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Top firms not ready to capitalise on climate risk

Top firms not ready to capitalise on climate risk

AUSTRALIA’S TOP-200 listed companies are unprepared to realise the competitive advantage that addressing the risks posed by climate change will bring, according to a local risk ratings firm.On…

AUSTRALIA’S TOP-200 listed companies are unprepared to realise the competitive advantage that addressing the risks posed by climate change will bring, according to a local risk ratings firm.

On its assessment of the actions taken by Australia’s top listed companies, only 20 per cent are ready to manage climate change risk.

“Climate change is no longer purely an environmental risk, but a significant opportunity for the corporate and investment communities,” said Hugh Grossman, head of research at RepuTex.

He said climate risks were being priced into the market overseas, but they weren’t in Australia because there’s still too much uncertainty here, driving many to sit on their hands.

“Conversely, what that means is actually a huge opportunity. If you can identify the early movers before the rest of the market, that kind of investment will be an enticing prospect,” he said.

“Australian companies must understand their carbon risk and quantify bottom-line impacts in order to remain competitive as new drivers — such as carbon intensity, energy efficiency and credit generation capacity — begin to impact company value.”

Using publicly available information, RepuTex has produced an index that scores companies on their level of preparedness to mitigate carbon liabilities and capitalise on the low carbon economy that will be imposed.

On its scale, ranging from -1 to +1, Australia’s top-200 companies on average scored negative 0.08. “If not prepared for the low carbon economy, the first impact of that will be huge costs,” he said, unmitigated by any positive gains.

One example of an investment to mitigate the costs carbon emissions will impose is the purchase of more efficient transport, he said.

“The new A380 Airbus is a lot more efficient in terms of its carbon intensity, and therefore from a competitive position, by adopting new technology, it means you don’t have to pass on the cost to consumers, while others are still passing on costs from their supply chain.”

RepuTex also found that although the utilities sector had the highest carbon intensity of the top-200, they only represented 3.41 per cent of Australia’s carbon footprint.

However, given their output of carbon dioxide, and the fact that they, as well as the energy, the materials sector and transportation, will likely be the ones to be directly affected by a mandatory carbon emissions trading scheme, Grossman said many had been unable to translate their risk strategies into value for the firm.

“Energy and utilities in particular haven’t performed all that well in terms of translating their strategies into bottom-line value,” he said.

The reasons might include that they’re applying their resources to the wrong areas and “are not really being driven by core value”.

“The other side of it is that those two sectors are probably our lower valued sectors, but within that sector there are certainly clear leaders. So I think the bigger companies that have an international exposure are performing quite well,” he said.

“Some of the smaller and mid-cap companies within those sectors are equally as exposed, but aren’t really addressing their risk and that’s a fair concern.”

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