CANBERRA — “I am a corporate lawyer. I don’t care about the environment, I don’t care about the community. I care about the money. And I care about risk. And that’s the lens that I bring when looking at climate change.”
The blunt introduction by Sarah Barker, special counsel climate risk governance at legal firm Minter Ellison, set the scene for her keynote address at the 2019 Crawford Fund Annual Conference. Barker focused on the business response to climate change and the opportunities available.
“At the absolute best case scenario, we can hope to level out around 1.5 degrees centigrade above pre-industrial averages,” Barker said. “We’ll know whether or not we [are] keen within those bounds … within the next five years or so.”
The transformation required is huge from where we are to where we need to be to reach the 1.5 degree target, and land use is a big part of the change required, she said.
“I get a little bit frustrated when I hear people talking about ‘we’re not the biggest contributor to this problem,’” Barkers said. “‘We’re not coal’ for example, or ‘we’re not oil.’ In order to keep global warming well below 2 degrees centigrade, we have to get to net zero by the middle of the century. And that is everything that we do. Otherwise we are tipping over the edge.”
From a monetary perspective, playing a game of connect the dots would see the impact from a monetary perspective — including the impact of water scarcity, increase in temperatures to produce products and services, disease and pest control, supply chain, and more.
Barker explained that policy and regulatory shifts, technological development, and shifts in stakeholder preferences were the key influences of market responses.
From the policy and regulatory perspective, carbon taxes and national policies that set emissions and renewable energy targets were influential in market action.
“All of this snowball of policy changes is being driven by the Paris agreement,” Barker said. “In that agreement, all countries agreed about the criticality of limiting global warming to well below 2 degrees above pre-industrial averages, and that they would each introduce their own policies that would see them doing their own bit to limit global warming.”
Stakeholder shifts, Barker said, was part of a far broader movement mainly led by millennials in relation to concerns of the environment more broadly. And it was seeing a big shift in opportunities for businesses.
“From a financial perspective, the most successful IPO this year has been Beyond Meat. It was 153% up on the listing price on the first day, and is now 400% above the listing price.”
Particularly in Australia, the stakeholder shift has been driven by the equity market and shareholders. “Because we care about money and we are worried about how the companies in which we invest will continue to make money for us,” Barker said. “And we’re asking questions: how do you continue to thrive in this transition to a low carbon economy.”
With this stakeholder shift, the business sector is increasingly assessing and disclosing to the market its material financial risk, including stress testing and risk planning on a forward-looking basis. Debt markets and commercial lenders are also getting on board with assessing risk and likelihood of default due to environmental factors. For example, the Commonwealth Bank of Australia’s annual report last year included an analysis down to a 5-by-5 meter grid of the physical risk damage of all 2 million properties in their mortgage portfolio.
Barker sees the market advantage of being ahead of competitors with sustainable practices and a reduced carbon footprint as an important asset for businesses.
Financially, the tipping points were close to make energy efficient solutions the better market choice. “In 75% of cases in developed countries and China, it is already cheaper on a marginal cost basis to shut down your coal-fired power utility and install solar storage,” Barker said.
In countries such as Australia and the United States, this means the market is often ahead of policy in terms of building change. When this occurs, regardless of whether policies are conducive to green business, the shift in market practices happens.
“If I were a betting lady, I would bet on the money every time,” Barker said.