Watch public forum: Climate risk, capital markets and global governance



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Climate risk, capital markets and global governance: Public forum

The climate risk, capital markets and global governance forum in Novermber 2021 saw senior leaders from Australia and the United States explore the latest climate policy developments, their impact on economic strategy and diplomacy, and how Australia’s leading institutions are responding.

This was the second public event from the Climate & Recovery Initiative, a partnership between the Centre for Policy Development, ClimateWorks Australia, the Australian Council of Trade Unions (ACTU), the Australian Industry Group (Ai Group), and Pollination.

Centre for Policy Development CEO Travers McLeod moderated a discussion between

  • Steven Kennedy, Secretary of the Commonwealth Treasury
  • Shemara Wikramanayake, Managing Director and CEO of Macquarie Group
  • John Morton, Climate Counsellor at the United States Treasury

It examines ABS and Treasury engagement with wellbeing, including in the Measuring Australia’s Progress project, finding they were leading instances of government engagement with more expansive and granular indicators of progress.

Full transcript

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00:10 Travers McLeod:

Welcome everyone, to our second Climate & Recovery Initiative Public forum. I am Travers McLeod, the CEO of the Centre for Policy Development in Australia. I am coming to you from the lands of the Wurundjeri people of the Kulin Nation in Melbourne, Australia. I’d like to pay our collective respects to elders, past and present, of the lands  we are watching this forum from and offer a very warm welcome to any Aboriginal and Torres Strait Islander people who are watching.

On behalf of my steering group colleagues for the Climate & Recovery Initiative, from CPD, ClimateWorks Australia, Australia Industry Group, the Australian Council of Trade Unions, and Pollination Group, I want to thank everyone who has joined us, whether it’s early morning here in Australia – very early in Western Australia – the afternoon or evening in the United States, or somewhere in between. There has been lots of interest in this forum and we hope it doesn’t disappoint.

Our focus today is the decarbonisation of the global economy. We had hoped to bring our panel together earlier this year but, as it turns out, the timing for this discussion is ideal, coming just days after the finalisation of the Glasgow Climate Pact.

I’m joined by three distinguished speakers. Steven Kennedy, the Secretary of Australia’s Treasury; Shemara Wikramanayake, the CEO of Macquarie Group; and John Morton, Climate Counsellor at the United States Treasury.

Over the next hour, these three speakers will reflect on climate, capital markets and global cooperation. There will be time for questions — please feel free to submit a question for consideration via the question box. We are first going to take some prepared remarks from each speaker, before a discussion I will very lightly moderate. So let’s get started. To kick us off is Steven Kennedy, Secretary of Australia’s Treasury. He knows this area better than most, of course, having been Deputy Secretary at the Department of Climate Change and Energy Efficiency and Head of Secretariat for the Garnaut Climate Change Review 2011 update. I can assure you the person who just popped up on the screen is not Steven Kennedy, that’s John Morton, the third of our speakers. But Steven,  over to you to get us started.


02:30 Steven Kennedy

Thanks Travers. It is great to join you this morning. I’d like to join your acknowledgement of country as well. Thank you to CPD, ClimateWorks, and Climate and Recovery Initiative participants for the opportunity to speak with you and the wider audience. So look, I’m going to make some brief remarks about how the financial system is responding to climate change and how policymakers and regulators can assist.

The financial system will facilitate the shifting resources needed to meet the net zero emissions targets and manage some of the risks that will emerge as a result of climate change. The Australian Treasurer touched on these topics in a speech in September on climate-related trends in global capital markets and their impacts on Australia recently. A lot has been achieved since the Taskforce on Climate-related Disclosures released its recommendations in 2017, but more work clearly needs to be done. One strand of that work is about information and disclosure; ensuring that investors are fully informed about the financial risk that climate change is embedding in firms and about the impact on firms’ activity on the climate and the environment more generally. This is to enable investors to manage their financial risks and to align their investment decisions with the sustainability objectives that are becoming a more prominent part of the investment of our landscape.  Another strand is about ensuring that risks in the financial system are appropriately managed. I’m mainly going to talk about disclosure of the financial risks of climate change and the development in sustainable finance today.

There are two points I want to emphasise. First, Australia has been a relatively strong performer on climate-related financial disclosure, although maintaining that will require more action. As what is considered global best practices evolves in the years ahead. And second, while the focus on the financial risks of climate change is important, it’s just one part of a wider challenge to enable the financial system to fund the significant investment in lower emissions technologies that are required to make climate goals. There are major opportunities here for Australia as well as hard realities.

So first on the disclosure of financial risks, Australia has robust legal obligations for companies to disclose material financial risks, and it’s now well established as a matter of legal opinion, regulatory guidance and shareholder expectations and corporate practise that this includes climate-related risks. These requirements sit within a broader set of periodic and continuous disclosure rules, listing rules, and separate obligations under the NGERs arrangement. Adoption of the TCFD framework in Australia has been strong and it’s encouraging and it’s an important part of growing investor security, an important part of growing investor interest in this country. We are among a top handful of jurisdictions for the number of institutions that have backed TCFD, and in 2020, some 58 of the ASX 100 incorporated TCFD-aligned reporting. Well ahead of the global average for the world’s largest companies.

