1 00:00:04,470 --> 00:00:06,930 Sean Aylmer: Welcome to the Fear and Greed Daily Interview. I'm Sean 2 00:00:06,930 --> 00:00:10,170 Sean Aylmer: Aylmer. One of the big political events last year was the passing 3 00:00:10,170 --> 00:00:14,100 Sean Aylmer: of Climate Change Legislation, committing Australia to a 43% reduction 4 00:00:14,100 --> 00:00:18,780 Sean Aylmer: in emissions by 2030 and net zero by 2050. Not 5 00:00:18,870 --> 00:00:21,060 Sean Aylmer: only is it good for the environment, but it also 6 00:00:21,060 --> 00:00:24,120 Sean Aylmer: provides a lot more certainty for business, they now know 7 00:00:24,120 --> 00:00:27,090 Sean Aylmer: the rules by which they have to operate. But what 8 00:00:27,090 --> 00:00:30,780 Sean Aylmer: are the expectations of investors on this front? Well, one 9 00:00:30,780 --> 00:00:33,300 Sean Aylmer: of the key expectations is that the transition to a 10 00:00:33,300 --> 00:00:36,990 Sean Aylmer: low carbon future is a fair and just one. Enlisted 11 00:00:36,990 --> 00:00:39,809 Sean Aylmer: companies that don't bring along their workers and their communities 12 00:00:40,020 --> 00:00:43,470 Sean Aylmer: might just risk their social license to operate. The Australian 13 00:00:43,530 --> 00:00:47,280 Sean Aylmer: Council of Superannuation Investors is a group of 26 super 14 00:00:47,280 --> 00:00:51,330 Sean Aylmer: funds who manage over $ 1 trillion in assets. I've mentioned 15 00:00:51,330 --> 00:00:55,410 Sean Aylmer: this statistic before, but bears repeating, on average, they own 16 00:00:55,410 --> 00:01:00,120 Sean Aylmer: 10% of every company on the ASX 200. They are 17 00:01:00,120 --> 00:01:04,290 Sean Aylmer: influential. Louise Davidson is the Chief Executive Officer of ACSI. 18 00:01:04,290 --> 00:01:05,880 Sean Aylmer: Louise, welcome back to Fear and Greed. 19 00:01:06,030 --> 00:01:06,630 Louise Davidson: Thank you. 20 00:01:06,840 --> 00:01:11,850 Sean Aylmer: So what do investors expect from companies as they move 21 00:01:12,270 --> 00:01:15,480 Sean Aylmer: away from emissions intensive operations? 22 00:01:15,840 --> 00:01:18,089 Louise Davidson: There's lots and lots of different things that we think 23 00:01:18,090 --> 00:01:23,640 Louise Davidson: companies need to be doing. So the particular issue that 24 00:01:23,730 --> 00:01:27,630 Louise Davidson: you were talking about just now was how we make 25 00:01:27,630 --> 00:01:32,070 Louise Davidson: sure that communities that have a really big exposure to 26 00:01:32,280 --> 00:01:36,810 Louise Davidson: emissions intensive industries don't end up getting left behind in 27 00:01:36,810 --> 00:01:40,890 Louise Davidson: this transition. And so examples of the kinds of industries 28 00:01:40,980 --> 00:01:45,990 Louise Davidson: that we're talking about would be fossil fuel generation assets, 29 00:01:46,170 --> 00:01:50,130 Louise Davidson: coal fire power stations, might be coal mines, might be 30 00:01:50,880 --> 00:01:53,400 Louise Davidson: some of those heavy industries that have a high emission 31 00:01:53,400 --> 00:01:57,180 Louise Davidson: space. And I guess what we're really concerned about, it's so 32 00:01:57,180 --> 00:01:59,760 Louise Davidson: important for us to make this transition and we've got 33 00:01:59,760 --> 00:02:03,450 Louise Davidson: so little time to do it, that making sure that 34 00:02:03,450 --> 00:02:08,460 Louise Davidson: we don't leave people behind is really important because that 35 00:02:08,460 --> 00:02:13,470 Louise Davidson: might lead to resistance, as well as to social unrest, 36 00:02:14,010 --> 00:02:17,370 Louise Davidson: high unemployment in those communities. And so I think for 37 00:02:17,370 --> 00:02:20,850 Louise Davidson: an investor perspective, we want this transition to happen as 38 00:02:21,030 --> 00:02:27,990 Louise Davidson: smoothly and as gradually as possible, rather than creating unnecessary chaos. 