התמלול המלא של Interview: How this group is forcing companies to take climate action

I guess the fact that we've seen such a big uplift in the number of companies that are reporting shows that companies are starting to position themselves to be ready for that change. I guess the 30% that still haven't come forward with very sophisticated reporting ought to be on notice now, I think, to be really making sure that they are going to be in a position to report adequately against the new regulations when they come in. We think that there's still some room for improvement, in fact, across even the larger companies, to be honest. I mean, some companies are doing a fantastic job, there's no doubt about that. But some companies, even those in the 70% that are reporting, we still see that there are some areas that there needs to be improvement in order for investors to have real confidence about what's going on in terms of climate change management within those organisations. 00:03:44 Jennifer Duke: Can you dig into that a little bit more for me about how those net-zero commitments vary in the detail, and is that sort of where The Task Force for Climate- related Financial Disclosures' framework comes into this? 00:03:55 Louise Davidson: Yeah, so I think the sorts of areas that we see as some opportunity for more focus from companies include on the setting of targets. So a lot of companies have set a net-zero by 2050 target, but they haven't necessarily, I suppose, demonstrated a pathway of how they're going to get to that net-zero. And we don't want a situation where everyone leaves it till 2049 to work out how they're going to get to net- zero within the next 12 months. So what investors are really looking for is the stepping stones along the way, so some midterm targets so that we can see how companies are tracking. And I guess the other thing that we are looking for is there's still a lot of reliance within companies on the use of offsets. What we would like to see is a transitional plan where companies are first and foremost seeking to reduce emissions. And only when that is not possible, which for some companies at the moment, it's not because the technology doesn't yet exist. Only when that's not possible should offsets be being used. So we don't want to see offsets being used as anything but a last resort. And at the moment, there's not enough information to give us confidence for every company that that's the approach being taken. 00:05:13 Jennifer Duke: Stay with me, Louise. We'll be back in a minute. 00:05:21 Jennifer Duke: My guest this morning is Louise Davidson, chief executive of the Australian Council of Superannuation Investors. Is ACSI having sort of direct conversations with these businesses about how to get them to a place where you'd be more comfortable with what they're doing? 00:05:35 Louise Davidson: So ACSI, we have an extensive program of engagement with companies on behalf of our members. We've been doing that for many years, and so we've got a pretty good understanding of where a lot of companies are in the pathway that they need to take. You can see with what's happening with weather systems around the world, just how urgent this issue is. And so we are encouraging companies to be really focused on this and have a sense of urgency about it. One of the other things that we have some concern about is some companies we don't think are yet looking closely enough at what they're going to require from an adaptation perspective. So going back to those severe weather events that we're seeing around the world, they have a huge economic impact of course, on not just society, but on many businesses as well. So we want to understand from companies how are they going to manage those issues in their portfolios. 00:06:31 Jennifer Duke: And part of that is obviously going to affect the smaller end of the scale. And you alluded to this before that maybe that smaller end is dragging its heels slightly on this. Why is that the case and what needs to be done to help them come along on this journey? 00:06:45 Louise Davidson: Yes, it's challenging because a lot of this work is quite detailed and takes quite a bit of resourcing and some of the smaller organisations perhaps haven't resourced adequately to really be doing this work as yet. The other part of the market that might be, I suppose, lagging a little bit, Jennifer, is those companies that don't see themselves as having a big exposure to climate risk. So if you look at the mining industry for example, they have been aware of the risk for a lot longer than, say, some smaller companies that don't have the same sort of impact assessment. But I think what we would encourage all companies to be doing now is understanding that they will have some form of risk coming their way and to be starting to measure and manage how they're going to deal with that. 00:07:34 Jennifer Duke: And as part of that scenario analysis, how does that work in figuring out that risk? 00:07:41 Louise Davidson: Yeah, so scenario analysis is an important part of the TCFD reporting program and we really encourage companies to be thinking about, so that's about what scenarios are they going to measure against? What sorts of carbon constraints are they going to assume for their portfolios? What sorts of transition opportunities will there be? And we are really encouraging companies to go into that with a really robust mind frame to really challenge themselves about what the outer reaches of that might look like. So not just to pick a cozy scenario that is going to mean that they don't really need to change much of what they're doing, but actually genuinely

challenge themselves on what the worst or best case scenarios might be. I think the other thing I would say is that because the government's going to introduce mandatory climate reporting, I think we will expect to see the development of a lot more guidance and tools from federal government that will help to support companies in doing this work as well as we get closer to that introduction. 00:08:41 Jennifer Duke: Is part of the challenge having the skills within the organisation to be able to report on these measures, have the understanding? That sort of softer, I don't know if that even counts as soft skill, but that level of skill shortage I'm hearing is quite an issue in Australia. 00:08:57 Louise Davidson: There is a bit of a skill shortage in that area, but I think really in this case, there's a lot of information available to companies. And I think one of the things that we look at when we are thinking about this with companies is how is the board thinking about this? What sort of governance have they got in place to manage this transition that they're going to have to be part of? And have they got either the skills on the board or access to expertise to help guide them in that? We don't necessarily think that every board needs to have a climate expert on them, although some boards, those that have really big exposure, may well want to have that. But every board needs to make sure that they've got access to information that they can trust around this transition. 00:09:41 Jennifer Duke: I think that boardroom conversation piece is absolutely fascinating. Are you feeling optimistic about what the future's going to hold based on the sort of discussions you've been having with directors? 00:09:52 Louise Davidson: Well, I think there is some cause for optimism. I mean, the results of this research, I guess, give us some cause for optimism, but it is such a huge job ahead of us that it's really going to take a very committed focus over the next several decades to get us where we need to get. And I think one of the things that we would really encourage companies to do, as I said earlier, is to be approaching this with a real sense of urgency because you can see from what's going on around the world that things are changing very quickly at the moment, and we really need to make sure that we are really putting ourselves in that position to reach the 1. 5 maximum warming goal. And we've got to move quickly to stop that slipping away from us. 00:10:38 Jennifer Duke: Louise, thank you for talking to Fear and Greed. 00:10:41 Louise Davidson: Thanks very much, Jennifer. A pleasure. 00:10:43 Jennifer Duke: And that was Louise Davidson, chief executive of the Australian Council of Superannuation Investors. This is the Fear and Greed business interview. Join us every morning for the full episode of Fear and Greed, Australia's best business podcast. I'm Jennifer Duke, economics correspondent at Capital Brief, and filling in for Sean Aylmer. Have a great day.