Australian companies are not doing enough work to model the risks of climate change and how it will affect their profitability, a new report by a thinktank says.
Progressive thinktank the Centre for Policy Development says that while most companies have committed to considering what climate change and the Paris climate agreement means for their business strategy, too few have begun using scenario analysis techniques to model what its impacts could be and how to respond to it.
Australia’s financial regulator stepped up its warnings last year that climate change posed a risk to the financial system and urged companies to adapt.
The Financial Stability Board’s Taskforce on Climate-Related Financial Disclosures has identified scenario analysis as a critical tool for companies and investors that are serious about responding to climate risks.
CPD policy director Sam Hurley said while many companies had said they will commit to modelling the impacts of climate change and potential responses for their business, few had actually started to undertake that work.
He said Australia was potentially exposed to large risks due to climate change, but there were also opportunities.
“Scenario analysis is going to be a really important driver of better strategies and of better outcomes for businesses that are preparing for these risks and opportunities,” he said.
“Some organisations in Australia have made a start doing that kind of analysis and more have committed to it.
“But what we’re going to need to see is more consistent, ambitious scenario analysis so that markets and investors have more accurate information when assessing how well companies are placed for transition to a zero-carbon economy.”
Hurley said, internationally, more organisations had begun considering how major emissions reductions and changes in policy as a result of climate change could affect their business and its profitability.
He said some of Australia’s biggest companies in the financial and resources sector already had sophisticated models in place for thinking about climate change and more needed to follow suit.
Companies that didn’t could expect scrutiny from their shareholders, as well as regulators.
“The period for words on this is over. What we really need to see over the next reporting season is companies walking the walk as well as talking the talk,” he said.
“Expectations around proper management of this issue are increasing and for companies that aren’t doing it, it’s going to be harder and harder to get away with it.”
