Climate change now an opportunity, not a threat: AICD roundtable

Climate change was once seen by energy companies and others as a threat to business. Now, according to senior directors who spoke at a recent AICD roundtable hosted by The Australian, the tide has shifted and many companies see it as an opportunity. The wide-ranging discussion also covered issues such as the adverse trading environment with China and a cautiously positive outlook in terms of pandemic recovery.

In the past four and a half years that director Guy Cowan MAICD has sat on the board of Santos, he has seen the energy company transform its treatment of climate change in a major way.

“In that time, I think we've gone from seeing climate change as a threat to an opportunity. In terms of our current strategy, it’s all around investing in carbon capture. We're now moving into hydrogen feasibility. We can produce hydrogen and we can transport it. But obviously, we need infrastructure to catch up.”

Santos mainly produces and supplies natural gas, and Cowan says the new strategy is attracting clients, due to the more environmentally friendly focus.

“Now we're increasingly getting LNG buyers coming to us saying, look, we'd like to purchase more of your gas because you're heading towards carbon neutrality.”

The company also announced recently “after a lot of deliberation at the board”, that it has a clear target to be carbon neutral by 2040, with zero net-emissions. “So it's been a huge change, and there has been some resistance I have to say on the way, to a position where we now are embracing it. It's been an exciting and an encouraging journey and of course, gas is a natural transition fuel for renewables. So we are well-placed.”

The issue of climate change has had a major impact on the business scene so far, and business is in fact ahead of government when it comes to energy, where it has been pushing hard for some time, according to Penny Bingham-Hall FAICD, who also spoke at the roundtable and sits on the boards of Blue Scope Steel and Fortescue Metals Group. This is partly due to pressure from shareholders.

“Business is playing a really pivotal role and has been pushed to some degree, particularly by international investors, but also by the Australian super funds to say, "We expect you to move ahead of this. We want to understand how you're thinking about climate risk, but also how you're transitioning to renewable energy."

Pandemic accelerates awareness

The COVID-19 pandemic has accelerated this trend and stimulated innovation, she adds. “People are saying we need to move to a safer planet in a way. And so I think there's a lot of acceleration in investment exploration and innovation technology around renewable energies.” This applies to areas she is involved with through her boards, such as iron ore and steel making, where there are big emissions.

“There's a lot of work going into thinking about technology around steel. It's not easy. A few years ago everyone said it was 50 years away. But now we have seen vaccines suddenly being [developed] in a year. So I suspect technology around steel will be quicker than everyone thought.”

Considerable investment and innovation are being directed towards hydrogen and renewable energy. “I think Australia is really well-placed to be able to export renewable energy to Asia in particular.”

In terms of the property sector, the news is also positive. “From a sustainability perspective, I think the Australian property sector is leading the world,” says Bingham-Hall, who also sits on the board of the Dexus property group. In terms of real estate, there has been a huge amount of work done in Australia to ensure that our buildings are energy efficient and water efficient. “The latest thing everyone's really looking at is air quality. That was parked by the bushfires, but COVID-19 has really pushed us to the next level in thinking about how we keep air quality in buildings.”

Companies working towards a lower carbon future

ASIC has signalled that climate-related disclosure remains a key focus. In its latest corporate plan to 2024, the regulator says it will conduct surveillance to assess the extent to which listed companies have adopted appropriate governance structures to identify and manage climate-related risks and take other measures to enforce disclosure.

Banks are supporting businesses that are transitioning to a lower carbon future, according to Graeme Liebelt FAICD, who sits on the board of ANZ. “At ANZ, along with all the banks actually, we're recognising the risks inherent in this transition and trying very hard to support those who are transitioning to a lower carbon future and ultimately a net zero emissions future. And that's a very active program and ANZ particularly is coming for some flack politically because of that. But the reality is that it's just a normal part of business. It's what we do for a living and it's risk management.”

The challenge is also seen as an opportunity for his other board, packaging firm Amcor. “The climate challenge or the planetary challenge, if I can call it that, is quite different,” says Liebelt. “It’s all about sustainability with respect to plastics. We are a plastics and packaging company, and many of our conversations, perhaps even the majority of our conversations are really around how we stop the pollution of the planet via plastics, how we generate recyclable products, how we get the circular economy working. And that's very front and centre. In fact, we see that as an opportunity, but one that's got tons of challenges ahead of us.”

The China challenge

On the question of other challenges facing boards, the issue of Chinese trade tensions is seen as one that will need to be managed carefully both by business and governments in 2021 and beyond.

Cowan sits on two boards with major Chinese shareholders, including Santos and the Buderim Group. “Those relationships (with China) have to be maintained. On the other hand, certainly on my private board where we import a lot from China, we've been trying to assess the risk and thinking that if we can diversify supplies, that would be prudent. Because I don't think this geopolitical issue will be solved. Maybe (new US President) Biden will stabilise the relationship, but yes, it'll be with us for a while.”

However, Cowan also sees supply chain constraints as a major issue going forward.

Other 2021 challenges

Organic growth is another challenge, especially for both Amcor and ANZ, according to Liebelt. “The outlook for the banking industry is that credit growth is not going to be very strong. And Amcor, frankly, is in industries where there is relatively slow growth. In order to get that organic growth going, I mean, M&A is always available, so we can do that. But in order to get organic growth going, we have to innovate effectively.”

In terms of global operations, the combination of major expansion and COVID-19 will be a challenge, says Bingham-Hall. “Blue Scope Steel has global operations,” she says.“You can do all the safety protocols and COVID-19 issues in the world, but when the contractors on site go home and go to the pub with their mates and get COVID-19, you can't stop that.”

Cautious optimism for the future

Despite these issues, the directors who spoke at the roundtable expressed cautious optimism, with most of their companies seeing positive results.

Liebelt says “Amcor has come through really well. Business is strong and we've managed to hold the supply chain together.” He also said the outlook for ANZ “looks to be playing out more favourably than we would have assessed six months ago”.

Bingham-Hall is also increasingly optimistic saying “Blue Scope Steel has done incredibly well on the back of government stimulus, alterations and additions, and people spending more time at home. So the volumes particularly here in Australia, but across Asia as well have been really strong. So, it's surprised on the upside. And at Fortescue, obviously iron ore is going gangbusters.”

She says one favourable trend to emerge has been the cooperation across business and government. “I think one of the positives to come out of this is that a lot of businesses have worked very closely with the government to support smaller businesses and the community. But obviously it's tough.”