The financial regulators ASIC, APRA and the RBA have been active in stepping up climate-related guidance, analysis, and supervision to assist Australian firms in meeting the expectations of capital markets. Travers mentioned that I began working on these issues back in 2011 and it has been very pleasing to see how those three regulators, particularly in the last five or six years, have stepped up their activities in these areas.

In recent years, ASIC has updated its guidance to include information on disclosing climate-related risks and has undertaken surveillance of climate risk disclosure practises by selected listed companies. And APRA has developed strong arrangements around the prudential management of climate related risks in the financial system. So along with Treasury, the regulators are engaging with global counterparts on international efforts to improve the quality and quantity of financial disclosures in response to consistent feedback from investors about the need for improvements in these areas. For example, Treasury and the RBA sit on the Financial Stability Board and the G20 Sustainable Finance Working Group, which this year released international roadmaps on climate disclosure and sustainable finance, respectively.

Sustainable finance is another area where many Australian financial institutions and firms have been participating actively in a burgeoning global market. The development, for example, of ESG bonds in Australia seeks partnerships between financial institutions and state governments issuing these instruments. And in 2021, the first sustainably-linked bonds on the Australian medium-term note market was issued by Westfarmers. Some of our major banks this year have launched sustainability-linked derivative products. These examples demonstrate how interesting capability in these markets is expanding and the opportunity for Australia to be both the leader and beneficiary given our deep financial market’s institutional capabilities, and wider economic opportunities in sustainability, and trends and transitions. So there is some encouraging progress, however it’s clear that more must be done to keep pace as a global bar rises rapidly and the scrutiny of capital markets increases.

Developments during COP26 give some important pointers to where things are headed. In particular, the announcement of the new International Sustainability Standards Board (ISSB) is a crucial step forward and standardising the disclosure of environmental factors that create or erode enterprise value. The ISSB represents an institutionalised effort to develop globally consistent reporting standards on sustainability-related issues. One of the ISSB’s priorities for next year will be the delivery of a new standard for reporting material information on climate-related risks and opportunities. I think this is a crucial step forward towards improving the quality of information available to investors on climate issues by establishing global consistency and streamlining of frameworks and expectations. And that framework will build on a framework developed by the TCFD, and overtime will expand to consider other sustainability topics. Just out of interest for those here today, one such area is nature-related reporting. During COP26, the Australian minister for Environment, Sussan Ley, announced that Australia will join the UK, Switzerland and the Netherlands as a funding partner for the Taskforce on Nature-related Financial Disclosures, a new initiative to develop a TCFD-style framework to help companies report their impact and dependences on biodiversity and other nature-related issues. A great development, and it’s great to see institutions like Macquarie engaged in other processes.

Natural capital is of course a crucial importance to Australia and it’s emerging as an important medium-term issue for investors and markets. By being directly involved, Australia is engaging in influencing what will be a crucial global framework, and that’s exactly I think, where the country should be. Announcements at COP26 through the G20 and elsewhere illustrate a much wider trend. The way to finance is shifting in a coordinated far-reaching way behind climate and sustainability goals.

The UN Glasgow Financial Alliance for Net Zero, chaired by Mark Carney, now involves banks, asset owners and insurers with over US$130 trillion in assets; something I think that probably most participants on this seminar are aware of. Its members have pledged not just to strengthen climate related financial disclosures but to comprehensively align their activities with net zero targets.  Increasingly, investors are taking comprehensive measures to align their portfolios, investment and engagement with much more exacting commitments, targets and strategies. And they’re doing it as a question of risk management and value creation.

The same trend towards alignment of investment with sustainability is happening in public policy. One clear example is the proliferation of government led sustainable finance taxonomies including legislative ones in the EU and China and several under active development in ASEAN countries. These taxonomies are integrating sustainability considerations much more directly into the core business of investment disclosure and regulation. These two trends towards aligning public and private, I think, are going to be very powerful forces in shaping future global investment flows. They’re important for countries like Australia given our integration with global markets. There are some difficult choices here; it might be aspects that do not align with Australia’s national interest, and to paraphrase a point that Guy Debelle from the RBA made recently, when talking about taxonomies, “we don’t have to like what’s happening but we do have to be engaged and involved and we must have a credible alternative that appropriately aligns with others.” For myself, I don’t mind at all what’s happening but I certainly agree with Guy’s point about being engaged and involved, and having credible alternatives.

Indeed Australia has been involved in developing taxonomy type frameworks elsewhere. One example is our work with Japan, the US and others through the OECD to develop the blue dot network for quality infrastructure investment. The industry-led Australia Sustainable Finance Initiative has identified the need to strengthen arrangements around sustainable finance including taxonomies in its recent Australian sustainable finance roadmap.

In addition to these developments at COP26, we’ve seen further moves towards more detailed mandatory disclosure of climate-related financial risk in some jurisdictions. New Zealand legislated its new scheme in October. The UK recently announced mandatory disclosures would commence in April of next year, and of course we are watching with interest. I will be interested to hear from John today, the US Security and Exchange Commission soon-to-be-finalised proposal on new rules for climate-related reporting. As these are introduced these systems will have implications for Australian investors and firms operating in those markets.