39 00:02:29,190 --> 00:02:32,700 Sean Aylmer: Okay. So let's unpack that a bit. You're saying those 40 00:02:32,790 --> 00:02:35,520 Sean Aylmer: of us who live in Sydney or Melbourne or Brisbane 41 00:02:35,520 --> 00:02:39,360 Sean Aylmer: or Adelaide and in a sense, kind of support the 42 00:02:39,360 --> 00:02:43,919 Sean Aylmer: transition of the economy, that's a very sort of different 43 00:02:43,919 --> 00:02:47,040 Sean Aylmer: state of mind to a coal miner in Queensland, for 44 00:02:47,040 --> 00:02:49,139 Sean Aylmer: example, outback Queensland where there may not be a lot 45 00:02:49,139 --> 00:02:52,530 Sean Aylmer: of other work. That's kind of the comparison you're making 46 00:02:52,530 --> 00:02:55,980 Sean Aylmer: and the importance of looking after that individual who is 47 00:02:55,980 --> 00:02:59,250 Sean Aylmer: in outback Queensland, who has just as many rights and 48 00:02:59,340 --> 00:03:02,250 Sean Aylmer: are as important as a person like me sitting in Sydney. 49 00:03:02,400 --> 00:03:05,610 Louise Davidson: Yeah, that's right. And I think it's broader than just 50 00:03:05,610 --> 00:03:08,700 Louise Davidson: the coal miner because of course there are whole communities 51 00:03:08,910 --> 00:03:14,490 Louise Davidson: that exist around coal mines or electricity generators and so 52 00:03:14,490 --> 00:03:18,480 Louise Davidson: on, and so it's really about making sure that the 53 00:03:18,930 --> 00:03:22,650 Louise Davidson: transition takes into account all of those people and communities. 54 00:03:23,070 --> 00:03:28,109 Louise Davidson: So this is a job obviously for companies because companies 55 00:03:28,710 --> 00:03:31,919 Louise Davidson: are the kind of big interest for us because our 56 00:03:31,919 --> 00:03:34,860 Louise Davidson: members are investing in those companies, and so we want 57 00:03:34,860 --> 00:03:39,090 Louise Davidson: to have information from companies to show us what their 58 00:03:39,090 --> 00:03:43,530 Louise Davidson: plans are and to demonstrate that there is detailed planning 59 00:03:43,530 --> 00:03:45,990 Louise Davidson: underway. Of course, it's also going to be a big 60 00:03:45,990 --> 00:03:50,490 Louise Davidson: job for government because this is not something that can 61 00:03:50,490 --> 00:03:52,500 Louise Davidson: happen in isolation from government. 62 00:03:53,490 --> 00:03:55,380 Sean Aylmer: I mean, what are the risks if you don't have, 63 00:03:55,620 --> 00:03:58,050 Sean Aylmer: or if you have an unjust transition? 64 00:03:58,890 --> 00:04:02,340 Louise Davidson: The risks are that there are whole communities or whole 65 00:04:02,340 --> 00:04:07,020 Louise Davidson: workforces that are left with abrupt change to their circumstance, 66 00:04:07,890 --> 00:04:11,369 Louise Davidson: who don't have an opportunity to make transition to other 67 00:04:11,430 --> 00:04:16,440 Louise Davidson: employment opportunities or other locations. And so for a start, 68 00:04:16,440 --> 00:04:18,360 Louise Davidson: that's not really what we would see as being a 69 00:04:18,360 --> 00:04:22,049 Louise Davidson: fair situation, and we think that companies who let that 70 00:04:22,050 --> 00:04:27,600 Louise Davidson: happen around their operations, that there's a lot of reputational 71 00:04:27,600 --> 00:04:32,279 Louise Davidson: risk attached to that. And so companies that sustain significant 72 00:04:32,279 --> 00:04:36,360 Louise Davidson: reputational risk often lose a lot of value as well, 73 00:04:36,390 --> 