Climate Horizons | REPORT AND PUBLIC EVENT | June 2018

Today CPD releases its latest report on how Australian companies, investors and policymakers can manage climate risks and support a transition to a zero carbon economy.

Climate Horizons: Scenarios and Strategies for Managing Climate Risk was written by Sam Hurley and Kate Mackenzie and features input from ClimateWorks Australia. It builds on a 2017 discussion paper which set out five essential principles for high-quality climate risk analysis by Australian firms and investors.

The report shows that, a year on from the TCFD’s landmark report on how businesses should disclose climate change risks, more Australian companies are considering what the climate change and the Paris Agreement mean for their strategies and investments.

However, serious deficiencies remain in the quality and consistency of climate-related disclosures – especially on the TCFD’s landmark recommendation that companies conduct scenario analysis to test their resilience in a well-below-2-degree world.

Many scenario exercises to date have used conservative assumptions, overlooked physical impacts of climate change, and failed to disclose impacts on corporate decisions and strategy.

Companies and investors that overlook or misjudge crucial climate impacts and transitions risk major long-term losses and lost opportunities. More rigorous and ambitious scenario analysis can strengthen business plans and support investments and strategies to drive a low-carbon transition.

Key recommendations:

Climate Horizons offers a resource for those developing and interpreting scenario analysis in the business community. It also provides updated recommendations on next steps that Australia’s financial regulators can take to support better climate-related risk disclosure and management – building on crucial progress since the beginning of 2017.  The report calls for:

–  New guidance on climate risks by ASIC, the RBA and other regulators to support momentum for better disclosure of climate-related risks by Australian companies and investors.

–  Close monitoring of climate-related financial disclosures over the next 12 months to assess the case for more demanding mandatory reporting requirements.

–  A systematic review of sustainable finance in Australia, drawing on an emerging global policy agenda that connects green finance with a wider range of sustainability-related challenges and opportunities.

Key documents








Full report
 Executive summary
 Media release 






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The climate risk reporting journey: A corporate governance primer

Climate Horizons builds on CPD’s influential research and policy development on climate-related risks since 2016. This included the landmark legal opinion by Noel Hutley SC and Sebastian Hartford-Davis on company directors’ duties to consider and disclose climate-related risks. MinterEllison’s Sarah Barker, who was the instructing solicitor on the Hutley opinion, has provided a primer on climate risks for company directors to accompany the report: see The climate risk reporting journey: A corporate governance primer.

Climate Horizons will be discussed tonight at a CPD public forum in Sydney on financing a sustainable economy. This event will feature a keynote address by ASIC Commissioner John Price on ASIC’s views and priorities on climate-related risks. This follows a similar CPD forum in November 2017, when APRA’s Geoff Summerhayes provided the influential speech “The weight of money: a business case for climate risk resilience.”

https://cpd.org.au/wp-content/uploads/2018/06/TCFD-BoE-Conference-on-Climate-Scenarios-What-are-scenarios_.mp4

 

Media coverage of Climate Horizons research

Australian shareholders should be told of climate risks to profits, says think tank, Gareth Hutchens, The Guardian, 29 November 2017

Key links and related reading

Climate Horizons: next steps for scenario analysis in Australia, CPD discussion paper, Sam Hurley and Kate Mackenzie, November 2017

Carbon risk: a burning issue, Senate Economics References Committee report, April 2017

Report of the Financial Stability Board’s Taskforce on Climate-Related Financial Disclosures (TCFDs), June 2017.

Carbon risk: a burning issue, Senate Economics References Committee report, April 2017

Australia’s new horizon: Climate change challenges and prudential risk, Geoff Summerhayes, February 2017

CPD roundtable on directors duties, climate risks and sustainability, October 2016

Legal opinion on directors duties and climate change, Noel Hutley SC and Sebastian Hartford-Davis, October 2016

Implications of climate change for Australia’s national security, Senate Foreign Affairs, Defence and Trade References Committee, May 2018.

Directors’ liability and climate risk – Australia Country Paper, Sarah Barker, Commonwealth Climate and Law Initiative, April 2018.

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