Perhaps the assumption that markets are still anchored by predictable economic policies needs to be challenged. For the first time since the fall of the Berlin Wall, political volatility – once background noise – is potentially reshaping investment risk at a structural level.
Despite authorities taking their foot off the environmental, social and governance pedal and recent volatility in equities and bonds, the benefits of Artificial Intelligence and improved investor transparency are just beginning.
Left behind: Big super warns on ‘unjust transition’
Failing to ensure a “just transition” – one that is “timely, fair and meets the goals of the Paris Agreement” – could cause system-wide risks by contributing to “economic stagnation and political instability”, according to a new report from the Australian Council of Superannuation Investors (ACSI).
“The transformation to a low-carbon economy is inextricably linked with profound social and economic change but, so far, little has been done to holistically assess and manage these impacts,” said ACSI CEO Louise Davidson (photo at top). “In some regions, the communities and workforces in regions are at real risk of being left behind.”
ACSI warns there is “growing scrutiny” of the way companies support and interact with workers, communities and value chains, and that their actions will “fundamentally affect (their) social licence to operate”. Â A poorly-executed transition will also mean regional competitive advantages are lost, while stranded assets “bring with them stranded capital, workforces and communities and greater political and investment instability”.
“Companies in emissions-intensive industries and regions need to work with the local workforces and communities to take advantage of the opportunities the transition presents – benefits such as innovation, new markets, reskilling and regional competitive advantages,” Davidson said. “These activities and plans need to be reported to investors, so investors can be confident the transition is being managed appropriately, and at present, this kind of reporting is very scarce.”
Preventing an unjust transition hinges on both affected listed companies and government doing their part. The former must “acknowledge the challenge” and commit, with board oversight, to addressing the transition while engaging widely with stakeholders. Responses must be context-specific to the region and operations affected.
“A company should demonstrate to investors and the broader community its plans for supporting a just transition,” the report says. “The company should outline how it has engaged, consulted and assessed its progress.”
“What is measured should link clearly to elements of the “Just Transition Plan”. Measurement and evaluation of progress is critical for investors to understand whether a company’s plan is appropriate, and whether risks inherent in a transition are being effectively managed.
The latter could create a federal “just transition framework” – setting out a pathway towards a just transition across Australia, including mechanisms to implement the approach – and an independent national Just Transition Authority to advise the government, as well as local Just Transition Agencies in areas impacted by the closure of fossil fuel operations.
The government also needs to ensure that there’s sufficient funding for a just transition and create an “enabling policy and legal environment”, including standards and guidance for high-emission companies on managing a just transition.
“Australia has a real opportunity right now to advance social change and establish an economy that is not only cleaner but more fair, co-operative, and sustainable, which will lead to better long term investment returns,” Davidson said.”
“We’re at a critical moment, and it’s vital that local people are involved in building their own future in a low-carbon world. But importantly, companies and communities can’t do it alone – there is a fundamental role for governments of all levels.”
