1 00:00:03,900 --> 00:00:07,230 Jennifer Duke: Welcome to the Fear and Greed daily interview. I'm Jennifer Duke. 2 00:00:07,590 --> 00:00:10,920 Jennifer Duke: Australia's biggest businesses are ramping up their climate goals, with 3 00:00:10,920 --> 00:00:15,599 Jennifer Duke: more ASX 200 companies committing to a net-zero target. And importantly 4 00:00:15,599 --> 00:00:19,590 Jennifer Duke: for investors, nearly 70% of the index is now reporting against 5 00:00:19,590 --> 00:00:23,820 Jennifer Duke: The Task Force for Climate-related Financial Disclosures' (TCFD) framework. This gives 6 00:00:23,820 --> 00:00:27,479 Jennifer Duke: some consistency in reporting and it allows investors to compare 7 00:00:27,480 --> 00:00:30,870 Jennifer Duke: the efforts made by Australian companies to improve their operations. 8 00:00:31,469 --> 00:00:35,278 Jennifer Duke: According to new research by the Australian Council of Superannuation Investors, 9 00:00:35,309 --> 00:00:39,450 Jennifer Duke: it focuses attention on those not reporting or giving limited information. 10 00:00:39,840 --> 00:00:42,930 Jennifer Duke: The Australian Council of Superannuation Investors, ACSI, is a group 11 00:00:42,930 --> 00:00:46,739 Jennifer Duke: of 26 super funds who manage over $ 1 trillion in assets. 12 00:00:47,098 --> 00:00:51,509 Jennifer Duke: On average, they own 10% of every company on the ASX 200. Now, 13 00:00:51,509 --> 00:00:53,910 Jennifer Duke: I know Sean Aylmer mentions the statistic every time he 14 00:00:53,910 --> 00:00:57,090 Jennifer Duke: speaks to ACSI, and with really good reason. It illustrates just 15 00:00:57,090 --> 00:01:00,570 Jennifer Duke: how powerful this group of investors really is. Louise Davidson 16 00:01:00,570 --> 00:01:02,910 Jennifer Duke: is the CEO of ACSI. Louise, welcome back to Fear 17 00:01:02,910 --> 00:01:03,450 Jennifer Duke: and Greed. 18 00:01:04,260 --> 00:01:05,818 Louise Davidson: Thanks, Jennifer. Great to be with you. 19 00:01:06,870 --> 00:01:09,119 Jennifer Duke: So Louise, why does this issue matter so much to 20 00:01:09,120 --> 00:01:09,839 Jennifer Duke: your members? 21 00:01:10,410 --> 00:01:12,389 Louise Davidson: Climate change is, I think, going to be one of 22 00:01:12,389 --> 00:01:18,870 Louise Davidson: the biggest economic impacts or changes for our economy for 23 00:01:19,140 --> 00:01:23,370 Louise Davidson: many years. And so because our members are big investors, 24 00:01:23,849 --> 00:01:27,900 Louise Davidson: the impact of climate change on their investment portfolios has 25 00:01:27,990 --> 00:01:32,310 Louise Davidson: a really financial materiality. And so our members are really 26 00:01:33,000 --> 00:01:36,990 Louise Davidson: keen to make sure that their investments, the companies that they 27 00:01:36,990 --> 00:01:40,530 Louise Davidson: invest in, are managing that risk and looking at the 28 00:01:40,530 --> 00:01:44,220 Louise Davidson: opportunities that are available to the best possible light. 29 00:01:45,270 --> 00:01:47,699 Jennifer Duke: And with those risks and opportunities in mind, are you 30 00:01:47,699 --> 00:01:51,390 Jennifer Duke: satisfied with the increase in the number of ASX 200 companies 31 00:01:51,390 --> 00:01:52,500 Jennifer Duke: committing to net-zero? 32 00:01:53,550 --> 00:01:57,060 Louise Davidson: So the research that we've just produced shows, I think 33 00:01:57,120 --> 00:02:00,270 Louise Davidson: that the system is starting to mature. We've been talking 34 00:02:00,270 --> 00:02:04,979 Louise Davidson: to companies for many years about increasing the extent to 35 00:02:04,980 --> 00:02:09,540 Louise Davidson: which they're measuring and disclosing on their activities to manage 36 00:02:09,540 --> 00:02:14,429 Louise Davidson: climate risk within their organisations. And it is really good, 37 00:02:14,429 --> 00:02:18,299 Louise Davidson: I think, to see that 70% of the ASX 200, so the 38 00:02:18,300 --> 00:02:22,799 Louise Davidson: bigger companies in the index, are now disclosing. There's still 39 00:02:22,799 --> 00:02:25,200 Louise Davidson: some way to go, though. We