Australian Investors Demand Greater Adaptation Action
New nature legislation and updated modern slavery act are also key priorities ahead of 2025 federal elections.
Australia’s government has been urged by investors to provide the policy detail needed to attract capital to climate adaptation ahead of the launch of its national plan next year.
Since taking office in 2022, Anthony Albanese’s Labor government has released a raft of legislation to accelerate Australia’s green transition, many of which have been backed by investors. This has included legislating a 2050 net zero target and setting a legally-binding target to reduce emissions by 43% by 2030 below 2005 levels.
However, according to investors, greater action on adaptation is required by the government to address the steep the economic costs of climate change’s physical impacts. Disasters caused by climate change were estimated to have cost Australia US$38 billion in 2021, and are forecast to rise to at least US$73 billion by 2060.
“Investment in adaptation offers significant opportunities that are yet to be comprehensively tapped,” said Rena Pulido, Head of Sustainable Investment Australia at IFM Investors, a A$221.7 billion (US$143.3 billion) AUM asset manager owned by Australian superannuation funds.
“It will be important for taxonomies to include adaptation to further mobilise much needed investment in adaptation,” she told ESG Investor. “Investing in adaptation and climate-resilient infrastructure must be prioritised alongside decarbonisation.”
Next year, Australia is due to finalise its first National Climate Risk Assessment and National Adaptation Plan, which will replace the National Climate Resilience and Adaptation Strategy 2021–2025.
The plan, which has taken A$27.4 million and two years to deliver, will offer analysis to guide decisions on how Australia should adapt to its significant climate risks. Australia’s climate financing between 2015 and 2020 totalled A$1.4 billion and included contributions to strengthen adaptation in the country.
Fergus Pitt, a spokesperson for the Investor Group on Climate Change (IGCC), said the adaptation plan -and its companion Net Zero Australia plan, which is currently under development – must both be implemented with same the “impact and prominence”. The plan will outline government priorities, establish policies to decrease emissions, and support new and existing investment in low emissions and renewable activities.
The 103-member institutional investor network with more than US$35 billion in AUM said the adaptation plan should feature a national objective for resilience, a clear list of priority resilience projects, and adaptation and resilience plans for key economic sectors.
Areas for improvement
The opportunity to invest in adaptation comes at a time when responsible investment is growing in Australia, with regulation and investor demand among the factors supporting growth.
Last week, the Responsible Investment Association of Australasia (RIAA) – a network of more than 500 members engaged in responsible, ethical and impact investing representing US$29 trillion in AUM – published its 2024 Responsible Investment Benchmark Report for Australia, which found a 24% rise in responsible investment AUM from 2022, reaching to A$1.6 trillion.
The report also found that greenwashing had overtaken performance concerns as the pre-eminent barrier to responsible investing.
“There has been a genuine effort to lift practices, in the knowledge that it improves accountability and performance,” said Nayanisha Samarakoon, Head of Policy and Advocacy at RIAA. “Regulators’ focus on greenwashing has also contributed to heightened transparency, as investors seek to back up their sustainability claims.”
She added that 2023 saw significant progress from policymakers, including consulting on mandatory climate-related financial reporting, sustainability reporting standards and a draft sustainable finance strategy. The government also provided the Australian Securities and Investments Commission to investigate and enforce action against market participants engaging in greenwashing and other forms of sustainable finance misconduct.
Following consultation, Australia has legislated a mandatory climate reporting regime which will come into force on January 1, as well as releasing a sustainable finance roadmap. Pulido said that mandatory disclosures will see increased adoption of responsible investment integration.
Despite receding performance concerns, 45% of respondents still see this as a deterrent. “We’ll need to see progress on this to encourage more capital flows since sustainability-related products need to demonstrate resilience and competitive performance over longer time horizons to attract institutional investor capital at scale,” said IFM’s Pulido.
Samarakoon said the RIAA and its members expect the government introducing “strong” federal environmental protection laws, to support the momentum from the Global Nature Summit hosted in Australia last month and the number of businesses adopting the Taskforce on Nature-related Financial Disclosures.
Nature underpins approximately half of Australia’s GDP and more 80% of its exports, according to analysis by management consulting company Oliver Wyman. Given growing acceptance that climate and nature risks need to be tackled in tandem to effectively address climate change adaptation could play an important role, with Australia noting the role of natural capital, biodiversity and environmental sustainability in building climate resilience in its current adaptation strategy.
The RIAA has also called on the government improve on modern slavery following the appointment of its first Anti-Slavery Commissioner earlier this month by implementing the 30 recommendations made by the McMillan review to tackle modern slavery tabled in Parliament last year.
Australia was the first country to pass a federal modern slavery act, which came into force in January 2019, but the review suggested the government should introduce penalties for non-compliance with statutory reporting requirements, require entities to report on modern slavery incidents or risks, and lowering the reporting threshold for entities from A$100 million to A$50 million.
Uncertain future
In addition to setting a 2050 net zero target and legally binding emissions reduction targets, Australia has introduced an industrial sector emissions trading scheme under the leadership of Albanese and aimed to reach 83% use of renewables in the power sector by the end of the decade.
Alongside its net zero plan, Labor has set what it called “ambitious and achievable” emissions reduction targets for 2035. Pitt said the government’s highest policy priority to mitigate risks for investors is a strong 2035 emissions reduction target, which is a “key component of investor confidence”.
However, shifting political fortunes may put some of the government’s plans on hold. Australia needs to hold an election before or on 17 May 2025 and Albanese’s approval ratings currently trail opposition leader Peter Dutton.
In June, Dutton said that he would abandon the nation’s legally-binding 2030 emissions targets if he forms Australia’s next government, an announcement met with dismay by investors and leaving question marks over the nation’s direction of travel on climate policy.
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