It’s a critical period ahead for Australia to consider how we navigate these international developments in climate-related financial disclosure and sustainable finance. At Treasury, we are acutely aware of the increasing demand for more detailed climate-related reporting frameworks and requirements; it’s what investors and institutions want. Australia will need to take further steps to meet these expectations. The challenges of climate change are well established, as are the difficulties of coordinating global and domestic actions. In my view net zero targets are readily achievable, but they will generate costs for some and opportunities for others. Managing this transition effectively will ensure the requisite actions required to meet targets are maintained and accelerated. Effective disclosure of climate-related financial risk, and the impact of firms activities on the environment is important in and of itself. And it will greatly enhance global and domestic actions to reduce emissions and respond to climate change. The challenge ahead for all of us is finding new ways to take our responses further. Thanks for the opportunity to make a few opening remarks, Travers, and I look forward to the rest of the discussion.


14:29 Travers McLeod

Thank you very much Steven. Very interesting comments particularly about the scrutiny of capital markets and the need for credibility as Guy Debelle mentioned a few weeks ago and the growing focus on mandatory disclosure. Before I turn to our next speaker, please don’t hesitate if you’re watching to submit a question for the discussion using the Q&A box.

But our next speaker Shemara Wikramanayake has just returned from Glasgow where she attended the climate summit and COP26, and participated in many events and announcements to bring forward the transition, particularly on climate finance. Shemara has been a Commissioner on the Global Commission on Adaptation, a member of the Climate Finance Leadership Initiative. She is of course the CEO Macquarie Group which is committed to achieving net zero emissions by 2040. Shemara, over to you.


15:27 :Shemara Wikramanayake

Thanks very much Travers and I also wanted to kick off with an acknowledgement of country but to thank you and CPD for the collaboration that we’ve had in this area for the last few years which is been very productive and you know, as we know if we’re going to address this climate challenge it will take collaboration between industry bodies, think tanks, private sector like us and also very much the public sector in the government. So it’s great to also be on the panel with Steven and John and have the Australian and US Treasury represented.

Now my comments will be from the perspective of the private sector. We’re involved obviously it’s a direct investor with our own balance sheet, investing on a fiduciary basis — the money of pensioners, savers and retirees from around the world in our asset management business – and also as an operator and developer of projects. I might start with some backdrop comments from COP but I wanted to look at five areas where we, the private sector, think we need to step up and invest if we’re to get this done.

So, as you said, I’m just back recently from COP and it was my first COP that I have attended. The UK did a great job on leadership of it. A few takeaways for me is that awareness is really being built up now over these COPs. Particularly I mean globally but the young generation particularly are stepping up and holding us accountable. The other thing I noticed is massive private sector attendance which is fantastic and the UK did a great job getting commitments made in the lead up so the latest estimate now is that we’re on track from a 2.7 degree increase to a 1.9. Which is good. We had a few other achievements like the MDBs [multilateral development banks] – and I think John might cover some of this – the MDBs commitment stepped up from the developed countries to $100 billion a year by 2022. Then we had some sector agreements in terms of deforestation, rolling out electric vehicles, methane emissions, shipping, regulation of carbon credits etc. So that was all great – it’s wonderful we have a 1.9 degree commitment if you add all the commitments together now, versus 2.7. But the challenge is: if we are to meet that we need not just as Steven was discussing, measurement and accountability, but we need solutions and that is not going to be easy because we don’t have them all yet.

There is $300 trillion of capital in the private sector, if we can mobilise it. We have the capital to get there, and as Steven mentioned GFANZ — Glasgow Financial Alliance for Net Zero — speaks for $130 trillion from 450 banks and asset managers etc. from 45 countries. So the private sector money has made commitments but to deliver we actually need solutions. The estimate is that we need the step up in investment to go to $5 trillion out to 2030 if we are to meet net zero; that’s the International Energy Agency estimate.

I am going to look at solutions we need in five big areas. One is accelerating the already scaled technologies that we have to address climate change. The next one is the emerging technologies that we need to develop. The third one is transitioning the hard-to-abate existing solutions and technologies. The fourth is the emerging markets which are going to be the biggest source of emissions growth. And the last one is adaptation, as opposed to mitigation, which Steven alluded to in terms of the work we’re doing with the Global Commission on Adaptation.

I will start with scaling up existing technologies. We do have, for example in the energy area, things like wind and solar which are now at a point where the costs have come down to them being the default choice of rational actors. Governments have catalysed early investment by the private sector. The private sector has stepped up. But we have at the moment 250 gigawatts a year of wind and solar energy and that needs to get to a terawatt by 2030 if we’re going to actually deliver on the plans. That is going to mean probably no longer the government’s support but it’s things like taking the blockage out of the way investing in grid infrastructure — the enabling infrastructure — to let us scale this up on a larger scale. The UK’s done a great job in offshore wind for example – there’s a whole regime I can talk about more – and it has now half the installed capacity of offshore wind. What we’d love to do is not just scale it up with enabling infrastructure, but bring it to other parts of the world. Certainly we’re keen in Australia to look at whether we can capitalise on the fact that offshore wind now is economic and bring it to this country. That’s one of the things we’re looking at in terms of scaling up.