can still see that 40 00:02:25,200 --> 00:02:29,100 Louise Davidson: there's some room for improvement. And if 70% are disclosing, 41 00:02:29,190 --> 00:02:31,620 Louise Davidson: that means that there's still 30% of course that are not. 42 00:02:32,910 --> 00:02:34,919 Jennifer Duke: Does that make you a little bit worried for when 43 00:02:34,919 --> 00:02:38,370 Jennifer Duke: mandatory climate reporting kicks in if the government introduces it? 44 00:02:39,270 --> 00:02:42,000 Louise Davidson: Yeah, so we do expect that the government will introduce 45 00:02:42,000 --> 00:02:47,010 Louise Davidson: mandatory climate reporting for larger organisations probably to take effect 46 00:02:47,010 --> 00:02:51,750 Louise Davidson: for the '24, '25 financial year. And I guess the fact 47 00:02:51,750 --> 00:02:53,610 Louise Davidson: that we've seen such a big uplift in the number 48 00:02:53,610 --> 00:02:57,150 Louise Davidson: of companies that are reporting shows that companies are starting 49 00:02:57,150 --> 00:03:00,359 Louise Davidson: to position themselves to be ready for that change. I 50 00:03:00,359 --> 00:03:04,019 Louise Davidson: guess the 30% that still haven't come forward with very 51 00:03:04,320 --> 00:03:08,340 Louise Davidson: sophisticated reporting ought to be on notice now, I think, 52 00:03:08,340 --> 00:03:10,349 Louise Davidson: to be really making sure that they are going to be 53 00:03:10,349 --> 00:03:13,950 Louise Davidson: in a position to report adequately against the new regulations 54 00:03:13,950 --> 00:03:17,699 Louise Davidson: when they come in. We think that there's still some 55 00:03:17,699 --> 00:03:22,440 Louise Davidson: room for improvement, in fact, across even the larger companies, 56 00:03:22,440 --> 00:03:24,840 Louise Davidson: to be honest. I mean, some companies are doing a 57 00:03:24,840 --> 00:03:28,650 Louise Davidson: fantastic job, there's no doubt about that. But some companies, 58 00:03:28,679 --> 00:03:32,309 Louise Davidson: even those in the 70% that are reporting, we still 59 00:03:32,309 --> 00:03:35,399 Louise Davidson: see that there are some areas that there needs to 60 00:03:35,400 --> 00:03:38,820 Louise Davidson: be improvement in order for investors to have real confidence 61 00:03:38,880 --> 00:03:41,850 Louise Davidson: about what's going on in terms of climate change management 62 00:03:41,850 --> 00:03:43,470 Louise Davidson: within those organisations. 63 00:03:44,429 --> 00:03:46,110 Jennifer Duke: Can you dig into that a little bit more for 64 00:03:46,110 --> 00:03:49,500 Jennifer Duke: me about how those net-zero commitments vary in the detail, 65 00:03:49,500 --> 00:03:51,749 Jennifer Duke: and is that sort of where The Task Force for Climate- 66 00:03:51,750 --> 00:03:54,570 Jennifer Duke: related Financial Disclosures' framework comes into this? 67 00:03:55,230 --> 00:03:58,830 Louise Davidson: Yeah, so I think the sorts of areas that we see as some 68 00:03:58,950 --> 00:04:03,300 Louise Davidson: opportunity for more focus from companies include on the setting 69 00:04:03,300 --> 00:04:05,639 Louise Davidson: of targets. So a lot of companies have set a 70 00:04:05,639 --> 00:04:10,170 Louise Davidson: net-zero by 2050 target, but they haven't necessarily, I suppose, 71 00:04:10,170 --> 00:04:12,300 Louise Davidson: demonstrated a pathway of how they're going to get to 72 00:04:12,360 --> 00:04:15,810 Louise Davidson: that net-zero. And we don't want a situation where everyone 73 00:04:15,810 --> 00:04:20,309 Louise Davidson: leaves it till 2049 to work out how they're going 74 00:04:20,309 --> 00:04:23,580 Louise Davidson: to get to net- zero within the next 12 months. 