00:04:38,279 Louise Davidson: and so we don't want to see that happen. The 74 00:04:38,279 --> 00:04:41,279 Louise Davidson: other thing that we are concerned about is that if 75 00:04:41,279 --> 00:04:46,260 Louise Davidson: there is a really widespread failure to manage this transition 76 00:04:46,260 --> 00:04:50,279 Louise Davidson: in a fair way, there's a risk that we might 77 00:04:50,279 --> 00:04:54,479 Louise Davidson: see large swaths of unemployment, that we might see social 78 00:04:54,480 --> 00:04:58,170 Louise Davidson: unrest and that we might see increased resistance to making 79 00:04:58,170 --> 00:04:59,880 Louise Davidson: the transition in the first place. 80 00:05:00,000 --> 00:05:03,029 Sean Aylmer: Yeah, I mean, and the Australian Council of Superannuation Investors 81 00:05:03,029 --> 00:05:07,109 Sean Aylmer: represents really big investors. And so at face value, it 82 00:05:07,110 --> 00:05:09,210 Sean Aylmer: wasn't clear to me why it matters to you so 83 00:05:09,210 --> 00:05:11,729 Sean Aylmer: much, but you've just put it ... I mean, it's a 84 00:05:11,730 --> 00:05:13,740 Sean Aylmer: right thing to do, but it's also financially the right 85 00:05:13,740 --> 00:05:16,380 Sean Aylmer: thing to do, and in terms of economics, it's a 86 00:05:16,380 --> 00:05:17,039 Sean Aylmer: good thing to do. 87 00:05:17,250 --> 00:05:20,760 Louise Davidson: That's right. So from our perspective, one of the things 88 00:05:20,760 --> 00:05:23,400 Louise Davidson: that we really work on on behalf of our members 89 00:05:23,400 --> 00:05:30,089 Louise Davidson: is protecting their investment in companies against big economic shocks 90 00:05:30,089 --> 00:05:32,460 Louise Davidson: that could be avoided. And so we see this as 91 00:05:32,460 --> 00:05:37,349 Louise Davidson: being an economic shock that can be avoided, and it just 92 00:05:37,529 --> 00:05:41,130 Louise Davidson: makes a lot of sense for us to really be 93 00:05:41,220 --> 00:05:43,740 Louise Davidson: asking companies to be doing the planning and to be 94 00:05:43,740 --> 00:05:46,440 Louise Davidson: transparent about their planning as well, and to be working 95 00:05:46,440 --> 00:05:49,530 Louise Davidson: with their local communities and making sure that they are 96 00:05:49,740 --> 00:05:53,250 Louise Davidson: working with all the stakeholders who've got such a keen 97 00:05:53,250 --> 00:05:55,950 Louise Davidson: interest in what is going to happen to their local area. 98 00:05:56,250 --> 00:05:57,960 Sean Aylmer: Stay with me, Louise. We'll be back in a minute. 99 00:05:57,960 --> 00:06:06,390 Sean Aylmer: My guest this morning is Louise Davidson, Chief Executive of the 100 00:06:06,390 --> 00:06:09,989 Sean Aylmer: Australian Council of Superannuation Investors. In the last couple of 101 00:06:09,990 --> 00:06:14,520 Sean Aylmer: years, we've had some very high profile cases where investors 102 00:06:14,520 --> 00:06:18,390 Sean Aylmer: have marked down companies, Rio Tinto and Juukan Gorge in 103 00:06:18,420 --> 00:06:23,610 Sean Aylmer: Western Australia being an example, AGL Energies desire to split 104 00:06:23,610 --> 00:06:26,580 Sean Aylmer: into two, being another example that your members are very 105 00:06:26,580 --> 00:06:29,910 Sean Aylmer: powerful, and your organization is very powerful, it must be 106 00:06:29,910 --> 00:06:33,660 Sean Aylmer: sometimes challenging to make sure they're all working the same direction. 