.

And that’s a language any business will understand.

Sarah Barker is a special counsel at MinterEllison.

Originally published as Climate action is good business