Corporate Australia looks vulnerable to a global climate backlash

Corporate Australia looks vulnerable to a global climate backlash

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And don’t forget James Murdoch, the billionaire scion who was once in line to succeed his father Rupert at the top of the nation’s most powerful media company, News Corp, launched an extraordinary attack on that company’s Australian newspapers for their climate scepticism.

BlackRock’s move to dump shares of companies primarily mining thermal coal has been dismissed by some as a marketing stunt, and in a sense it absolutely is. The firm manages $10 trillion in funds globally, the bulk of which are in passive vehicles that hold whatever shares are in the index.

The move only affects the funds held in its actively managed portfolios.  And it only affects companies that generate more than a quarter of their revenue from thermal coal meaning major industry players such as Glencore, Xstrata and BHP would not be excluded.

According to at least one rival fund manager’s calculations, the new approach would only prevent investment in companies representing just 0.3 per cent of the ASX 200 companies.

Yet the move should still be raising alarm bells for local investors and policymakers.

Last year Sweden’s central bank decided to dump bonds issued by state governments of Queensland and Western Australia due to climate change concerns. That, in turn, followed an announcement by Norway’s giant sovereign wealth fund that it would ditch its holdings in fossil fuel companies, a move that’s expected to affect a number of Australian resources companies.

This country’s investment landscape is already quite conscious of ESG (environmental, social and governance) factors. Yet if BlackRock’s posturing gathers momentum and the global ESG push intensifies, Australia’s resources-heavy sharemarket could be vulnerable.

All of a sudden, and assuming a worst-case scenario, the sovereign risk and capital flight fears raised so often in the past could end up playing out.

If that’s the case, our failure to develop meaningful technology and renewable energy sectors will be more than just a missed opportunity.

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If equity markets are indeed underestimating the risks here, it wouldn’t be the first time that’s happened. Anyone old enough to remember the subprime debt crisis that eventually morphed into the global financial crisis will remember the complacency in equity markets at the time.

At least back then debt and money markets were flashing up warning signals. The sustained stimulus from central banks that has pushed up prices of everything since means no such canary in the coal mine in the markets exists this time.

It also must be said that the rally that has pushed shares to record highs might well have a lot further to run. Those sceptical investors burnt in the GFC that have sat on the sidelines have missed out on very substantial returns.

Regardless, it is difficult to avoid the impression that this summer has highlighted something very significant: Australia’s vulnerability to climate change. As both a country and an investment destination.

John McDuling is National Business Editor for The Sydney Morning Herald and The Age.

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