107 00:06:33,870 --> 00:06:37,020 Louise Davidson: Yeah, I mean, guess for us, one of the things that 108 00:06:37,020 --> 00:06:41,580 Louise Davidson: simplifies making sure everything's working in the right direction is 109 00:06:41,580 --> 00:06:44,880 Louise Davidson: we've got a really clear remit from our members, which 110 00:06:44,880 --> 00:06:49,320 Louise Davidson: is to improve the performance of companies on environmental, social, 111 00:06:49,320 --> 00:06:53,669 Louise Davidson: and governance issues, on ESG issues. And so climate change 112 00:06:53,670 --> 00:06:56,730 Louise Davidson: clearly is one of the really big issues in that 113 00:06:56,730 --> 00:07:01,800 Louise Davidson: basket. And investors really like certainty, and they really like 114 00:07:01,860 --> 00:07:05,940 Louise Davidson: the idea of the transition happening in a planned, gradual 115 00:07:05,940 --> 00:07:09,690 Louise Davidson: and orderly way. And so that's one of the real 116 00:07:09,690 --> 00:07:12,270 Louise Davidson: focuses for us, is how do we make sure that 117 00:07:12,300 --> 00:07:14,520 Louise Davidson: companies are approaching this in a way that's going to 118 00:07:14,520 --> 00:07:17,940 Louise Davidson: deliver on that planned and orderly transition. 119 00:07:18,120 --> 00:07:19,530 Sean Aylmer: Are the companies getting better at it? 120 00:07:19,890 --> 00:07:23,340 Louise Davidson: Yes. I mean, there's a really big range actually, as you might 121 00:07:23,340 --> 00:07:26,520 Louise Davidson: expect, I guess, in how well companies are or are 122 00:07:26,520 --> 00:07:28,770 Louise Davidson: not managing this. But one of the things that we 123 00:07:28,770 --> 00:07:32,160 Louise Davidson: did find when we were doing this work that we've 124 00:07:32,160 --> 00:07:36,300 Louise Davidson: recently done on just transition, is that Australian companies are 125 00:07:36,300 --> 00:07:39,030 Louise Davidson: probably not as far advanced as some of their international 126 00:07:39,030 --> 00:07:43,380 Louise Davidson: peers. So we are seeing some international companies who are 127 00:07:43,380 --> 00:07:46,560 Louise Davidson: reporting in a much more detailed fashion on what they're 128 00:07:46,560 --> 00:07:49,320 Louise Davidson: doing to make sure that the transition is just for 129 00:07:49,320 --> 00:07:51,300 Louise Davidson: their workforce and communities. 130 00:07:51,510 --> 00:07:55,620 Sean Aylmer: Okay. What about, are there some sectors that are better 131 00:07:55,620 --> 00:07:58,020 Sean Aylmer: than others or are there some sectors that it's just easier 132 00:07:58,140 --> 00:07:58,590 Sean Aylmer: to do it? 133 00:07:58,950 --> 00:08:01,950 Louise Davidson: Oh, well, there are there sectors where it's easier, I mean, the 134 00:08:01,950 --> 00:08:05,910 Louise Davidson: lower your carbon exposure, I suppose. And then if you 135 00:08:05,910 --> 00:08:09,480 Louise Davidson: look at companies that have high carbon exposure, there's also 136 00:08:09,480 --> 00:08:12,600 Louise Davidson: some geographies probably where it's easier as well, where it might 137 00:08:12,840 --> 00:08:18,360 Louise Davidson: be more practical to be pivoting to renewable generation instead 138 00:08:18,360 --> 00:08:21,420 Louise Davidson: of coal fire generation, or there might be other physical 139 00:08:21,420 --> 00:08:28,050 Louise Davidson: assets nearby that can be used to replace the income 140 00:08:28,050 --> 00:08:31,620 Louise Davidson: from whatever the fossil fuel industry was. So it really 141 00:08:31,620 --> 00:08:33,750 Louise Davidson: varies, and I think that's one of the things about 142 00:08:33,750 --> 00:08:37,500 Louise Davidson: this is it's very context specific. And so one of 143 00:08:37,500 --> 00:08:40,770 Louise Davidson: the things we think ... so in addition to asking companies 144 00:08:40,770 --> 00:08:44,250 Louise Davidson: to take certain actions, we're also asking governments to take 145 00:08:44,250 --> 