75 00:04:23,580 --> 00:04:26,610 Louise Davidson: So what investors are really looking for is the stepping 76 00:04:26,610 --> 00:04:29,428 Louise Davidson: stones along the way, so some midterm targets so that 77 00:04:29,430 --> 00:04:33,540 Louise Davidson: we can see how companies are tracking. And I guess 78 00:04:33,540 --> 00:04:36,210 Louise Davidson: the other thing that we are looking for is there's 79 00:04:36,210 --> 00:04:39,690 Louise Davidson: still a lot of reliance within companies on the use 80 00:04:39,690 --> 00:04:44,370 Louise Davidson: of offsets. What we would like to see is a transitional plan where 81 00:04:44,490 --> 00:04:49,140 Louise Davidson: companies are first and foremost seeking to reduce emissions. And 82 00:04:49,140 --> 00:04:52,440 Louise Davidson: only when that is not possible, which for some companies 83 00:04:52,440 --> 00:04:55,620 Louise Davidson: at the moment, it's not because the technology doesn't yet exist. 84 00:04:55,950 --> 00:04:59,159 Louise Davidson: Only when that's not possible should offsets be being used. 85 00:04:59,370 --> 00:05:02,010 Louise Davidson: So we don't want to see offsets being used as 86 00:05:02,730 --> 00:05:06,238 Louise Davidson: anything but a last resort. And at the moment, there's 87 00:05:06,240 --> 00:05:10,650 Louise Davidson: not enough information to give us confidence for every company 88 00:05:10,650 --> 00:05:12,960 Louise Davidson: that that's the approach being taken. 89 00:05:13,500 --> 00:05:15,480 Jennifer Duke: Stay with me, Louise. We'll be back in a minute. 90 00:05:21,450 --> 00:05:24,540 Jennifer Duke: My guest this morning is Louise Davidson, chief executive of 91 00:05:24,540 --> 00:05:28,800 Jennifer Duke: the Australian Council of Superannuation Investors. Is ACSI having sort 92 00:05:28,800 --> 00:05:31,350 Jennifer Duke: of direct conversations with these businesses about how to get 93 00:05:31,350 --> 00:05:33,539 Jennifer Duke: them to a place where you'd be more comfortable with 94 00:05:33,540 --> 00:05:34,109 Jennifer Duke: what they're doing? 95 00:05:35,190 --> 00:05:39,839 Louise Davidson: So ACSI, we have an extensive program of engagement with companies 96 00:05:39,900 --> 00:05:42,360 Louise Davidson: on behalf of our members. We've been doing that for 97 00:05:42,360 --> 00:05:45,000 Louise Davidson: many years, and so we've got a pretty good understanding 98 00:05:45,000 --> 00:05:47,520 Louise Davidson: of where a lot of companies are in the pathway 99 00:05:48,060 --> 00:05:51,389 Louise Davidson: that they need to take. You can see with what's 100 00:05:51,389 --> 00:05:54,750 Louise Davidson: happening with weather systems around the world, just how urgent 101 00:05:54,750 --> 00:05:58,409 Louise Davidson: this issue is. And so we are encouraging companies to 102 00:05:58,410 --> 00:06:01,859 Louise Davidson: be really focused on this and have a sense of 103 00:06:01,860 --> 00:06:05,159 Louise Davidson: urgency about it. One of the other things that we 104 00:06:05,160 --> 00:06:08,010 Louise Davidson: have some concern about is some companies we don't think 105 00:06:08,460 --> 00:06:12,569 Louise Davidson: are yet looking closely enough at what they're going to 106 00:06:12,570 --> 00:06:16,349 Louise Davidson: require from an adaptation perspective. So going back to those 107 00:06:16,350 --> 00:06:20,040 Louise Davidson: severe weather events that we're seeing around the world, they 108 00:06:20,040 --> 00:06:23,130 Louise Davidson: have a huge economic impact of course, on not just 109 00:06:23,130 --> 00:06:26,130 Louise Davidson: society, but on many businesses as well. So we want 110 00:06:26,250 --> 00:06:28,860 Louise Davidson: to understand from companies how are they going to manage 111 00:06:28,860 --> 00:06:30,690 Louise Davidson: those issues in their portfolios. 112 00:06:31,770 --> 00:06:34,109 Jennifer Duke: And part of that is obviously going to affect the 113 00:06:34,109 --> 00:06:36,239 Jennifer Duke: smaller end of the scale. And you alluded to this 114 00:06:36,240 --> 00:06:38,820 Jennifer Duke: before that maybe that smaller end is dragging its heels 115 00:06:38,820 --> 00:06:41,580 Jennifer Duke: slightly on this. Why is that the case and what 116 00:06:41,580 --> 00:06:43,618 Jennifer Duke: needs to be done to help them come along on 117 00:06:43,620 --> 00:06:44,460 Jennifer Duke: this journey? 