On how the weight of money is joining the power of many

News from the front desk Issue No 428: If there was a dominant theme coming through the Green Building Council of Australia’s Transform conference in Sydney this week, it was “follow the money”. 

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Was there a hint of panic from the Liberal Party senator Jane Hume on ABC radio last Sunday morning?

Under discussion was the prospect that industry super funds could soon own half the Australian share market and might be directing their funds to investments that are climate friendly, ethical and sustainable.

Hume’s questioning and the stories in financial media that followed seemed highly concerned at the prospect.

These long terms objectives would turn superannuation into an activist weapon they feared.

Treasurer Josh Frydenberg’ felt the same way and sent an “urgent” request for guidance on “aggressive union behaviour”. He warned super funds to keep away from financial activism.

Greg Combet, by contrast sounded relaxed and comfortable on the radio. He’s chairman of Industry Super Australia, and he thinks the cool $630 billion his members hold needs to be invested in ways that deliver long term value.

What’s the problem with that?

Emma Herd, who was also on the radio program and is chief executive officer at the Investor Group on Climate Change, is a tad surprised anyone would want to question the sense in investing with a long term ethical, sustainable and governance objectives.

On Thursday afternoon she told The Fifth Estate that fund managers have legal obligations to manage funds in a way that’s best for their investors. “It’s about better returns for members, not activism,” she said.

The whole funds management industry, the finance sector and their governing bodies are coming to the same conclusion, she pointed out. (See our take on this last week.)

The problem is partly that the upcoming election is generating a bit more than the usual heat, Herd says. Where money is invested for super members is not the kind of thing generally politicised.

Transform was all systems go

At the Green Building Council of Australia’s Transform, the people in Australia who were arguably first to perceive and react to climate risk, in the property industry, were getting on with the business of long term investing.

No shock and awe, no fear and political accusations, just questions and discussions about how best to go about this business.

Net zero carbon, not in 2030 or 2050 but maybe in a few years. Repurposing waste as usable viable materials. Real estate financiers offering discounts to companies that could demonstrate climate risk better sustainability. How to make a business case that would convince the boss to engage in energy efficiency or other mid to longer-term objectives.

The power of money is that it’s about the numbers – it’s maths, it’s not a probability that can be debated with an alternate theory that suits your political objectives.

And the power of money is led by consumers.

Right now, Emma Herd said, especially in the wake of the banking royal commission, there is a swarm of consumers voting with their feet and pulling their super out of conventional funds and into more ethical options.

“Consumers should be putting their pensions with funds that best represent their values,” Herd said. It makes sense.

And now that people had become more engaged with their super this was a trend that would only continue.

The resi sector is a priority

Driving change in the property industry, in residential in particular, was the same clear message from consumers (and voters) that was driving politicians to turn on a dime with a newfound commitment to climate action.

Residential property in particular needs the biggest transformation on energy efficiency the GBCA conference heard. The sector currently produces 50 per cent of all emissions in the built environment.

With kids marching in the street for climate it was clear this wasn’t a question of if, but when, said Stockland’s Andrew Whitson on Day 1.

Chatting between sessions, chief executive in waiting of the GBCA, Davina Rooney, said the sobering thought was the massive number of dwellings, around 200,000, that would be built between now and when the new building code came into effect. So that’s 200,000 built to the old energy guzzling standards.

Nice to know that the GBCA has identified the resi sector as key part of its new strategy. (And very disappointing to know that other housing lobbies have entirely the opposite agenda.)

Among discussions between sessions some people drew interesting links that as the need to cut carbon became increasingly urgent, governments would finally mandate this resulting in massive economic opportunities.

Again the numbers were powerful. Ask how many Australian houses still don’t have solar, insulation and good ventilation. How many factories will we need to create the products, trades to install them and businesses to manage this?

It makes the dot-com revolution look like a warm up, our observer said.

If you’re not on the train, you probably won’t arrive at your destination

Jon Dee founder of DoSomething and consultant at Arup said his impression of two events he moderated and of the conference in general was clearly that longer term thinking was in play and if businesses did not take action now they would miss the opportunities.

“If you’re not on the train you’re unlikely to arrive at your destination,” he said.

Among the more sobering parts of the event was around climate risk – the flip side of the opportunities –  and it’s not surprising that the wild and damaging weather of late is making this an increasingly acute issue.

But predicting the risk is going to be tricky and a big focus at the event was on resilience.

Green Cross Australia director Jeremy Mansfield noted the radically new approaches we’ll need. In the past we’ve relied on historic data to predict future events.  But now we can no longer rely on the past when looking at future scenarios, he said. (More on this soon.)

When financiers offer discounts for good sustainability ratings – that’s the weight of money speaking

 For investors and the whole financial/insurance sectors the writing has been on the wall for a while and they’re not waiting for government to tell them to shift. It’s more the other way, if truth be told.