00:08:46,200 Louise Davidson: certain actions, and we would like to see the federal 146 00:08:46,200 --> 00:08:50,939 Louise Davidson: government really play an oversight role here, an enabling role, 147 00:08:52,080 --> 00:08:54,689 Louise Davidson: particularly for local government, because I think local government's going 148 00:08:54,690 --> 00:08:56,250 Louise Davidson: to play a really key role here. 149 00:08:56,610 --> 00:08:59,100 Sean Aylmer: And a lot of these assets, Sydney Airport's an example, 150 00:08:59,700 --> 00:09:02,490 Sean Aylmer: potentially Origin Energy, they're not actually going to be listed 151 00:09:02,490 --> 00:09:06,690 Sean Aylmer: either. So organizations like yours will have less influence, unless, 152 00:09:06,690 --> 00:09:09,000 Sean Aylmer: of course, your members are shareholder, own a big chunk 153 00:09:09,000 --> 00:09:12,150 Sean Aylmer: of it, but government probably needs a role to play 154 00:09:12,330 --> 00:09:14,010 Sean Aylmer: for those unlisted assets too. 155 00:09:14,190 --> 00:09:17,850 Louise Davidson: Yeah, that's true. But actually as you point out, so 156 00:09:17,850 --> 00:09:20,969 Louise Davidson: our members, I mean, the work that my organization does 157 00:09:20,970 --> 00:09:24,510 Louise Davidson: is focused on listed companies, but our members do have 158 00:09:24,510 --> 00:09:29,040 Louise Davidson: big exposure to unlisted assets, particularly property and infrastructure, and 159 00:09:29,040 --> 00:09:32,370 Louise Davidson: so they will also be working with those organizations on 160 00:09:32,370 --> 00:09:34,260 Louise Davidson: a lot of these issues at the same time. So it's 161 00:09:34,410 --> 00:09:36,750 Louise Davidson: kind of a multi- pronged approach, if you like. 162 00:09:36,840 --> 00:09:42,150 Sean Aylmer: Yeah. So for 2023, this, obviously for ACSI, for the Australian Council 163 00:09:42,150 --> 00:09:45,240 Sean Aylmer: of Superannuation Investors, it's kind of a very high priority. 164 00:09:45,240 --> 00:09:47,160 Sean Aylmer: Do you think it's a very high priority for your members 165 00:09:47,160 --> 00:09:47,640 Sean Aylmer: as well? 166 00:09:47,700 --> 00:09:51,720 Louise Davidson: Yeah, I think this is, so climate change in general and 167 00:09:51,720 --> 00:09:55,530 Louise Davidson: its impact on investments and on the economy and this 168 00:09:55,530 --> 00:09:59,550 Louise Davidson: transition, this economic transition that we need to make is 169 00:09:59,850 --> 00:10:03,929 Louise Davidson: huge, and it's going to affect really every facet of 170 00:10:03,929 --> 00:10:07,679 Louise Davidson: investment and of our economic life, I think. So getting 171 00:10:07,679 --> 00:10:11,790 Louise Davidson: it right, apart from obviously the survivability of the planet, 172 00:10:11,790 --> 00:10:13,170 Louise Davidson: which is kind of important as well. 173 00:10:13,260 --> 00:10:13,860 Sean Aylmer: Yeah, sort of. 174 00:10:14,700 --> 00:10:16,290 Louise Davidson: Getting it right is pretty critical. 175 00:10:16,380 --> 00:10:18,180 Sean Aylmer: Louise, thank you for talking to Fear and Greed. 176 00:10:18,330 --> 00:10:19,950 Louise Davidson: It's a pleasure. It was lovely to speak to you. 177 00:10:20,160 --> 00:10:23,309 Sean Aylmer: That was Louise Davidson, Chief Executive of the Australian Council 178 00:10:23,309 --> 00:10:26,250 Sean Aylmer: of Superannuation Investors. This is the Fear and Greed Daily 179 00:10:26,250 --> 00:10:28,650 Sean Aylmer: Interview. Join us every morning for the full episode of 180 00:10:28,650 --> 00:10:32,190 Sean Aylmer: Fear and Greed, Australia's most popular business podcast. I'm Sean Aylmer, 181 00:10:32,460 --> 00:10:33,150 Sean Aylmer: enjoy your day.