Time to pull our head out of the sand
Ten years ago, Nicholas Stern called climate change 'the greatest market
failure the world has seen'. That this inquiry has been conducted illustrates
that the market's failure has now become a government failure to adequately
respond to the magnitude of the problem.
There is no better example in the world of government failure than here
in Australia where, under the Coalition Government, a price on carbon has been
abolished and the pathway to meeting our commitments under the Paris agreement
is nowhere to be seen.
This inquiry has shown that elements of the Australian corporate
sector—the purported beneficiaries of the government's intransigence—are now
out ahead of the government. It is the corporate sector that is advocating for
a realistic and prudent approach to carbon risk and to the disclosure of this
risk to the market. The Chair's report sets out the logic of this approach in
...the most accurate pricing of these impacts [climate risks]
is likely to be provided by the market in an environment characterised by
disclosure of relevant information.
Climate risk is a vast and urgent problem without precedence. Smart
businesses know that the risk is real and present. Smart investors are taking
climate risk into account. Smart executives know that that they are already
liable and that it's only a matter of time before this liability is brought to
bear. APRA Member, Geoff Summerhayes, recently made this point in no uncertain
However, seeking a 'first mover advantage' in carbon risk disclosure is
itself a risk. Responsible corporates have indicated they will accept carbon
risk disclosure requirements so long as the playing field is level. What is
missing is clear–– uniform and mandatory standards. It is the responsibility
of government to step into the breach, to set the parameters, and to enable the
The Chair's report provides a good summary of this inquiry's findings
and includes some sound recommendations. However, the enormity of the problem
requires a bolder approach and needs to demonstrate the preparedness of the Parliament
to act decisively. There is a financial imperative, an economic imperative,
and, frankly, an existential imperative to act decisively and to act now.
Price the externalities
The primary failure of the market is the failure to address the negative
externalities arising from carbon pollution. The Australian Greens believe that
putting a price on carbon pollution is integral to both mitigating the effect
of climate change and to better disclosing carbon risk. A price on carbon makes
accounting for climate pollution as natural as accounting for all other costs
of doing business. A price on carbon would provide a uniform measure of
greenhouse gas emissions that can be traced through the production chain and
the investment chain.
The government reintroduce a price on carbon pollution.
The government require that annual public reporting by Australian
companies include the price paid for carbon pollution and the associated
greenhouse gas emissions, including from global operations and interests.
Set the standards
The Financial Systems Board (FSB) Task Force on Climate Related
Financial Disclosure promises to deliver a strong framework for carbon risk
disclosure, as indicated by the draft recommendations of the Task Force. The
involvement of Australian financial regulators in this project necessitates
that the recommendations of the FSB be the least the Australian Government
commits to. The government should make this commitment unconditionally to help
ensure that the work of the FSB becomes a minimum international standard.
The government commit to bringing into effect the recommendations of the
Financial Systems Board Task Force on Climate Related Financial Disclosure
Notwithstanding the recommendation to commit to the outcomes of the FSB
Task Force, the Australian Greens believe that the evidence heard during this
inquiry requires an immediate and pre-emptive response.
Specifically, the government should set standards for definition of and
reporting of carbon risk. These standards should be built into existing public
reporting requirements of all public companies, and proprietary companies with
large carbon risk exposures. Reporting against these standards should be
mandatory by default. Exemption from carbon risk reporting should be the
exemption rather that the rule.
The Council of Financial Regulators develop a standard definition of
'carbon risk' for the purposes of disclosure that incorporates policy, technological,
market and physical risk dimensions.
The Council of Financial Regulators develop guidelines for mandatory
annual public reporting of carbon risk by Australian public companies and by proprietary
companies with financially material carbon risk exposures.
Amend the National Greenhouse and Energy Reporting Scheme to include
public disclosure of equity exposures above a materiality threshold.
Amend the National Greenhouse and Energy Reporting Scheme to increase
Scope 3 emissions reporting and disclosure where they are a financially material
component of a company's carbon risk.
Require industry and financial regulators to develop guidelines for
stress testing scenarios for different levels of global warming.
Senator Peter Whish-Wilson
Senator for Tasmania
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