ESG Focus | Mar 22 2019
The story was originally published as part of Weekly Insights on March 21, 2019. It has now been re-published to include it as a stand-alone item in FNArena's ESG Focus section.
By Rudi Filapek-Vandyck, Editor FNArena
Central bankers like to operate on a low public profile. They in particular don't like to be pulled into the messy processes of domestic politics, which is why last week's public speech by Guy Debelle, Deputy Governor at the RBA, should have every investor's attention.
The speech is titled "Climate Change and the Economy". Given everybody inside and around the RBA would have been well aware of the potential for becoming implicated in local politics, with NSW elections this coming weekend and Federal elections not far off after, the brazen and candid manner in which this "hot topic" has been addressed by the number two at the most important financial institution in the country…, well, need I really spell it out?
The RBA is sending a clear and powerful message to everybody who is paying attention.
I hope this includes you too.
For good measure: the RBA is not playing local politics, and neither should Australian investors (not when it concerns their investment portfolio). This is not about whether you are a conservative, a hardliner, somewhere in the middle, or at the extreme left. This is about taking responsibility in the management of your investment portfolio by acknowledging there is a new type of risk, and you need to address it.
In the words spoken by Guy Debelle, what we are dealing with today can no longer be viewed as "cyclical"; long term trends are changing. This means any impact can no longer be interpreted as "temporary". Instead, investors have to start thinking in terms of long term impacts, if not permanent changes.
The implications are broad and varied, affecting the way businesses structure and run their operations, to how investors treat and value these businesses, to how governments prepare and respond, and to how central banks set interest rates and inflation/unemployment targets.
Ultimately, Debelle's speech makes it very clear, this is no longer a problem specifically for grape growers and milk farms and other types of agricultural companies and their suppliers and insurers; this is now a major change affecting whole economies and everybody who lives and works and operates in it.
Be smart. Deal with it.
The RBA is far from a front runner when it comes to putting the changing climate on its policy and analysis radar. Put APRA and climate in Google search and you'll find the local regulator for the financial sector has been addressing the topic for at least two years now, and with multiple repeats.
Debelle's speech can be downloaded from the RBA website:
https://www.rba.gov.au/speeches/2019/sp-dg-2019-03-12.html
I highly recommend you do. Read it multiple times. Observe the implications of the chart on page eight. China is less and less reliant on coal for its energy usage, and more and more on renewables. To borrow from the RBA's core message: while these are long-winded processes, this is not cyclical. This is a long term trend changing.
FNArena started its own ESG Focus section on the website in 2018:
https://www.fnarena.com/index.php/financial-news/daily-financial-news/category/esg-focus/
If you are truly interested in what is happening in the world of coal, I highly recommend reading the stories FNArena has published thus far (including one on Tuesday morning). I cannot speak highly enough of the research and analysis done by journalist Sarah Mills, with more follow-ups in the offing. I think Sarah is doing a fan-tas-tic job.
Ultimately, for investors, this is not about making a political statement. This is about adapting to a rapidly changing world. FNArena, the RBA, and APRA, are merely providing tools and a framework. The rest is up to you.
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