The next one is new technologies, because the challenge with wind and solar is that they’re  intermittent. Even this year we’re finding mostly the energy price surge is driven by demand surge post-COVID in goods as opposed to services. But it’s been exacerbated by the fact that we’ve had low wind blowing in both Europe and in China, so we need firming solutions like batteries etc. There’s no end of technologies that we need. In the energy area, we think hydrogen is a big opportunity and we’re investing in hydrogen projects. It’s great to see what Australia is doing with the hydrogen hubs. We have a few projects we’re putting forward for that: one example is with BP at Kwinana in Western Australia where we’re looking to repurpose a BP refinery as a hydrogen hub. We also need to look at other things beyond energy because we’re not going to meet the emissions targets by just new energy solutions or even natural capital solutions. We need to take carbon out of the atmosphere, so we have to focus on Carbon Capture Utilisation and Storage, direct air capture etc. We are working on projects in the UK in terms of CCUS and also with our gas network Cadent in the UK we’re looking at whether we can introduce hydrogen as a blend into the gas grid. The private sector needs to do a lot in these emerging technologies. I think this is an area where working with the government is going to be important because while there’s massive capital in the private sector, it’s the money of pensioners and retirees and it needs to go into safer de-risked investments, capital protected, income-producing, defensive, long duration investments. So in the early stage we need collaboration with others on the call to get these areas catalysed.

The third thing I said I talk about is the hard-to-abate sectors. And that’s how we get off the fossil fuel type sectors. We need to accept that that has to be an orderly transition. We can’t shut these things down overnight. For example, Australia still has about 70% of our energy based produced by coal. India is in a similar state. We need glide paths to get off these in a way that we don’t create disruption in terms of lack of energy and blackouts, price surges, loss of jobs, loss of industry, loss of exports. So we’re working as an asset manager, as an example in assets – long-dated assets  like a port – which over the 10 to 15 years of ownership you can actually transition that very well. An example here in Australia is with the port of Newcastle, where we’ve just announced a feasibility study together with ARENA’s support. We manage 50% of that port but we’re looking to address issues in terms of adding renewables as an energy source for that port, electrifying equipment, dealing with truck idling. But importantly diversifying the activity of that port away from coal, initially to containerisation, but if we can in Newcastle, look at creating a hydrogen hub and green ammonia.  What we will do is make sure there is industry and jobs and exports for the people of Newcastle, through an orderly transition. Early stage investment partnering with government but if we can get that to scale, transitioning these hard-to-abates sectors is very important. It was a big discussion in Glasgow where I think it’s evident that hydrogen is going to be one of the big areas.

The fourth area is emerging markets. You know, sixty-five percent of emissions today come from non-OECD countries and the fact is they need to lift their living standards to where we in the developed world are enjoying living standards, but they have to do that without the access to fossil fuels and the emissions we did. So we need to think about how we help them in the transition. It’s in the interests of the whole world plus the responsibility of the developed world who created most of the emissions in the atmosphere today to step up and support. And that’s why the $100 billion commitment was important. What we’re doing is that Michael Bloomberg has set up this Climate Finance Leadership Initiative (CFLI) and together with Tata – the chairman of Tata is my [CFLI India] co-chair, Natarajan Chandrasekaran – are trying to create a pilot in India where we will come up with the glide path in the solutions for a big emerging market. Together with China, the USA and India speaks for half the worlds’ emissions. So if we can get a glide path happening, then trying to roll that out to other countries is going to be a very important area for the private sector to invest in.

The last thing I was going to talk about is adaptation. As you mentioned, I’ve been one of the commissioners on the Global Commission on Adaptation. Sadly climate change is upon us; we are having extreme weather events, melting of the glaciers, rising sea levels. There are a lot of communities going to be impacted without being able to wait for mitigation solutions. So we at the moment certainly invest a lot in our asset portfolio in adaptation as a feature of the asset. So we’re putting cables underground in Finland to survive freezing winters, we’re lifting the Goethals Bridge in New York State, we’re putting geohazard warnings on geothermal assets in the Philippines. That all makes good economic sense for the private sector to invest. If we are going to do investment in seawalls, flood defences; again, like the emerging technologies, we need to work with the public sector to get the economics of this done in the early stage and scale it up.

They were my range of points. I was going to mention the point Steven did on the importance of taxonomies, measurement, disclosure, holding ourselves accountable and the net zero commitments we’ve made in our asset management across the Group to make sure people comply with this. I think the community is starting to ask for it, not just the investment community and where they invest money, but consumers. There have been surveys in the UK that show 80% of customers support carbon labelling and want to understand the emissions of products that they’re consuming. I might not elaborate on that because I do want to make sure we hear from John and answer peoples questions but that’s my quick burst on things that the private sector is investing in and we really need to collaborate with the public sector and everyone in getting this done.

I just want to briefly finish by saying yes it sounds like huge challenges but for us in the private sector I do want to say it’s also huge opportunities that we, Macquarie, are building our business as well by investing in it. So I would advocate to everyone to think about it not just as a problem; it’s an opportunity.


27:28 Travers McLeod

Thank you Shemara, some huge themes there and we will come back to that coordination question in the discussion, I hope we can. Let’s go to our last speaker, before we turn to discussion, who’s John Morton. He joins us from Washington DC; it’s Thursday evening over there. John’s been working on climate issues for over 25 years including under President Obama. He knows Australia very well. He was a partner of Pollination before joining the Biden administration. John, thanks for joining us Thursday evening, you’re always welcome in Australia virtually or physically. The zoom room is yours.


