Mark Carney was one of the first financial architects to talk about climate risk.
As governor of Canada’s central bank and later the Bank of England, the economist knew the physical and regulatory risks would make some businesses less profitable.
Severe weather damage and the onset of carbon pricing, or restrictions on big polluters and tax breaks to encourage cleaner energy, all needs to be assessed and – increasingly – accurately disclosed.
As United Nations special envoy for Climate Action and co-chair of the Glasgow Financial Alliance for Net Zero, Mr Carney wants organisations to not only manage climate-related risks but also seize the opportunities.
His focus has been on the “E” in ESG (environmental, social and governance) issues over the past few years.
“And it’s very much in the easy bit of the ‘E’ … the transition to net zero,” he told the State of the Nation summit in Canberra last week.
“We’re operating in the space of ESG where there are hard numbers,” he explained.
“What are your emissions today? Where do you think they’re going tomorrow? What capital can you put in line in order to move those forward?”
Mr Carney rejects the “over-simplification” of the energy transition he says has emerged in the past few years, which urges no new oil and gas.
“None whatsoever,” he informed the Committee for Economic Development of Australia (CEDA) event.
“It became that any financing related to traditional energy, conventional energy, oil and gas, was a bad thing.
“That’s not right,” he went on.
“But by the same token, it’s not a carte blanche for investment in oil and gas. There have to be guardrails.”
As chair of global Brookfield Asset Management, Mr Carney is backing investment in Australian renewable energy and gas.
Globally, the ratio between green and conventional energy needs to go from almost on par to about four to one by the end of this decade, he believes.
“It needs to continue to scope up but the key thing is it’s four to one not four to zero,” he said.
“So there is some ongoing investment, particularly in gas – it’s necessary for the transition.”
Brookfield is part of an international consortium that plans to acquire Origin Energy, split off the gas business and accelerate the company’s clean energy projects to make a big dent in national emissions.
Part of the business case is that the existing 3.1GW fleet of gas-fired generation and pumped hydro provides reliable power during peak periods for households and businesses.
Origin argues the assets are essential to support the rollout of more renewables, while others says the grid can be supported without fossil fuels by relying on more big batteries and smart technology.
Batteries can store energy and be turned on and off even when the wind isn’t blowing and sun isn’t shining.
Similarly, water taps can be turned on when it’s not raining, because there is water storage to back up demand.
The new entity, Origin Energy Markets, would invest at least $20 billion additional capital during the next decade to construct up to 14 gigawatts of new renewable generation and storage in Australia.
This is expected to enable Origin to close the country’s largest coal-fired power station, Eraring in NSW, as early as August 2025.
However, it could operate longer than planned if the state government chips in taxpayer funding for extra maintenance costs to keep the old plant running if necessary.
Clean Energy Council data shows investment remains well behind the pace needed to hit the target of 82 per cent renewables by 2030.
“We do not shy away from the need to exit all coal-fired power generation as soon as energy storage and firming generation can replace it,” Origin boss Frank Calabria said at the summit in Parliament House.
“Since the listing on the ASX in 2000, Origin has been preparing for a decarbonised world,” Mr Calabria said.
He said Origin would carefully manage the exit of coal but not at the risk of security and reliability of power supply.
The company continues to engage with the market operator, the NSW government, workers and the community about the final timing for closing Eraring.
Meanwhile, Australian Securities and Investments Commission chair Joe Longo stands ready to take on false claims.
Major change is underway on ESG and Australia needs to be ready, he told the CEDA delegates.
“We are seeing inaccurate labelling and vague terms like ‘carbon neutral’ that aren’t founded on reasonable grounds,” he said.
“ASIC will not overlook current misconduct – including greenwashing – because of the continuing developments in ESG. This is obviously not negotiable,” he said.
Greenwashing refers to making exaggerated environmental claims about a product or service.
There are also concerns about so-called greenhushing, which is when companies stay silent so they can’t be challenged on climate or sustainability plans.
“Silence from firms and failing to engage isn’t the answer,” Mr Longo said.
This concept was “just another form of greenwashing and risks misleading by omission”, he said.
Mr Longo sees the bar being continually raised and a need for companies to ensure stronger support for disclosure.
“Australia is, after all, an importer of capital,” he said. “This means we have to meet the demands of international capital markets.”
One of the most significant shifts in disclosure reporting in over 100 years is about to roll out, with final recommendations due from the international standards board this month.
Sustainability disclosure expert Meg Fricke says it is important to understand boardrooms won’t get everything right first time.
This doesn’t make the reporting wrong, it means it represents the best thinking at the time, which will evolve.
She says there is a “mild sense of panic” as it will push businesses to frame financial performance and business value in a way it hasn’t before.
And it is about much more than climate.
The new disclosure requirements will mandate climate reporting for the first time in Australia and broader environmental and social disclosure obligations are expected to quickly follow.
Ms Fricke urges companies to respond by telling the full story rather than avoiding transparency over fear of being called out for greenwashing.
Such greenhushing would ultimately result in missed opportunity, she warns.