Climate response not enough for investors

Recent government decisions have made climate policy uncertainty less of a barrier to investment in Australia.

But more details are needed to support zero carbon investment, according to a survey of big investors responsible for almost two-thirds of assets under management in Australia and more than $30 trillion globally.

The Investor Group on Climate Change survey data released on Monday shows the proportion of investors who view climate policy uncertainty as a barrier to investment in Australia has fallen from around 70 per cent to 56 per cent.

A lack of appropriate investment opportunities (58 per cent) and no clear definitions on what counts as a climate-friendly investment (33 per cent) were other key barriers.

Australia’s first annual climate change statement, tabled in parliament last week, showed industrial and mining emissions will remain stubbornly high and transport emissions will continue to rise under current arrangements.

The survey found institutional investors want sector-by-sector emissions pathways set for electricity, transport, heavy industry and coal and gas mining to remove risks from the large sums of investment required to decarbonise.

Top priorities for investors include effective carbon pricing through mechanisms such as the so-called safeguard that covers the biggest industrial emitters and a federal government decision on a 2035 emissions target.

“Recent changes in climate policy are giving investors more confidence to invest billions of dollars of capital to accelerate Australia’s transition to a net zero economy,” Erwin Jackson, the group’s policy director said.

He said stronger 2030 emissions targets and bipartisan support for net zero emissions by 2050 are welcome.

“But they’re not enough on their own,” he said.

Policy that can be dismantled by the next government will not remove the long-term risk premium, given Australia’s history of climate wars, investors warn.

And rules are needed for credible corporate climate transition plans that help investors to flush out companies that are “greenwashing” with exaggerated claims while operating as usual.

A separate Climateworks Centre study of climate commitments by the top 200 ASX companies found a 44 per cent increase this year in setting climate targets that are aligned with the Paris Agreement to limit global warming to 1.5 degrees.

The Net Zero Momentum Tracker found a 44 per cent increase between March and November 2022.

By November, there were 23 companies with comprehensive targets covering emissions which, if achieved, would help limit temperature rise to 1.5 degrees.

The interactive online table showed the 23 standouts came from a range of sectors.

Some 83 companies had net zero targets for some of their emissions but not all, and 81 had no disclosed net zero targets.

Under current settings, utilities, metals and mining, and oil, gas and consumable fuels will remain the top emitting sectors until 2035 because their targets are set to take effect in the medium and long-term.

Unless more company targets are brought forward and extended, ASX-200 emission cuts won’t stack up to the level demanded by science and investors, Climateworks lead researcher Tom Wainwright said.

“All major companies should have a credible plan for addressing all their emissions, being mindful Australia is now a net zero operating environment,” he said.