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Recovery must be green, say big banks

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Australia’s major banks, insurers and superannuation funds are urging a radical rethink in how to steer the economy out of the pandemic-induced economic crisis, calling for stimulus measures that are consistent with the Paris Agreement climate targets.

In its first public statement since the COVID-19 crisis hit, the Australian Sustainable Finance Initiative, a joint venture of the big four banks, major insurers, super funds, asset managers and financial regulators, argued simply throwing money at old forms of infrastructure was no longer appropriate.

Mark Joiner: "I think there’s a lot Australia can do that doesn’t mean charging into the scar tissue debate on carbon, but that builds resilience." Photo: Jessica Shapiro

Instead an innovative approach was needed that accepted the science of climate change and made sure any infrastructure or other stimulus spending would solve rather than contribute to the problem of global warming. It urged governments and businesses to view the pandemic as a taste of the sort of shocks climate change will bring, and to take the opportunity to learn from it so they are prepared for the next shock.

"Global voices from business, civil society and finance have begun calling for a recovery that responds to two critical crises: the social and economic upheaval of this global COVID-19 pandemic as well as the rapidly accelerating impacts of climate change," ASFI co-chairs Simon O'Connor and Jacki Johnson said in a statement.

They referred to a report by Oxford University, published last week, which surveyed more than 200 global central bankers, G20 finance ministries and
academics from across 53 countries.

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"The report concludes that recovery packages should ensure alignment to Paris Agreement commitments and set the pathway to achieving net zero emissions by 2050.

"When assessed, the most economically effective policy levers open to governments responding to the economic crisis are also those addressing the climate representing dual benefits for our economy, dealing with both short- and long-term challenges."

Road map to a low-carbon economy

The statement follows a report by the Grattan Institute last week which called on the federal government to underwrite "green steel" production using hydrogen made from renewably generated electricity, rather than metallurgical coal. It argued this new steel industry could help replace jobs in coalmining regions as coal production winds down.

But Mr O'Connor said climate-aligned stimulus measures should not be limited to obvious green projects like this. They could also include energy-efficient social housing construction and mass transit public transport projects, instead of traditional road-building and fossil fuel intensive programs such as the fertiliser plant in the Narrabri being proposed by the National COVID-19 Co-ordination Commission.

This is the time to make long-term business decisions focused on resilient and sustainable principles.

Connie Sokaris, NAB

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He also said investment was needed in electricity transmission to carry renewably generated electricity. "There’s a whole list of things that are quite shovel ready," he said.

ASFI was launched last year with the initial goal of designing a "road map" laying out how the financial sector should prepare for a low-carbon economy, including methods to channel more investment into environmentally friendly business ventures.

Its 18-person steering committee includes representatives of the big four banks, insurers QBE and IAG, asset manager Pendal and industry super fund Cbus. The Australian Prudential Regulation Authority's Geoff Summerhayes sits on the committee as an observer, as do two representatives of the Australian Securities and Investments Commission. It also includes former Liberal leader John Hewson.

The committee has regular meetings, with the next one scheduled for Friday.

ASFI was modelled on a similar initiative in Britain, the Green Finance Initiative. But unlike the British version, no government representative sits on ASFI's steering committee.

Committee member Mark Joiner, the current chairman of QBE Australia Pacific and a former executive at NAB and Citi, said so far there had been no major disagreements among the members of ASFI, but this could change when an official road map was proposed.

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Beyond the carbon tax

One area that could cause conflict may be ASFI's position on a carbon tax. Many members, including Westpac,  have called for the need for carbon pricing. But Mr Joiner questioned whether this politically vexed subject was within the initiative's scope.

"I think there’s a lot Australia can do that doesn’t mean charging into the scar tissue debate on carbon, but that builds resilience," he said.

"We could, for example, look into our farming practices and think about bringing those to an up-to-date view of the science. We could be carbon sequestring, drought proofing and improving productivity all at the same time, without having a debate about carbon emissions.”

Connie Sokaris, NAB's head of corporate finance in the bank's corporate and institutional division, said the nation's financial system had "a critical role to play in contributing more systematically to Australia’s transition to addressing" the challenges of climate change.

"NAB has been mobilising capital to support the transition towards a low-carbon and sustainable economy for many years, providing over $10 billion of financing to the renewable energy industry since 2003 and delivering 130 clean energy projects, including solar parks and wind farms.

"We’re proud to have played a vital role that supports the transition to a sustainable economy, and this has continuing relevance in a post COVID-19 world. This is the time to make long-term business decisions focused on resilient and sustainable principles," she said.

The Paris Agreement states that in order keep global temperature rises below two degrees and as close to 1.5 degrees as possible, global greenhouse gas emissions must reach net zero by 2050. On current trajectory, global temperatures are on track to increase by well above three degrees, and possibly more than four degrees, by the end of the a century, a scenario scientists warn would lead to catastrophic climate change. Mr Joiner said in that scenario, there would be "no economy".

James Fernyhough writes about telecommunications, insurance and financial services. He's based in the AFR's Melbourne office. Connect with James on Twitter. Email James at james.fernyhough@afr.com.au

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