Finance leaders say Australia’s climate transition will not happen without government policy because money will walk.
Australia will find itself in “no-man’s land”, Terence Jeyaretnam, climate change and sustainability services partner at EY Oceania, told a briefing.
Mr Jeyaretnam said the pace of global change over the past year had been staggering compared to the last 30 years, but it was not enough.
“The next decade has to be about acceleration on all fronts,” he said.
Sean Kidney, chief executive of the Climate Bonds Initiative and part of the $3.5 trillion green bond market, warned Australia was stuck in old industries that are seen by investors as dead-end assets.
He said there is no “global climate police force” but the climate transition will be enforced via trade policy, investment policy and demand, and cost of capital.
“People don’t think there’s a long-term future in gas, let alone coal,” he said.
“This is becoming material, this is a material risk – positive and negative.”
The federal government has acknowledged the future higher cost of capital from not having a net-zero plan, as global capital drifts away from heavy emitters, citing that as a reason for the recent policy change.
“Australia is going to find its cost of capital is going up, it’s already experiencing that because it’s seen as an outlier,” Mr Kidney said.
“Not that it’s seen as a government doing naughty things, or bad, just high risk.”
Mr Jeyaretnam said the one misstep at the Glasgow climate summit was not looking at carbon border adjustment mechanisms (CBAMs) as a big lever.
The mechanism, recently adopted by the European Commission, will put a carbon price on imports of some products so ambitious climate action in Europe does not simply push carbon-intensive production elsewhere.
First up will be iron and steel, aluminium, cement, electricity, and fertilisers.
Those who want to trade with Europe will need to step up, including Australia’s heavy emitters.
US-China discussions could potentially result in them joining Europe in a larger mechanism.
An agreement was also sealed before Glasgow between European Commission President Ursula von der Leyen and United States President Joe Biden on sustainable steel and aluminium.
Sarah Kemmitt from the UN Environment Programme Finance Initiative said the importance of the surprise US-China agreement on climate co-operation announced at Glasgow should not be underestimated.
“Everybody’s got a role,” Ms Kemmit said.
“Nobody’s role is unaffected by climate and we’ve got to think about our role and our leadership.”
But she said it should not be financial institutions offsetting emissions, it needs to be happening in the real economy.
After being relegated to side events for decades, there is now an understanding private and public financing is needed for change to happen.
Climate talks veteran Fiona Reynolds, chief executive of the international network Principles for Responsible Investment, said the role of the private sector in Glasgow exceeded her expectations.
“This year the finance sector, the investment sector, and particularly the banking sector was very much front and centre in the main room with the world leaders,” she said.
But without detailed policies, she expects a lot more pressure on Australia from international investors, who will decide whether companies are moving fast enough and in a way that makes them meet their portfolio.
Finance initiatives that will come to a head at next year’s talks in Cairo are adding to the momentum.
These include a net-zero banking alliance, an insurance alliance, the 100 central banks – including the Reserve Bank of Australia – who have signed up to Greening the Financial System, and the development of rules for international carbon markets.
The Glasgow Financial Alliance for Net Zero brought together insurers, banks, asset managers and other sub-sectors of the finance industry representing more than $130 trillion in assets
They are looking at the need for an estimated $100 trillion in climate finance over the next three decades.
Ms Reynolds said Australia needed to start looking at what it could gain, rather than what it would lose.
Australia’s refusal to adopt ambitious new targets to slash greenhouse gas emissions by 2030, a headline objective of the conference, has been heavily criticised by some.
But Prime Minister Scott Morrison expects to over-deliver on a target set last decade by the Abbott government.
On current numbers, Australia is forecast to reduce emissions by 35 per cent by 2030.
The number will continue to be tweaked annually as Department of Industry officials update progress towards the medium-term target against an emissions budget for the years 2021 to 2030.