Is the ASX one of the worst markets in the world for ESG investing?

Australia’s weak emissions targets could cause it to miss out on billions of dollars of climate-friendly investments, according to a new report

boy dressed as an eco warrior and holding a globe.

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A report by 3 major global investment groups has found Australia is among the world’s worst ‘green investment’ destinations. As a result, those interested in environmental, social, and governance (ESG) investing might be disappointed by the amount of climate-focused shares available on the ASX.

The Investor Group on Climate Change (IGCC), the Asian Investor Group on Climate Change, and Ceres examined how the climate policies of G20 nations work (or don’t work) to draw private investment for ‘green’ initiatives.

The groups – together, worth more than US$46 trillion – released their report yesterday.

It found Australia’s current climate targets are likely struggling to attract climate-friendly investments.

In fact, the groups only graded Russia, Saudi Arabia, and Indonesia’s climate targets as worse than those of Australia.

However, it’s not all bleak. The IGCC stated if the Australian government amped up its 2030 emissions targets, set a net-zero emissions goal for 2050, and mandated climate risk disclosure it could attract more ‘green’ investments.

How the groups measured climate policies

The IGCC, the Asian Investor Group on Climate Change, and Ceres graded G20 nations on 5 policy targets.

The policy targets are from the Investor Agenda’s 2021 Global Investor Statement to Governments on the Climate Crisis. The groups believe these targets are the key to unlocking trillions of dollars needed to address the climate crisis:

  • National plans to limit global warming to 1.5°C by 2030
  • Commitments to reach net-zero carbon emissions by 2050
  • The implementation of domestic policies to deliver said targets, as well as incentives for private investments in zero-emissions solutions
  • COVID-19 recovery plans that support net-zero emissions targets
  • Commitments to implement mandatory climate risk disclosures aligned with the Task Force on Climate-related Financial Disclosures’ (TCFD) recommendations

Why might Australia fail at ESG investing?

Those interested in ESG investing on the ASX might be disappointed to find the Australian Government isn’t doing as much as other nations are to support climate-friendly initiatives.

Unfortunately, Australia failed to impress the major investment groups on 4 out of 5 climate measures.

They found Australia’s implementation of climate risk disclosures acceptable but “generic”.

It also noted that, as they stand, Australia’s 2030 climate targets will see the world between 2°C and 3°C warmer.

Additionally, the nation doesn’t incentivise private investment that supports zero emissions targets. Australia is one of 7 G20 nations that hasn’t committed to net-zero emissions by 2050.  

The investment groups noted investors, particularly those interested in ESG investing, see a 2050 net-zero target as the “bare minimum”.

Finally, Australia spent less than 2% of its COVID-19 economic recovery spending on green initiatives.

The Age quoted IGCC’s policy director Erwin Jackson as saying:

There’s a really big gap emerging between Australia’s current 2030 target and what our other major allies and trading partners are doing. That gap is a big concern for investors because… it shows Australia is exposed to the transition in the global economy that is under way…

Investors want to invest billions, not millions. But you need a good national policy in place to attract the billions. Billions of dollars are being invested in low emissions technology every day. This is a huge opportunity for Australia if we get the settings right.

How other G20 nations compare

While Russia, Saudi Arabia, and Indonesia were criticised for not rising to any of the measures, India, Mexico, and Argentina also fell at a single hurdle.

Meanwhile, the United Kingdom, European Union, France, and Germany topped the tally board. However, no G20 nation received a perfect score.

Interestingly, Canada and Turkey respectively put 74.5% and 100% of their COVID-19 recovery spending towards green initiatives.

Australians looking to get involved in ESG investing might want to watch the upcoming COP26 United Nations climate change conference closely.

There, global leaders may just address the major global investment groups’ worries with notable policy changes.

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