Josh Frydenberg to warn over loan costs pain from low-emissions transition

Businesses, homeowners and governments could face higher borrowing costs because of ‘false’ ­assumptions over low-emissions.

Josh Frydenberg will say ‘climate change and its impacts are not going away’. Picture: Sarah Matray

Josh Frydenberg will warn that businesses, homeowners and governments could face higher ­borrowing costs if Australia is locked out of foreign capital ­markets because of “false” ­assumptions that the nation’s transition to a low-emissions ­future is moving too slowly.

In a speech on Friday, the Treasurer will urge super­annuation funds, insurers and banks that support net zero emissions not to “walk away from the very sectors of our economy that will need ­investment to successfully transition”. Mr Frydenberg will warn investors they have an obligation not to blacklist companies in ­emissions-intensive industries but to help finance their transition to a clean-energy future, citing the evolution of iconic companies such as BHP and Fortescue, which were at the ­“cutting-edge of innovation and technological change”.

The US and Britain have been increasing pressure on Australia to adopt more ambitious climate targets ahead of the UN climate conference in Glasgow in ­November.

Scott Morrison has defended Australia’s climate record as ­better than that of the US, New Zealand and Canada, and said he will finalise a long-term ­emissions reduction strategy, revealing Australia’s trajectory to net zero, ahead of Glasgow.

In his speech to Australian Industry Group members Mr Frydenberg will call for a “long-term shift, not a short-term shock” as markets, governments, central banks and investors transition to a low-emissions economy.

“Trillions of dollars are being mobilised globally in support of the transition,” the Treasurer will say. Increasingly, institutional ­investors are themselves committing to the net zero goal, like BlackRock, Fidelity and Vanguard, three of the biggest fund managers in the world.

“For them, there is an alignment between the commercial ­opportunities and the environmental outcomes.

“Australia’s interest lies in our markets functioning effectively, so that the financial system remains stable, investors are able to make informed and timely ­decisions, and capital can be accessed at the lowest possible cost.”

Big banks and super funds have announced ambitious emissions targets, adopting climate change as a condition of lending and ­investment, as Coalition and Labor strategists attempt to ­balance climate commitments across inner-city and regional seats ahead of the next federal election, due by May.

Mr Frydenberg will say that “climate change and its impacts are not going away”.

“For Australia, this presents risks we must manage and opportunities we must seize,” he will say. “That work is well underway, but there is still more to do.”

Australia is heavily ­reliant on imported capital to fund the ­economy, with $4 trillion in foreign investment and 20 per cent of wholesale funding in the banking system sourced offshore.

Mr Frydenberg will warn that Australia has “a lot at stake”.

“When it comes to commonwealth government bonds, close to half are held by foreign investors,” he will say.

“Reduced access to these ­capital markets would increase ­borrowing costs impacting everything from interest rates on home loans and small business loans, to the financial viability of large-scale infrastructure projects.”

“We cannot run the risk that markets falsely assume we are not transitioning in line with the rest of the world. Were we to find ourselves in that position, it would increase the cost of capital and reduce its availability, be it debt or equity.”

With the Coalition divided over whether it should match commitments made by state and territory governments, Labor and other countries to reach net zero emissions by 2050, Mr Frydenberg will quote former Bank of England governor Mark Carney who said this “isn’t about funding only deep green activities or black-listing dark brown ones”.

“The transition requires a broad-based approach, which sees investment in emissions reduction strategies across all sectors, be it agriculture, mining, manufacturing, and others,” Mr Carney said.

“It is wrong to assume that traditional sectors, like resources and agriculture, will face decline over the course of the transition.”

In February, The Australian revealed the ANZ bank had abandoned the world’s largest coal export port at Newcastle, ­refusing to keep funding the mega-facility under its climate change policy, which all but bans loans to the coal sector.

In a meeting with US President Joe Biden and climate envoy John Kerry this week, Mr Morrison said Australia was working towards a goal of net zero emissions and was on track to “meet and beat” its 2030 targets.

Mr Morrison said Australia would “continue to work on our plan as to how we can continue to reduce emissions to zero well into the ­future”.

“As I indicated at the start of this year, it was our intention to do (this),” Mr Morrison said.

“In Australia, it’s not enough to have a commitment to something – you’ve got to have a plan to achieve it. And this is an important part of the way we approach this task. You have a plan to meet your commitment.”

Mr Frydenberg will use the speech to promote the government’s strategy to support the low-emissions transition. “Government regulators have focused on the disclosure of material ­financial risks, and promoting a best-practice framework following the recommendations of the taskforce on climate-related ­financial disclosure,” he will say.

“Secondly, just as Australia is making progress in strengthening our regulatory and financial frameworks, so too we are making progress in meeting our ­emissions-reduction targets.

“Emissions are down by more than 20 per cent since 2005, putting our 2030 target of a 26 to 28 per cent reduction clearly in sight. The equivalent of 3 million cars have been taken off the road for 15 years.”

Mr Frydenberg will say the technology investment roadmap will guide $20bn in government funding and is expected to leverage $80bn in total investment by 2030. “Snowy 2.0 in NSW, Battery of the Nation in Tasmania and new interconnectors around the country will create a more reliable, affordable and lower emissions energy system,” he will say.

“Partnerships with Japan, Germany, Singapore, and the United Kingdom will also drive new energy investments particularly in hydrogen, where we have a comparative advantage. These new investments are generating more jobs.”