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Climate Change: Investing in your future by comparing apples with apples?

By Kristof Toscani, Bachelor of Laws

It's obvious, to compare apples with apples, you must first have the apples to compare.


So, when it comes to climate change, what do we really know and understand about what companies and superannuation funds are reporting on climate change?

What action they are taking to tackle our climate emergency?

Why does it even matter?


My name is Kristof Toscani, and I am in my final semester of studying a Bachelor of Laws. I'm going to briefly reveal what companies and superannuation funds need to report, why the reporting is confusing, and how you might be able to contribute to the solution for climate action.


Let's set the scene – The Paris Agreement


We hear of the 'Paris Agreement' and 'net zero by 2050' in the media, yet there are other objectives of the Paris Agreement that we never hear about. Another commitment is 'making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development'. In other words, putting your money where your mouth is for climate action.


Another term you will hear in the media is 'COP26'. This is the UN Climate Change Conference of the Parties (COP), to be held at the end of October 2021. It's at this conference that countries communicate what they intend to achieve to meet the objectives of the Paris Agreement. Each country submits a document called a 'Nationally Determined Contribution (NDC)'.


Follow the $$$ - Companies and Superannuation Funds


Companies and superannuation funds have to report their financial activities. If at no other time, at least once a year. These financial reports are standardised, so if you look at one report, it's easy to compare information to another report, for example, a 'profit and loss' statement.


Companies and superannuation funds also have obligations to report on climate change risks that impact on their businesses and investments. Generally speaking, this means that anyone who has an interest in ownership, or a benefit from investments, has a legal right to be informed of the position of the business or superannuation fund, in relation to climate change.


It's common for students to have a retail job, and probably have a superannuation fund with REST, the Retail Employees Superannuation Trust. REST were involved in a court case that started when one of their members in their early 20's asked for 'Climate Change Information'. This case is known as the McVeigh case, and while it was settled out of court in 2020, it's an example and a reminder that a single person can make a difference against a large organisation, like a superannuation fund.


The Climate Change Information that REST gave Mr McVeigh, generally speaking, did not allow him to understand particular investments, his product's benefit entitlements, and to make an informed judgement about the management, financial condition and investment performance of REST.


In the settlement of the case, REST acknowledged that climate change could lead to catastrophic economic and social consequences, citing the Task Force on Climate-related Financial Disclosures (TCFD) as the reporting framework they will adopt for the future.


What does this mean?


The short answer is big words, fancy phrases, and the odd table.


While companies and superannuation funds have a responsibility to report on the impacts of climate change, what they report, how they report it, and when they report it, is not standardised across the board. This means that, compared to say, a financial report where you can compare one report with another, when it comes to climate change, it's hard to find the apple to compare to another apple.


Climate change is not always clear


Why does it matter?


If it's hard to find information, understand it, and then compare it, then how can we really know what companies and superannuation funds are doing compared to others in their industries, or even, others in the world?


The TCFD framework established by the Financial Stability Board as a request by the G20, aims to have 'clear, comparable and consistent information' to try to deal with these issues. However, in Australia, the reporting style is voluntary.


So, what happens if the information is confusing?


If we can't find, understand, and compare relevant information, then it's up to companies and superannuation funds to make it so that we can. Otherwise, you might even think that they are reporting for themselves, and not for you.


When we can compare apples with apples, then, we can make informed choices, and by doing so, we can all play a role in tackling climate change.


TCFD - Not set in stone


How you can be part of the Paris Agreement


With compulsory superannuation funds, we all have choices based on our circumstances. What's right for one person, is not necessarily going to be right for anyone else. What you can do is become informed on where and how your money is being invested. It's your money. If you want, you can choose where it is invested, and that can be so that 'finance flows [are] consistent with a pathway towards low greenhouse gas emissions and climate-resilient development'.


In other words, all of us can be part of the Paris Agreement.