28:05 John Morton

Thanks very much Travers and thanks to the Centre for Policy Development for the invitation and having been a partner at Pollination and having served in two previous administrations I’ve seen the good, the bad, and the ugly of USA and Australia engagement on climate changes as our respective regimes have have fluctuated in and out. So it’s a pleasure to be speaking with you today from a perspective of a far more progressive and forward leaning administration than obviously the previous one.

I have the honour of serving as the Climate Counsellor to U S Treasury Secretary Yellen. This is a new position that was created by the Secretary to help I coordinate, manage, and heighten ambition within Treasury’s whole of economy approach to combating the climate crisis. Leveraging the tools the capabilities and expertise across Treasury to support the shifts necessary in public budgets, tax policy and the flow of private capital needed for the transition to a global net-zero economy. Before I go into a little bit more detail on what it is we’re doing at Treasury and within the US government, I’ll offer some reflections as well on COP where I was as well. I just want to applaud and congratulate Macquarie and Shemara’s leadership on sustainability and Macquarie’s net zero commitments. And their participation in and leadership of the India component in particular of the CFLI, which focuses on the critical question of how we catalyse institutional capital toward climate-related investments in emerging markets. Perhaps the most vexing and most important question that we can ask ourselves as global citizens.

I’m also very encouraged to hear from Steven how the Australian Treasury is responding to climate-related financial risks, which mirrors very closely to the US Treasury’s work on assessing and mitigating the risk in both domestic and international flora. And I will applaud and point out that I read with interest Australia’s recent long-term emissions reduction plan which came out just prior to the COP. In which Treasury, I believe, was responsible for some of the analysis showing that if Australia didn’t not only set an net-zero target but provide some compelling strategies for achieving it, you were likely to see borrowing costs increase by a baseline of 100 basis points and perhaps going well above that because of the changing dynamics in international financial markets and international capital markets. I think that reality, which you quantified, which your analysis quantified, is a good indication to others about the dangers of being on the wrong side of the decarbonization agenda that many countries in many industries are likely to face in the years ahead if they don’t take this challenge and opportunity seriously enough.

So we are just days out from the conclusion obviously of COP26 in Glasgow, I want to just offer a couple reflections that mirror some of the observations that have been made by Shemara in particular. First of all, the parties to the UNFCCC and the Paris agreement I think succeeded in a pretty strong show of both public sector and private sector commitments that keep the 1.5 degree target within reach. It is not easily within reach, but it is within reach. That is importantly due to both public sector commitments, NDCs, the net zero commitments that were made, but importantly and perhaps more importantly, the private sector commitments that are beginning to stack up. Many countries, including most major emitters, increased the ambition of their greenhouse gas mitigation targets contained in their Nationally Determined Contributions or NDCs. Most developed countries put forward what I believe to be a credible road map, delayed but not out of reach to achieve the $100 billion in annual financing that is called for from developed countries to provide to developing countries on an annual basis. And as Shemara said, I think we will hit that target by 2022 and quickly move beyond it. And most notably, as has been alluded to by both previous speakers, we did see collective commitments from companies with assets under management now representing over $130 trillion, not just commit to net zero by 2050 but to commit to science-based targets by 2030, and an annual reporting and accountability mechanism that falls under the GFANZ structure.

Yes these are pledges. Yes these are commitments on both the public and private side. But there are accountability measures and I expect and hope that advocates will will hold both governments and private sector players to account for the commitments that have been made. So how much did all this collectively move the needle? I think Shemara just mentioned the figure 1.9 degrees; the IEA has come out with the figure that says 1.8 degree increase, others have said it’s closer to 2.0 or 2.1. But what’s undeniably true is that if you look at the progress that we have today versus where we were even three or four months ago, we have the potential if these pledges are met to hit targets that were I think previously seen as very very difficult if not impossible given a short period of time ago. So I leave feeling quite optimistic about the stage that has been set for the commitments that have been made. And I think the leadership of the US government has undeniably breathed some urgency back into this conversation, but it must be importantly said that the base off of which this year’s progress was made was made largely without the US present over the many years, over the four years that preceded. And so while we’re pleased with our contribution over the last year, we’re certainly not pleased with the contribution in the four years before that.

I will also note that I think it is important for all those countries setting net zero targets by 2050 to have credible targets by 2030. And I do think this is one area where speaking to a largely Australian audience, I think it would be good, it would be meaningful, to see strong progress from Australia in setting intermediate targets that can be credibly looked at by the international community to understand better your pathway to those trajectories.

I want to focus my remarks in the five minutes that remain on private sector mobilisation and the focus of Treasury in enabling private capital mobilisation for climate. Estimates vary widely but a baseline number that I think is accepted is that we need to seek an incremental investments toward climate related clean and green infrastructure globally over the next 30 years on an annual basis is in the range of $3-4 trillion a year.  So we’re talking about needing $100 trillion or so of incremental investment into clean energy infrastructure. Clean and sustainable and resilient infrastructure, not just energy over the next 30 years. Capital of that size has to come from the private sector, it can’t come from the public sector, but it has to be enabled by the public sector. And the pathway and the directionality of policy signals and regulatory signals needs to come from the public sector and that’s very much what we are what we are focused on.  How do we send the right policy signals and regulatory signals to private capital markets to help them understand that this trajectory and this transition to a low carbon economy globally is both predictable and consequential and that there are economic consequences to being left behind both for companies, for industries and for countries.

