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Investors to turn up heat on Australia’s biggest emitters

The $200 billion AustralianSuper said the new benchmarks and company-level analysis would help investors manage climate change risk in their portfolios and take climate engagement “to the next level”.

“Firstly, it creates a much greater clarity in the ask from companies around climate change management, and the second thing it does is it brings in a way to measure progress,” said Andrew Gray, AustralianSuper’s environmental, social and governance director.

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“It’s established a set of indicators that define climate change progress which we can use to underpin engagement.”

Companies worldwide have been facing rising pressure to improve their carbon credentials, as shareholders seek to reduce their exposure to the long-term risks posed by global warming, such as legislative changes, more frequent weather-related disasters and shifting consumer preferences for green technologies.

However, Australian companies have so far been reluctant to tackle their “Scope 3″ emissions with mining giants BHP and Rio Tinto the only companies committing to initiatives to begin doing so. As top producers of iron ore, the key steel-making raw material, both companies have a Scope 3 footprint that’s vastly greater than their own emissions due to the use of their products in Asia’ carbon-intensive steel furnaces, which account for more than 8 per cent of global greenhouse gases.

Investors understood some sectors such as steel faced more difficult decarbonisation challenges than others, Ms Hillis said. But no companies would be “let off the hook”.

Mr Gray said the “tone of engagement” was important to long-term investors like AustralianSuper, which wanted to see companies successfully transition to lower-carbon futures.

“For them to successfully transition to being low-carbon businesses that’s good for us, that’s the way we are going to maximise the investment return for our members,” he said.

“It’s about making sure we get the information, the clarity and the right tone of engagement for us to be confident that’s happening.”

Investor Group on Climate Change chief executive Emma Herd said climate would be one of the “defining investment themes of the 21st century”.

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“At the heart of this initiative is a deep recognition from the investor community that climate change represents a systemic risk to the global economy,” Ms Herd said.

“How well companies manage their financial risks as the world decarbonises will determine value and returns for years to come.”

The Climate Action 100+ analysis, which has assessed the decarbonisation pledges and strategies of 167 companies responsible for 80 per cent of the world’s industrial emissions, has been under way for 18 months and includes multiple rounds of communications with the companies.

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