Institutional investors take a long-term view on investment and seek to manage risks across the whole economy. A clear and robust long-term strategy to manage the systemic economic risks of climate change and achieve net zero emissions would support economic growth, avoid unnecessary disruption, unlock investment opportunities, and support a just transition in communities impacted by shifting global and domestic markets.
Specifically, for institutional investors, a credible long-term strategy would support them in managing transition and physical risks and opportunities across their entire portfolios. Greater transparency around future policy direction enhances the efficient allocation of capital by supporting investors in better pricing current and future climate risks. It also reduces the risk that investments will be stranded as governments increase action through time or act abruptly with sharp policy interventions at a later date. Finally, it allows investors to identify investment opportunities across the economy and support new industries where Australia and New Zealand will have competitive advantage.
Key principles for long-term strategy development:
- Engage in extensive consultation to build community consensus on long-term emissions pathways;
- Undertake scenario analysis to avoid the false sense of certainty that can emerge from focusing on a single scenario;
- Build on existing public and private sector processes, such as Australia’s National Hydrogen Strategy;
- Examine risks, opportunities and synergies and avoid an overreliance on macroeconomic modelling;
- Ensure consistency with the objectives of Paris Agreement to limiting global warming to 1.5°C and well below 2°C, and;
- Integrate the physical risks of climate change and national adaptation strategies to ensure long-term strategies are resilient to both the transition and physical risks of climate change