Climate change and stewardship

6 min read
6 min read

Most of the super industry is now actively assessing in some way what their response to climate change risk should be. The focus on climate risks by funds has escalated in the last couple of years driven by an increase in members contacting them on issues such as climate risk, greater clarity on legal obligations and APRA asking trustees about their approach to climate risk during supervisory visits.

Superfunds as large scale, long-term investors who hold diversified portfolios are in an ideal position to ensure that corporates don’t have financial losses from mismanagement of risks to their business, especially under-considered risks such as climate change. This in essence is their role as stewards.

As funds grow and increase in sophistication and experience, they are starting to exercise their stewardship muscles either directly with corporates, through their fund managers or via research and engagement experts. There are often two motivations behind this engagement – the assessment of the systemic risk borne within portfolios (including stranded asset risk) caused by climate change, and an increasing concern about the general quality of life provided to fund members as they retire.

The timing of this new focus has been driven by an increased focus on the meaning of fiduciary duty, including:

  • Work conducted by the UN-backed Principles for Responsible Investment (PRI), which was launched in 2006 and today its signatories represent US$70 trillion of assets under management.
  • The Task Force on Climate-related Financial Disclosures (TCFD), which launched its recommendations in June 2017, providing guidance to companies and investors alike on how to disclosure financially-relevant risks related to climate change.
  • Legal opinion published in Australia by Noel Hutley SC including a 2016 memo, where he writes “it is likely to be only a matter of time before we see litigation against a director who has failed to perceive, disclose or take steps in relation to a foreseeable climate-related risk that can be demonstrated to have caused harm to a company”.
  • APRA‘s Geoff Summerhayes February 2017 speech “Australia’s new horizon: Climate change challenges and prudential risk”, the first public speech by an APRA official which addressed climate risk. It is clear this is well and truly on APRA’s agenda.

There has also been a significant increase in community activism targeting corporates. For example, a recent campaign in Australia by the group Market Forces against Medibank saw the health insurer announce in November 2017 that it would dump fossil fuel stocks from its portfolio, acknowledging the impact greenhouse emissions had on human health.

We have also seen a growing number of divestments on high emission industries made by investors such as super funds, university endowment funds and even sovereign wealth funds (the Norwegian central bank, which runs the country’s sovereign wealth fund, late last year advised the government to approve the divestment of all oil stocks).

Finally we have also seen an increase in shareholder resolutions which focus on company management and disclosures of climate change risks, such as those seen last year at Exxon, Santos, Origin Energy and BHP.

This all adds up to the fact that climate change risk is no longer a fringe issue. It is seen as a key factor in the ongoing health and success of a company, as well as a factor in a corporate’s social licence to operate. Increasingly it is also seen as an opportunity by some investors, including those seeking alpha. Strategies to leverage into the opportunities include developing a better understanding of which stocks are capitalising on a changing climate, investing in emerging technologies and buying financial instruments (green bonds, for example).

That climate change is no longer a side issue among investors is no surprise when you consider the effect on earnings already being experienced from physical impacts of climate change. Indeed, these physical impacts are affecting ‘business as usual’, including operational disruptions, supply chain risks, asset impairments and other costs to businesses.

These impacts are affecting a broad range of sectors, and predictions for more extreme weather events as climate change deepens are only increasing. For example, Tatts Group has experienced revenue losses associated with horse race cancellations due to bad weather; Myer has suffered losses as a changing climate has impacted winter apparel sales; and Rio Tinto lost production worth more than $1.2bn due to an intense La Niña event impacting the Pilbara during the 2016/17 wet season.

While impacts to business are occurring here and now, more and more we are seeing companies adapt to the changing climate. Examples include:

  • Aurizon—Australia’s largest rail freight operator—has been adapting to increasing severity and frequency of extreme weather events. Tropical Cyclone Debbie prompted new processes and infrastructure design to support quick recovery from extreme weather events. For example, by more strategically placing inventory stockpiles with materials to rebuild any damaged tracks quickly, and by rebuilding slopes affected by major land slips with a flatter gradient, high strength rock and armoured with concrete.
  • Brisbane Airport, in anticipation of sea level rises and storm surges from extreme weather, has built its new runway 1.5m above the minimum regulatory requirements. It has also built channels to reduce tidal flooding, and a seawall.
  • National Australia Bank has been utilising work from Dairy Australia and the University of Melbourne to pilot climate risk analytics software in the dairy industry, with the aim of managing credit risk and loan defaults. The software assists NAB to predict the ability of Dairy Farms to stay in business and to get a better sense of a business’s credit-worthiness when considering further loans.

There is still much room for improvement and there’s a lot of scope for upskilling both in the way climate disclosures are produced and the way they are assessed—by companies and investors alike—so climate risks can be better managed across the whole financial system.