In fact shift is so fast we’re already seeing financiers such as ING and BNP Paribas using sustainability linked metrics such as the Global Real Estate Sustainability Benchmark or GRESB result to offer discounts on interest rates.

That’s why the session moderated by Ruben Langbroek from from the Global Real Estate Sustainability Benchmark (GRESB) was particularly interesting. His panel comprised a nice cross section of the action: an asset owner, with Melissa Schulz of Vicinity Centres; a super fund, with Akaash Sachdeva, of HESTA; an insurer, with Sharanjit Paddam, of QBE; and an investor and financier with Bianca Sylvester, of the Clean Energy Finance Corporation.

Key discussion items in the panel and the investment sector in general, Langbroek said was climate risk, resilience and disclosure. And that’s why the sector had picked up with great interest the Task Force on Climate-related Financial Disclosures or the TCFD.

The TCFD was seen as great framework to work with and its arrival a bit of a “watershed” moment, he told The Fifth Estate on Thursday.

Mainly this was because it was not prescriptive but instead sought to identify best practice among industry leaders and what to expect from disclosure in the future.

You can see why disclosure is itself a massive issue.

“There’s a minefield in the idea of how to report risk,” Langbroek said.

“When the TCFD came out it was very surprising that across the sector so many parties said ‘we will commit to implementing those recommendations in our reporting’.”

Langbroek pointed out that resilience is more than about climate risk, it’s also social risk.

“What people don’t want is a narrow definition of resilience and what they do want is a common language because it’s a shared problem.”

Key take-aways from the panel discussion, Langbroek said were:

• Start now with developing effective climate-related financial disclosures that are aligned with the TCFD recommendations
• Resilience is a shared problem, so industry stakeholders should find a common language
• Don’t expect too much from regulators on this in the short term – rather, collaborate with stakeholders
• Data on investment portfolio resilience and risks is good, but knowledge on how to effectively use that data is better

It’s the weight of money that is increasing driving stakeholder commitment, rather than policymakers or regulators, Langbroek said.

“They’re pushed by both the need to better understand real estate portfolio exposure to physical, transitional, and social risks on one hand and the investment opportunities that can be generated on the other, such as the emergence of new low-carbon technologies.”

All the same everyone can now see that the regulators are moving.

There was the Reserve Bank of Australia warning on climate risk in recent weeks and right on cue the Australian Prudential Regulation Authority this week said it will “increase its scrutiny of how banks, insurers and superannuation trustees are managing the financial risks of climate change to their businesses.”

And as Langbroek adds, the politicians are starting to pay attention. At least they’re being forced to at least look like they’re paying attention to climate if they want to win any election.

A new financial lens on loans rewards for sustainability

Langbroek says a new financial lens is emerging as part of the surging tide on climate. It’s the rise of loans linked to sustainability, called variously “positive incentive”, ESG-linked, or “sustainability-linked improvement” loans.

“These enable real estate companies to leverage their sustainability performance to secure favourable financing conditions and greater flexibility,” he says and already ING and BNP Paribas have used GRESB result as the metric for these kinds of loans.

Placemaking – what it’s all about in the end

In the end all this effort from the investors, the financiers and the insurers, is about placemaking and this is always a winning topic. It’s the lovely side of property, the part that creates the intangible but passionate feelings we have about place.

So it was good to notice in relation to this the rising interest in the property industry to incorporate Indigenous sensibilities into our approach to placemaking and hopefully planning.

Because if anyone know about this place it’s our Indigenous peoples.

Heading part of one session was Chels Marshall, from Flying Fish Blue, Angie Abdilla, of Old Ways, New, Dillon Kombumerri, of the NSW Government’s Architect’s office, moderated by Jason Twill, of Urban Apostles.

Kombumerri said a good way to start to integrate a better sense of country into the places we create is to understand their Indigenous names, which always relate to the land. “It changes the way we think about of it,” he said.

There is deep memory in places, Marshall said, and tapping into this can only help.

Hold that thought.

• See what the winners of our competition for free tickets to Transform, courtesy of the GBCA, said of their experience

On a final note – the New Zealanders have our utmost respect

In a final note, while the horrors of climate change go on in the Arctic at the other end of the world in the south a madman was unleashing another horror, destroying the lives of hundreds in New Zealand and potentially thousands more when you include the multiplier effect.

In the face of this the absolutely stunning NZ PM Jacida Ardern demonstrated sensational leadership, with compassion, strength, determination and intelligence all wound up in one. She could lead the entire world out of climate disaster that one.

Ardern nailed our sentiments entirely when she asked that monster’s name never be spoken. (We felt and promised the same in these pages of the US president, who we believe is more than partly responsible for the hatred that now passes for the everyday, towards humans and  the planet.)

There’s brutal similarity here between the insane determination to unleash hatred and the equally ideological determination to ignore climate change – because both will kill us with the same mindless fury if we allow them.

We need to unite with the sentiment of leadership demonstrated by Ardern and help that light shine brighter than all.