118 00:06:45,809 --> 00:06:48,359 Louise Davidson: Yes, it's challenging because a lot of this work is 119 00:06:48,360 --> 00:06:51,690 Louise Davidson: quite detailed and takes quite a bit of resourcing and 120 00:06:51,690 --> 00:06:57,270 Louise Davidson: some of the smaller organisations perhaps haven't resourced adequately to 121 00:06:57,540 --> 00:07:00,000 Louise Davidson: really be doing this work as yet. The other part 122 00:07:00,000 --> 00:07:02,220 Louise Davidson: of the market that might be, I suppose, lagging a 123 00:07:02,220 --> 00:07:06,059 Louise Davidson: little bit, Jennifer, is those companies that don't see themselves 124 00:07:06,059 --> 00:07:11,219 Louise Davidson: as having a big exposure to climate risk. So if 125 00:07:11,219 --> 00:07:13,680 Louise Davidson: you look at the mining industry for example, they have 126 00:07:13,680 --> 00:07:17,070 Louise Davidson: been aware of the risk for a lot longer than, say, 127 00:07:17,070 --> 00:07:19,740 Louise Davidson: some smaller companies that don't have the same sort of 128 00:07:20,099 --> 00:07:24,900 Louise Davidson: impact assessment. But I think what we would encourage all 129 00:07:24,900 --> 00:07:27,509 Louise Davidson: companies to be doing now is understanding that they will 130 00:07:27,509 --> 00:07:30,929 Louise Davidson: have some form of risk coming their way and to 131 00:07:30,930 --> 00:07:34,171 Louise Davidson: be starting to measure and manage how they're going to deal with that. 132 00:07:34,171 --> 00:07:39,389 Jennifer Duke: And as part of that scenario analysis, how does that work in figuring out 133 00:07:39,389 --> 00:07:40,080 Jennifer Duke: that risk? 134 00:07:41,010 --> 00:07:43,770 Louise Davidson: Yeah, so scenario analysis is an important part of the 135 00:07:43,799 --> 00:07:48,419 Louise Davidson: TCFD reporting program and we really encourage companies to be 136 00:07:48,720 --> 00:07:52,830 Louise Davidson: thinking about, so that's about what scenarios are they going 137 00:07:52,830 --> 00:07:55,950 Louise Davidson: to measure against? What sorts of carbon constraints are they 138 00:07:55,950 --> 00:07:59,370 Louise Davidson: going to assume for their portfolios? What sorts of transition 139 00:07:59,670 --> 00:08:03,480 Louise Davidson: opportunities will there be? And we are really encouraging companies to 140 00:08:03,480 --> 00:08:06,779 Louise Davidson: go into that with a really robust mind frame to 141 00:08:06,779 --> 00:08:11,160 Louise Davidson: really challenge themselves about what the outer reaches of that 142 00:08:11,160 --> 00:08:14,070 Louise Davidson: might look like. So not just to pick a cozy 143 00:08:14,070 --> 00:08:17,460 Louise Davidson: scenario that is going to mean that they don't really 144 00:08:17,460 --> 00:08:19,650 Louise Davidson: need to change much of what they're doing, but actually 145 00:08:19,650 --> 00:08:23,069 Louise Davidson: genuinely challenge themselves on what the worst or best case 146 00:08:23,070 --> 00:08:26,490 Louise Davidson: scenarios might be. I think the other thing I would 147 00:08:26,490 --> 00:08:29,970 Louise Davidson: say is that because the government's going to introduce mandatory 148 00:08:29,970 --> 00:08:33,030 Louise Davidson: climate reporting, I think we will expect to see the development 149 00:08:33,030 --> 00:08:35,939 Louise Davidson: of a lot more guidance and tools from federal government 150 00:08:35,940 --> 00:08:38,458 Louise Davidson: that will help to support companies in doing this work 151 00:08:38,460 --> 00:08:40,919 Louise Davidson: as well as we get closer to that introduction. 152 00:08:41,879 --> 00:08:44,338 Jennifer Duke: Is part of the challenge having the skills within the 153 00:08:44,340 --> 00:08:47,728 Jennifer Duke: organisation to be able to report on these measures, have 154 00:08:47,730 --> 00:08:50,939 Jennifer Duke: the understanding? That sort of softer, I don't know if 155 00:08:50,940 --> 00:08:53,400 Jennifer Duke: that even counts as soft skill, but that level of 156 00:08:53,610 --> 00:08:56,309 Jennifer Duke: skill shortage I'm hearing is quite an issue in Australia. 