Business facing carbon investment pressure: RBA
RBA boss Philip Lowe said the question he is mostly asked from international forums is what is Australian business doing to decarbonise?
Australian business will face increasing international pressure to come clean on plans to lower carbon emissions in order to attract investors and grow exports, Australia’s top financial regulator has warned.
Speaking at a forum in Toowoomba, Queensland, Reserve Bank of Australia governor Philip Lowe said the question he is mostly asked from international forums is “what is Australian business doing to decarbonise?”
While Dr Lowe was addressing an agriculture-focussed audience, he said business eyeing export markets “will find it needs to find a way to disclose to global investors and global customers (a) decarbonisation strategy”.
This was particularly important for the agriculture sector because roughly 70 percent of agriculture output gets exported, Dr Lowe said.
“So you’re relying on overseas markets and increasingly overseas investors are asking about carbon production and that’s a trend that’s only going to continue,” he said.
His comments came as the G7 summit in Cornwall, England this week issued a communique on climate change committing member countries to accelerate efforts to meet 2030 targets and would aim to cut collective emissions by around half compared to 2010.
Meanwhile, a separate energy forum across in Perth on Thursday heard that oil and gas producers are increasingly going to face an investment squeeze due to climate policies.
The debate over how energy companies handle a raft of new climate concerns has dominated the APPEA annual conference with the sector’s big companies grappling with the local repercussions from a number of recent climate decisions.
Corrs Chambers Westgarth M&A lawyer Sandy Mak told the APPEA conference in Perth she was already struggling to get deals over the line involving fossil fuels or coal given strict lending protocols for environmental, social and governance issues faced by the industry.
“When I try and do a M&A deal that has any kind of fossil fuel, thermal coal aspect to it I have a whole bunch of clients – private equity houses and infrastructure funds that say they can’t do it because its against our ESG mandate,’’ Ms Mak said on Thursday. “I’ll never get it signed off by the investment committee and I won’t get financing for it.’’
Talk that publicly listed companies could simply look to go private or use different sources of capital was no easy solution either, according to Ms Mak.
“I don’t think going private solves your problems in that regard but it takes the debate out of the public eye – we have to be careful forcing companies going private.’’
Directors are among those in the firing line after a tiny activist hedge fund recently won two ExxonMobil board seats with shareholders backing its call for management to accelerate efforts in cutting greenhouse gas emissions.
Australian oil and gas producer Santos warned the industry on Tuesday that it could suffer the same funding strike that has hobbled coal companies unless they rapidly step up action on climate change.
APPEA, the lobby group that represents oil and gas producers, said the industry could not dodge accountability and needed to do a better job of communicating to stakeholders and communities.
“I just think we haven’t recognised the threat is coming and therefore we’re trying to get in front of it by having those conversations. We at APPEA haven’t picked up on that as quickly as we should and we are now,’’ APPEA chief executive Andrew McConville told the forum.
“We need to approach banks with this is what we do on the ground. It softens the connection if you like and financiers and banks are open to that. You’ve just got to be honest. You can have disagreements but it gets more difficult if it’s a philosophical objection to who you are.’’
Ms Mak said a focus by activists on targeting remuneration and directors may not be the best method to achieve results.
“Governance is reactive and the power for shareholder activists is to remove directors but most of it is retrospective and in reaction. It’s a way of voicing displeasure about something that’s already occurred.’’
Oil and gas producers face stricter regulations from climate pressure and higher risks of stranded assets and significant asset writedowns, ratings agency S&P has warned.
The climate push adds to a volatile landscape for Australian producers with last year’s oil price plunge resulting in an industry wide $25bn writedown hit from companies spanning Shell through Woodside Petroleum, Oil Search and Origin Energy.
S&P Global Ratings hiked the risk assessment for the energy exploration and production industry in January to moderately high from intermediate and the midstream sector to intermediate from low risk.
Earlier Thursday, the RBA’s Dr Lowe said that despite the economy making great strides since the Covid-19 recession of last year, “it is important not to lose sight of the fact that we are still in the recovery phase”.
“Our international borders are still largely closed, outbreaks of the virus are still leading to periodic lockdowns, and many firms are still adjusting to changes in how people spend their money and where they work,” he said.
“It is also worth recalling that the economic recovery is being underpinned by unprecedented fiscal and monetary policy measures that will not last forever. So we still have a way to go before the recovery is complete.”
Nonetheless, Dr Lowe said it was time “to be thinking about how we transition from recovery mode to expansion mode”.
Perry Williams travelled to Perth as a guest of APPEA