Scenario analysis in particular does not go far enough, quality of disclosure is patchy and very little is done on physical risks. This means that many readers aren’t able to adequately assess disclosures.

The key to getting the right outcomes is through proactive and outcomes-based company-investor engagement meetings. We need to move our focus from emissions intensity to transition and pay more attention to action taken to adapt. As disclosure improves, so too will quality and impact of engagement. Creating better members outcomes and a better environment for future generations.

Picture of By Pauline Vamos

By Pauline Vamos

chief executive

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Carmen Beverley-Smith

Executive Director - Superannuation, Life & Private Health Insurance, APRA

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Carmen joined APRA in March 2023 and holds the role of Executive Director, Life and Private Health Insurance and Superannuation.  

She has had an esteemed career in financial services, spanning over 25 years. She has held diverse leadership roles at Westpac and Commonwealth Bank of Australia, including across risk, transformation and change, product and portfolio development, and sales and service. 

Prior to joining APRA, she held the role of General Manager, Risk Transformation Delivery Integration at Westpac. This involved leading the group-wide implementation of a suite of solutions to uplift risk management capability and develop data, analytics and reporting. 

Carmen leads with a values-driven approach and a particular interest in developing and mentoring talent. 

She holds a Bachelor of Commerce and Accounting, is a certified Chartered Accountant and a Graduate of the Australian Institute of Company Directors. 

Amy C. Edmondson

Novartis Professor of Leadership and Management, Harvard Business School

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Keynote 8 – Navigating the energy transition: opportunities, investor strategies and policy needs

Amy C. Edmondson is the Novartis Professor of Leadership and Management at the Harvard Business School, a chair established to support the study of human interactions that lead to the creation of successful enterprises that contribute to the betterment of society.

Edmondson has been recognized by the biannual Thinkers50 global ranking of management thinkers since 2011, and most recently was ranked #1 in 2021 and 2023; she also received that organization’s Breakthrough Idea Award in 2019, and Talent Award in 2017.  She studies teaming, psychological safety, and organisational learning, and her articles have been published in numerous academic and management outlets, including Administrative Science Quarterly, Academy of Management Journal, Harvard Business Review and California Management Review. Her 2019 book, The Fearless Organization: Creating Psychological Safety in the Workplace for Learning, Innovation and Growth (Wiley), has been translated into 15 languages. Her prior books – Teaming: How organizations learn, innovate and compete in the knowledge economy (Jossey-Bass, 2012), Teaming to Innovate (Jossey-Bass, 2013) and Extreme Teaming (Emerald, 2017) – explore teamwork in dynamic organisational environments. In Building the future: Big teaming for audacious innovation (Berrett-Koehler, 2016), she examines the challenges and opportunities of teaming across industries to build smart cities. 

Edmondson’s latest book, Right Kind of Wrong (Atria), builds on her prior work on psychological safety and teaming to provide a framework for thinking about, discussing, and practicing the science of failing well. First published in the US and the UK in September, 2023, the book is due to be translated into 24 additional languages, and was selected for the Financial Times and Schroders Best Business Book of the Year award.

Before her academic career, she was Director of Research at Pecos River Learning Centers, where she worked on transformational change in large companies. In the early 1980s, she worked as Chief Engineer for architect/inventor Buckminster Fuller, and her book A Fuller Explanation: The Synergetic Geometry of R. Buckminster Fuller (Birkauser Boston, 1987) clarifies Fuller’s mathematical contributions for a non-technical audience. Edmondson received her PhD in organisational behavior, AM in psychology, and AB in engineering and design from Harvard University.

 

Daniel Mulino MP

Assistant Treasurer and Minister for Financial Services

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Keynote 8 – Navigating the energy transition: opportunities, investor strategies and policy needs

Born in Brindisi, Italy, Daniel was a young child when he moved with his family to Australia. He grew up in Canberra and completed his first degrees – arts and law – at the ANU. He then completed a Master of Economics (University of Sydney) and a PhD in economics from Yale.

He lectured at Monash University, was an economic adviser in the Gillard government and was a Victorian MP from 2014 to 2018. As Parliamentary Secretary to the Treasurer of Victoria, Daniel helped deliver major infrastructure projects and developed innovative financing structures for community projects.

In 2018 he was preselected for the new federal seat of Fraser and became its first MP at the 2019 election, re-elected in 2022 and 2025. From 2022 to 2025, Daniel was chair of the House of Representatives’ Standing Economics Committee in which he chaired inquiries; economic dynamism, competition and business formation and insurers’ responses to 2022 major floods claims.

In 2025, he became the Assistant Treasurer and Minister for Financial Services.

In August 2022, Daniel published ‘Safety Net: The Future of Welfare in Australia’, which aims to explore the ways in which an insurance approach can improve the effectiveness of government service delivery.