Investor groups welcome Australian transition planning guidance
Australia’s Treasury has published voluntary guidance aimed at assisting companies in designing transition strategies
The growing popularity of transition investing marks a new era in asset owner climate capital allocation. Moving beyond their historical focus on decarbonising portfolios, investors are moving their attention – and capital – to the world outside. Canada’s La Caisse and Ontario Teachers’ Pension Plan are prominent examples of that trend.
In so doing, large swaths of patient capital are embracing the notion that supporting the transitions of hard-to-abate industries represents a climate solution in itself.
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The dawn of a new era also brings new questions. Most notably, the credibility and communication of transition plans have come under scrutiny.
In a bid to move the needle, Australia’s Treasury has published voluntary guidance on transition planning. Investor groups from down under have welcomed the efforts, noting the foundational value it provides as transition investing gathers momentum.
Transition guidance
Canberra’s transition planning guidance was published two days ago. While it follows a global trend, the government’s statement rooted its efforts in the Australian context.
“Eighty per cent of the market capitalisation of ASX200 companies have set targets to net zero emissions. Organisations are also facing growing market expectations to demonstrate how they plan to respond to the transition”, the guidance document outlines.
The document begins by defining the exercise itself. Transition planning, it notes, is an ‘ongoing, internal strategic process through which organisations identify, assess and respond to climate-related risks and opportunities’.
As a starting point, the government recommends three core principles. First, transition planning is more useful if it is embedded within the core business model. Second, being overly ambitious and impractical risks undermining credibility. Lastly, transition planning exercises would benefit from keeping financial materiality front and centre.
There is also the question of sectoral variations. Not all transitions look alike and hard-to-abate sectors in particular face a tall task.
“Hard-to-abate sectors, such as those requiring high-temperature heat and chemical reactions, can face more complex transition challenges, particularly where abatement technologies are not yet commercially viable or are still in development”, the guidance acknowledges.
Investor response
In response, investors have welcomed the efforts. Two of the region’s largest investor coalitions – Investor Group on Climate Change (IGCC) and the Responsible Investment Association Australasia (RIAA) have signed a statement to that effect.
“This guidance is a positive step forward that provides a practical starting point for corporate transition planning in Australia. Transition planning gives organisations an opportunity to prepare for, invest in and compete in a net zero economy – supporting Australia’s long-term economic resilience”, the statement reads.
Other signatories include Climateworks Centre, Carbon Market Institute, BCSD Australia, the Energy Efficiency Council and a chartered accountants’ collective. These organisations are members of an informal transition plan working group.
While the statement welcomes the Treasury’s collaborative and timely approach to transition planning guidance, it also recommends next steps. One of which is sector-specific transition guidance – for which demand has grown in recent years.
“We note that as Australia moves through the transition, more clarity on the expectations of regulators, investors and other stakeholders may be required. We also note growing market demand for complementary sector-specific guidance”, the signatories outline.
Transition investing by institutional investors inevitably raises demand for coherent, consistent and comparable information. To that end, Australia’s latest voluntary guidance sets a precedent and provides companies with a starting point.
Faced with rising investor expectations over credible transition strategies, Australian corporates have incentives to take Canberra’s advice on board.
