Business ramping up response to Paris Agreement despite barriers, including long term policy uncertainty Media Release

Apr 12, 2017 - 12:00am

KEY POINTS
- Qualitative research by KPMG explores how companies are already moving to understand and disclose their prospects under efforts to limit warming to well below 2C.
- This is largely driven by increasing pressure from investors, regulators and other stakeholders.
- However barriers, including lack of policy certainty and detailed industry standards, mean efforts so far still have many shortcomings.
- Companies studied include BHP Billiton, Westpac, AGL, Aurizon, Royal Dutch Shell, Glencore Xstrata.

Many large businesses have already begun factoring in the Paris Agreement’s objective of limiting warming to well below 2°C into their long term, research released today by KPMG and The Climate Institute has found. Despite facing significant barriers to effective action, including an uncertain policy outlook, many are getting on with responses to climate risk with increasing sophistication.

“From virtually no activity two years ago, more than 200 companies worldwide – including three large Australian companies - have begun to evaluate and disclose how they might fare with the sharp drop in emissions required over the next few decades under the Paris Agreement,” said KPMG’s Head of Sustainability, Adrian King

Acting CEO of The Climate Institute, Olivia Kember, said that although the moves so far were voluntary, “pressure from investors, regulators and customers is making the need for such corporate action more urgent.”

Mr King said the need to consider a 1.5–2°C future had been sharpened by new understanding of the duties of company directors in relation to climate change1, as well as by APRA’s announcement2 that it intends to look at climate risk in the financial institutions it supervises.

“Additionally, businesses are facing pressure from investors, who are increasingly aware that climate risk is a financial risk that is already believed to be affecting asset values, revenues and operational costs in some sectors,” he said.

The Climate Institute’s Head of Finance and Investment, Kate Mackenzie, said Australia’s lack of climate policy direction was making the task much more difficult, so it was not surprising that the approaches to date were in their early stages. The research pointed to the lack of policy certainty as a brake in the process of building Board and Management buy-in for meaningful responses.

“On a practical level, policy uncertainty makes it more difficult for businesses to plan for a decarbonising economy,” she said. “We can see this clearly in Australia’s electricity sector, where the lack of clear climate policy has stymied investment and led to excessive costs3.”

“Investors want to know how companies will look as the world acts to limit global warming - policy uncertainty doesn’t need to be another barrier when problems like short-term incentives and misunderstandings of the significance of climate impacts are already in play.”

Despite this, the Corporate responses to the 1.5-2°C Paris agreement climate objectives report shows that leading companies have been innovative and thoughtful in their efforts to respond to the goals of limiting warming to below 2°C. Many of Australia’s biggest companies and business groups have already clearly articulated the need for better climate and energy policy4.

“This research illustrates the effort that many companies are putting into responding to the Paris Agreement commitments, but also how companies are between a rock and hard place.” Ms Mackenzie said.

The report makes a number of recommendations: in relation to approaches to analysis; that companies should set ambitious carbon reduction targets consistent with the Paris agreement objectives, that boards should embrace a “safe to fail” culture and approach to scale up meaningful long-term ambition; and that action should be appropriately incentivised in recognition of the long term nature of climate risk.

For media inquiries:

Brinsley Marlay ● Media & Communications Manager ● 0422 140 555


Notes for Editors:
The paper draws on qualitative research, including interviews with eight large companies that have already made significant effort to consider how a <2°C future will affect them.

It also analyses the Science-Based Targets Initiative, a voluntary programme, which more than 200 companies around the world, including seven Australian companies, have committed to. The SBTI sees companies commit to playing their own part in limiting global warming to within a realm deemed as safe by scientists and the 190Countries that signed the Paris Agreement in December 2015.

The paper describes how other developed countries have already set out their 2050 emissions reductions targets, and strategies for achieving them.

Method
With limited public information about corporate action in this area to date, and many businesses still in exploration and experimentation phases, the approach to developing this paper was to:
• consider emerging frameworks and tools for analysing the 1.5-2°C objectives, developing strategic responses, setting related targets, and disclosure: desktop research was conducted using publicly-available material and drawing on findings from KPMG’s Corporate Sustainability Report series
• interview selected businesses to understand the challenges and lessons they have learnt: in total, eight businesses were consulted and a further 12 were evaluated through publicly available sources
• engage with WWF to identify the key focus points for the Science Based Targets Initiative (SBTI) and how companies can learn from the experiences of those before them when setting a target.

Footnotes

1 – The Centre of Policy Develop and The Future Business Council - http://cpd.org.au/wp-content/uploads/2016/10/Legal-Opinion-on-Climate-Change-and-Directors-Duties.pdf
2. – APRA – Geoff Summerhayes speech at the Insurance Council of Australia Annual Forum - http://www.apra.gov.au/Speeches/Pages/Australias-new-horizon.aspx
3. - Australian Energy Council - https://www.energycouncil.com.au/analysis/how-much-carbon-tax-are-you-paying/
4. - Australian Climate Roundtable, 2015, “Joint Principles for Climate Policy” - http://www.australianclimateroundtable.org/wp-content/uploads/2015/06/Climate-roundtable-joint-principles-June-29-2015-final-embargoed.pdf
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