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Australian National University (ANU) support fossil fuels divestment
ANU recently declared it was divesting from carbon exposed companies, a decision Tony Abbott called ‘stupid’. Photograph: Fossil Free ANU/Facebook
ANU recently declared it was divesting from carbon exposed companies, a decision Tony Abbott called ‘stupid’. Photograph: Fossil Free ANU/Facebook

Australia divestment war shows investment is now the main climate change battleground

This article is more than 9 years old
Julian Poulter

The fallout over Australian National University’s decision to divest from fossil fuel companies shows the language of climate risk is now in dollars and returns not degrees centigrade

For those following the rapid change in the climate change debate towards a more financial system orientation, a remarkable situation is unfolding in Australia that will act as a pointer to future developments elsewhere.

In response to the fossil fuel free divestment campaign, the pride of the Australian education system, the Australian National University (ANU), finally caved to pressure and decided to engage the services of a socially responsible investment analyst firm to look at climate change issues.

As a result of this analysis, ANU declared that it was divesting in a few carbon exposed companies. Nothing new in this, many organisations have done the same, but what quickly ensued was an extraordinary series of high-powered public clashes that could be a taste of things to come in other countries’ backyards.

The story exploded into a heavyweight battle between current and former prime ministers, party leaders and global notables. And the current Australian government showed that it simply doesn’t know the difference between socially responsible investment, fossil fuel divestment and financial risk management. The Australian Prime Minister himself Tony Abbott declared the ANU’s decision “stupid” and said that entities following suit were depriving members of good returns.

Those members to which Abbott referred are increasingly aware that over half of their average pension portfolio is in carbon-exposed investments, so they don’t need to worry too much that they are depriving the fossil fuel based industries of capital. Quite the opposite as less than 2% of portfolios is in low carbon alternatives representing a 25-1 gamble on business as usual for high carbon investments.

In a stunning misreading of the tea leaves, the Australian prime minister went further, announcing that coal was good for humanity. But with a 40% slump in coal prices since 2011, it sadly isn’t good for retirement savings and unlikely to benefit from better carbon risk management by investors.

The notion that this debate could occur over a decision to divest less than 1% of a portfolio that doesn’t rank even near the 50 largest in Australia is a strong pointer to the rest of us that investment is now the main climate battleground. Globally, ANU’s investment size doesn’t even make the top 1000.

To play in the climate space beforehand was easy for governments: avoid pricing carbon by sending out alarms about harming economies and losing jobs, while protecting vested interests over a stable climate for citizens.

But now the debate has gone up the food chain into a dark mysterious space where long term investors – the asset owners such as pension funds, superannuation funds, insurance companies and sovereign funds – operate and look at risk with an eye increasingly on the long term.

Finally the climate debate has entered an area that is out of the control of the politicians and the corporate lobbyists. What bank of England head Mark Carney called the “tragedy of horizon” is now being addressed by people who manage more money than all governments put together.

These asset owners do not need to lobby governments over such issues. In fact they don’t care in what form the energy in the economy is provided as long as it comes at a good balance of risk and return. They have no respect for vested interests either and see transitions such as the one to a low carbon world as part of the daily routine of restructuring the world’s economies and shifting capital to where it is needed in order to make a financial return. In their world, capital moves and there are winners and losers every day big or small, powerful or not. Whinging corporates looking for someone to protect their declining industries or unions crying foul over job losses don’t matter one jot to those people sniffing out potential mispriced risk and moving their money elsewhere.

ANU head, Ian Young, will go down in history as the first public figure to defend an investment decision that could have been made 100 times a day by his fund managers for a whole host of reasons. While many talk about the ethics of divestment and SRI, the real landscape has always been about risk and the language of climate risk will now come into our lives with units not in degrees centigrade or parts per million but in trillions of dollars, basis point returns and risk premiums.

The new investment game proves that government’s inability to price carbon to stabilise the climate is compounded by their regulation of a financial system built to drive the very short-termism that allows the companies to hold political sway and pin governments to the status quo and away from what they know are sensible climate precautions.

In an irony surely set for broadway and the west end stage one day, investors are realising that resisting governments is becoming their greatest risk given that the catch-up period will be extraordinarily expensive and damaging. The leading asset owners are acting early to get protected from the inevitable catch up where politicians go running for cover and blame someone else.

As the leading asset owners grow in number and communicate their good efforts to beneficiaries, just maybe we are seeing the beginnings of a new era of risk-based capitalism – Mr Abbott, his government and those of the G20 would do well to read the tea leaves before they find themselves marginalised and with a legacy that no-one would want. Their citizens are getting an education in finance and they would do well do get the same before people realise that a world governed by pension trustees would put a strong price on carbon tomorrow morning whatever the complex politics.

Julian Poulter is the founder and executive director of the Asset Owners Disclosure Project.

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