It is worth pausing to reflect that if in 2015 you had told even the most optimistic signers of the Paris agreement that six years later you would have countries representing 90% of global GDP having made commitments to net zero by mid-century, and companies representing assets under management of $130 having made that similar commitment. They would have thought you were crazy. They would have thought that was an outcome beyond what was even thought feasible at that time. So again I think the signals that have been sent – both policy signals and the private sector commitment signals, which often work in a kind of self-reinforcing manner – at this point are pulling very much in the same direction. I think that that is perhaps the reason why I feel most optimistic about where we are today.

Treasury has been really focused on four workstreams related to enabling private capital to flow more quickly. The first is in working with the multilateral development banks where the MDBs to push them not simply to prioritise climate change more in their operations, but to focus on the question of de-risking private capital flows. The MDBS are of course our largest source of public finance but they also have the mandate and the tools to help strategically de-risk private capital flows into some of the more difficult markets around the world. Some of the 65% of the emissions that fall outside of the OECD for example that Shemara mentioned. Secretary Yellen convened the heads of the MDBs – the first time a Treasury Secretary has done that – on two occasions this summer, to push them to do two or three things. One is to rapidly align their portfolios and internal operations with the goals of the Paris agreement. Number two is to increase the ambition of their individual climate finance targets internally. And number three, most importantly from my perspective, is to significantly increase their focus on how they partner and the tools that they have to use and deploy to crowd in and mobilise private sector investors. And on the back of those meetings, the MDBs made a series of announcements leading up to and at Glasgow that I think were quite quite positive and showed that they are beginning to really internalise this private capital mobilisation agenda in a more significant way. Which I think will bear significant fruit over the months and years ahead.

Number two, Treasury has been working with international interagency partners across the US government and with international partners, including Australia, to phase out international financing for unabated fossil fuels while simultaneously increasing our financing for sustainable development and a green recovery. We worked through the OECD over the course of the last many months to end export credit support for unabated coal power technology internationally. That’s been a goal of many previous administrations and one that we just achieved recently and thanks to our Australian partners for joining that effort. Obviously that’s a particularly sensitive issue not just for our country but for yours as well. We also significantly increased our guidance to the MDBs, the multilateral development banks, about when and in what cases – very very very small exceptional cases – we would even consider supporting any form of fossil fuel investment overseas. In our case, in a certain number of humanitarian situations, in the lowest income countries, and where credible alternatives analysis suggests that is the only way that power could be supplied to the country. We believe that that movement within the MDBs and with our partner countries will significantly both restrict fossil fuel finance overseas and free up money to support clean and green infrastructure and investments. At the same time, and Shemara mentioned this as well, we are actively and for the first time putting significant amounts of public money into efforts to fund the transition of high coal-intensity economies around the world. So we’re not simply saying “World Bank stop lending to coal”, we’re positioning public capital to support countries that are prepared to expedite the closure of existing high emitting assets. We signed a $8.5 billion commitment with French, German, UK, and EU colleagues jointly with the South African government while in Glasgow to help expedite South Africa’s transition away from coal. We hope that India, Indonesia, Vietnam and other countries will take note of that effort and then work with us as partners going forward.

My third point would be something that Steven spent his time speaking largely about, which is our our signals to regulators and disclosure. Secretary Yellen chairs an oversight body called the Financial Stability Oversight Council which convenes the independent regulators in our financial system: the Fed, the SEC, the CFTC, the alphabet soup of financial regulators. In her first convening of that group, which happens on a quarterly basis, she set climate change as the first and only agenda item. Six months later, on the back of an executive order from President Biden, the FSOC as it’s called put out its report on climate-related financial risk and for the first time – and in a very compressed period of time for US regulators to work – the FSOC found and reported that climate change poses “an emerging and increasing threat to the stability of the US financial system”. That finding compels the regulators to take certain actions, and in the FSOC report there was a series of 30 recommendations which are now being acted on by these independent regulators on an aggressive timeline and with an aggressive schedule. But those elements of those actions include assessing climate related financial risks – including through scenario analysis – and evaluating the need for new or revised regulations or supervisory guidance. Number two, enhancing climate-related risk disclosures. Number three, enhancing climate-related data to allow for better risk management by regulators. And fourth, building capacity within each of the independent regulators to better manage, identify, and assess climate related risks. That movement within the independent regulatory bodies, as was alluded to earlier, is likely to culminate in a series of independent steps taken by those regulators over the coming months. We expect action from the Office of the Comptroller of the Currency next month. We expect the SEC, that regulates our public markets, to make some fairly strong moves early in the new year. And I think you will see very very strong and systemic moves across our financial regulatory system throughout 2022, that will arguably send the strongest signal possible to our financial markets about our direction of travel.