157 00:08:57,059 --> 00:08:58,589 Louise Davidson: There is a bit of a skill shortage in that 158 00:08:58,590 --> 00:09:02,250 Louise Davidson: area, but I think really in this case, there's a lot 159 00:09:02,250 --> 00:09:05,400 Louise Davidson: of information available to companies. And I think one of 160 00:09:05,400 --> 00:09:07,170 Louise Davidson: the things that we look at when we are thinking 161 00:09:07,170 --> 00:09:10,679 Louise Davidson: about this with companies is how is the board thinking 162 00:09:10,679 --> 00:09:12,780 Louise Davidson: about this? What sort of governance have they got in 163 00:09:12,780 --> 00:09:16,139 Louise Davidson: place to manage this transition that they're going to have to 164 00:09:16,139 --> 00:09:19,830 Louise Davidson: be part of? And have they got either the skills 165 00:09:19,830 --> 00:09:23,160 Louise Davidson: on the board or access to expertise to help guide 166 00:09:23,160 --> 00:09:27,389 Louise Davidson: them in that? We don't necessarily think that every board 167 00:09:27,389 --> 00:09:29,759 Louise Davidson: needs to have a climate expert on them, although some 168 00:09:29,759 --> 00:09:32,940 Louise Davidson: boards, those that have really big exposure, may well want 169 00:09:32,940 --> 00:09:35,968 Louise Davidson: to have that. But every board needs to make sure 170 00:09:35,969 --> 00:09:39,000 Louise Davidson: that they've got access to information that they can trust 171 00:09:39,059 --> 00:09:40,230 Louise Davidson: around this transition. 172 00:09:41,220 --> 00:09:45,360 Jennifer Duke: I think that boardroom conversation piece is absolutely fascinating. Are 173 00:09:45,360 --> 00:09:48,869 Jennifer Duke: you feeling optimistic about what the future's going to hold 174 00:09:48,870 --> 00:09:51,659 Jennifer Duke: based on the sort of discussions you've been having with directors? 175 00:09:52,469 --> 00:09:54,900 Louise Davidson: Well, I think there is some cause for optimism. I 176 00:09:54,900 --> 00:09:57,569 Louise Davidson: mean, the results of this research, I guess, give us 177 00:09:57,570 --> 00:10:01,590 Louise Davidson: some cause for optimism, but it is such a huge 178 00:10:02,309 --> 00:10:04,890 Louise Davidson: job ahead of us that it's really going to take 179 00:10:05,219 --> 00:10:09,119 Louise Davidson: a very committed focus over the next several decades to 180 00:10:09,120 --> 00:10:11,639 Louise Davidson: get us where we need to get. And I think 181 00:10:11,639 --> 00:10:14,280 Louise Davidson: one of the things that we would really encourage companies 182 00:10:14,580 --> 00:10:17,040 Louise Davidson: to do, as I said earlier, is to be approaching 183 00:10:17,040 --> 00:10:19,679 Louise Davidson: this with a real sense of urgency because you can 184 00:10:19,679 --> 00:10:22,169 Louise Davidson: see from what's going on around the world that things 185 00:10:22,170 --> 00:10:25,650 Louise Davidson: are changing very quickly at the moment, and we really 186 00:10:25,650 --> 00:10:29,010 Louise Davidson: need to make sure that we are really putting ourselves 187 00:10:29,010 --> 00:10:33,210 Louise Davidson: in that position to reach the 1. 5 maximum warming 188 00:10:33,300 --> 00:10:37,078 Louise Davidson: goal. And we've got to move quickly to stop that 189 00:10:37,080 --> 00:10:38,280 Louise Davidson: slipping away from us. 190 00:10:38,580 --> 00:10:40,530 Jennifer Duke: Louise, thank you for talking to Fear and Greed. 191 00:10:41,340 --> 00:10:42,960 Louise Davidson: Thanks very much, Jennifer. A pleasure. 192 00:10:43,650 --> 00:10:46,590 Jennifer Duke: And that was Louise Davidson, chief executive of the Australian 193 00:10:46,590 --> 00:10:50,160 Jennifer Duke: Council of Superannuation Investors. This is the Fear and Greed 194 00:10:50,160 --> 00:10:53,490 Jennifer Duke: business interview. Join us every morning for the full episode 195 00:10:53,490 --> 00:10:56,999 Jennifer Duke: of Fear and Greed, Australia's best business podcast. I'm Jennifer 196 00:10:57,000 --> 00:10:59,939 Jennifer Duke: Duke, economics correspondent at Capital Brief, and filling in for 197 00:10:59,940 --> 00:11:01,739 Jennifer Duke: Sean Aylmer. Have a great day.