And then finally, I need to conclude by commenting just on some of the recent legislative victories – I think we can call them that – at home. We’ve had one and we expect another in the coming weeks. The bipartisan infrastructure deal that the President signed just earlier this week includes several-hundred billion dollars worth of key provisions that advanced this President’s and this administration’s climate plans. From electrifying the nation’s power grid, to building a national network of electric vehicle chargers, to reducing emissions across our transportation hubs. And this is a significant but first investment in the US infrastructure and in the US achieving our own NDC of 50-52% reduction by 2030. In the wings, and being hopefully passed by the House of Representatives our tomorrow, your today, is the Build Back Better framework, which has over $550 billion worth of additional investments representing the largest ever single investment in our clean energy economy. Made across a variety of sectors: buildings, transportation, industry, electricity, agriculture etc. Providing hundreds of billions of dollars worth of clean energy tax credits, rebates for utilities, commercial businesses, and homeowners, spurring green investments and ensuring that middle class families can save money as they shift to clean energy and electrification. We’re confident that this will pass in the coming weeks; it has been a difficult and rocky road as many of you may have been following. We don’t have a strong majority as Democrats in the Senate, and it’s a careful balancing act but we believe that we’re at a point now where we can expect to see some significant progress in the day ahead tomorrow on the House side and then hopefully in the next two weeks with the Senate.

In closing, when we look at where the US and the global community is today as compared to where we were last year – or even really three months ago – I have a clear sense of optimism about how far we’ve come. But I think we’re also very clear eyed about the need for commitments to turn to action. And legislation and regulation to help give further direction to, and a sense of clarity to, capital markets whose direction and pivot to a low carbon and ultimately net-zero economy will be absolutely critical to enable us to meet the commitments that our leadership has made. So I really look forward to continuing to work with Australia and other key partners to heighten our collective climate ambition, and look forward to the conversation that follows here. Thank you.


46:24 Travers McLeod

Thank you very much John. Thank you everyone. So we’re going to have to catch up sometime and I wanna try to get through as many questions as we can. I’m going to ask our speakers to keep their remarks to these questions very brief – so 30 seconds, pick one. So I’m going to fuse a few questions from the Q&A.

The first is, given the scale of the coordination that John has just talked about in America through the Build Back Better package, for Shemara and Steven, what is the coordination challenge in Australia over the next five years and how can the public and private sectors work better together? The second is from Marianna O’Gorman, Neil Jaggers and Erwin Jackson; I’m going to fuse those: should disclosure be mandatory, and are our regulatory arrangements strong enough to prevent greenwashing? And third, and this is really for Steven and for John, from Bloomberg, have investors reached out to Treasury, either in Australia or the US, to express their views on transition planning and how it might impact their allocation of government debt? So 30 seconds to a minute from each of you on those, pick one or two and then we’ll try to get in another one or two questions. So first of all, Stephen.


47:35 Steven Kennedy

OK, so pick one. So in terms of investors reaching out and government debt, I suppose I can just quickly talk about the part of the Treasury that issues bonds etc. Absolutely there’s strong interest in both state debt that’s issued and federal debt that’s issued in Australia, about what Australia is doing. That’s been happening for some time now and if you look at the OFM, who issues our bonds website, you’ll see a chart pack about what Australia’s doing about climate change. This is basically mainstream Travers, that’s why it’s moving so quickly. Investors all want to know about it. They want to know about the actions, and they want to know about it concretely. Thank you.


48:14 Travers McLeod

Thank you Steven. Perfectly to time. Because you took so short a period of time,  should disclosure be mandatory  in your view?


48:25 Steven Kennedy

Travers, I’m not the government, so I can’t actually give you an answer to that. That’s a decision for them to make. But it’s absolutely clear that more prescriptive disclosure is becoming the global norm.


48:40 Travers McLeod

Thank you. Shemara?


48:44 Shemara Wikramanayake

I might take that first question on public and private sector collaborating as it is the most topical for us. Ultimately what the private sector needs is for the public sector to set the priorities and the target and a glide path. So it’s regulatory frameworks, it’s policy, it’s pipelines of investments, it’s possibly investment agencies. As I said, we saw the UK do this with offshore wind. We have now 46 gigawatt wind projects coming out of that, not just in the UK that globally from that capitalisation. In Australia, I’ve been part of this low emissions technology scheme panel, and Australia has actually set the six priorities now where it wants to invest and targets to get those priorities to being commercially affordable. You know, things like hydrogen at less than $2 a kilogram etc. So I think that’s the big thing governments need to do, is set clarity because the glide path will be different for every country. I also want to say the glide path can’t be an overnight glide path, or we’ll blow it up. I think that is the biggest thing to get collaboration going, is signals from the government to the private sector, collaboration, and the MDBs play a big role in emerging and developing countries, less so here I think.


49:39 Travers McLeod

Thank you Shemara. John?


50:02 John Morton

It’s unclear to me how you can have disclosures that are consistent, comparable, and decision-useful if they are not mandatory. But US treasury is not a regulator; but I think Gary Gensler as the head of the SEC has made the same case in why he sees climate-related financial disclosures as something that should be mandatory. Whether that will happen is still in his hands.


50:27 Travers McLeod

Sure, John while we’ve got: one from Chris Barrett – who I believe you know – he’s with the Victorian government, a senior official here. He says we’re still yet to achieve the $100 billion finance pledge. How effective do you think Mark Carney’s Glasgow Financial Alliance for Net Zero was as a boost, and do you see it’s members having an effective focus on reduced carbon-intensive investments as well as increasing green investment?


50:53 John Morton

Shall I take that quickly?


50:55 Travers McLeod

Very quickly.


50:57 John Morton

I think it’s really important. I think GFANZ has a whole – GFANZ, Carney’s effort – has an entire work stream now on transition in high-emitting, in hard-to-abate sectors, that’s being led by BlackRock. So I think that’s number one. Number two, I don’t think Carney’s effort necessarily bolsters the $100 billion, I think what bolsters the $100 billion are commitments from countries like ours that doubled our pledge in the lead up to COP,  and other countries that have stepped forward with meaningful public sector commitments. And I think that combination of those with the increased focus on capital mobilisation from the World Bank and other MDBs will allow us to get to that target – the $100 billion – by 2022.


51:48 Travers McLeod

Thank you John. Steven a question for you, that came through from Anna, the question is what is the key benefit of Australia’s Treasury Department undertaking longitudinal climate-related modelling or reporting on the costs and benefits instead of a consulting firm? John mentioned the modelling he had studied ahead of this call and the incision from Treasury that you mentioned in estimates as well. So just, your view on Anna’s question?


52:19 Steven Kennedy

There is a clear benefit in Treasury being involved in climate modelling as John mentioned. I think it has been influential in the debate for us to be able to point to, effectively, the confidence around the global consensus on climate change and what that now means for countries. That perhaps wasn’t present in the past. And I hope that was a helpful and useful part of modelling. We weren’t completely absent – as I outlined in that Senate Estimates process – from that exercise. We did have Treasury Officials working with those modellers, and they were using the models frankly that we had used in the past. And lastly I should say, which I didn’t have align in that Senate Estimates process, that in our own forecasts when we think about future demand for coal for example, we use the IEA climate-related scenarios. Those things are just built into our day-to-day work because frankly we just see climate change as a crucial first-order issue in the economy and it’s integrated into our economic analysis. There’s no doubt I have some capable people here, and I look to get them involved in understanding these issues and advising government wherever I can.


53:38 Travers McLeod

Thank you Steven. So one more question for all of you before I hand over to Anna Skarbek to give you a vote of thanks. There has been so much focus on Glasgow. We are about to get to the holiday season; Thanksgiving in the US and then the Christmas season. If each of you had one wish for Christmas for climate change, what would it be? It might be around modelling capability, Steven. Or you might choose something else. We’ll start with John, and work back through Shemara and then Steven. But if you could have one thing for Christmas on climate, what would it be?


54:14 John Morton

It’s a great question. I mean, I would have to say that what I would want is… I’m trying to put what’s achievable as well. What I would want, putting aside what’s actually achievable in the next six weeks, I would want some community of the GFANZ – some meaningful community of the GFANZ members – to step forward with extremely clear commitments around 2030 targets related to their operations. And perhaps some exclusion areas where they will no longer fund. And I think we’re at the tipping point in a couple of key high-emitting industries where a couple more signals will break the back of some key high-emitting sectors.


55:20 Travers McLeod

Thanks John. Shemara?


55:22 Shemara Wikramanayake

Look, for me it’s pretty simple. It’s about the private sector. You know, huge momentum has been built in terms of commitments, getting on with delivering solutions. And they are needed not just through us in the financial services sector, but in every sector where people have expertise. I’m also involved with Prince Charles’ Sustainable Markets Initiative where 20 action tracks are going across a lot of sectors, right through to fashion who are 11% of world emissions. Who knew? But we need to step up with solutions beyond our commitments, measurements, targets. It’s how we convert on that in an orderly way. And so, you know, we stick in our deep areas like infrastructure or in agriculture, green fertiliser etc., sustainable aviation fuels. But other people have other expertise, and I would just be saying to the private sector: there’s a big business opportunity here as well. So I would encourage the private sector to step up and use your expertise to figure out how we’re going to get direct air capture, economic hydrogen, economic etc.


56:21 Travers McLeod

Thank you, and Steven?


56:26 Steven Kennedy

Travers, I think it was a very significant step forward to see a clarity around bipartisan commitment for net zero in Australia for 2050, and it illustrates, both domestically and globally, how powerful bipartisanship or coordination or a shared common goal is this is in this area. It’s hugely important and so I guess my wish would be to see a further enhancement of that coordinated sense of commitment to goals. It will allow us – when I say targets that are readily achievable, we obviously have to turn the supply side of our economies over to achieve these targets, I think the private sector is fully capable of doing that. Innovation and technology will arise. But it does need that coordinated global and domestic commitment from governments.


57:16 Travers McLeod

Thank you, and I want to hand over now to Anna Skarbek, co-convenor of the Climate Recovery Initiative from ClimateWorks Australia to offer a vote of thanks, Anna.


57:33 Anna Skarbek

Thank you very much Travers. Yes, another Anna involved here. And thank you very much too our panellists: Steven, Shemara and John. It’s an understatement to say you have busy schedules and so it’s a true privilege to have you give time for this today. Such a high calibre set of speakers, to have John, the Biden administration’s climate lead in Treasury, plus to bring your own quarter-century of experience on these issues, including in the Obama administration and previously. And to have Steven and Shemara, both of whom I’ve had the pleasure of working with over the past decade and more, and who are now at the top of their fields, heads of major finance-focused institutions whose actions are indeed central to successful climate outcomes too. So it is very significant to have their attention and their drive on this, and so thank you for the work that you’re doing as well as the time that you have given to us today to share your perspectives.

And of course thank you to the audience. We’ve had hundreds of people tune in this morning. We’ve had requests to hear it again. And yes I can confirm there is a recording of this. We have indeed had a really rich picture of progress and further work to do, both on the global and national perspectives across many aspects of addressing climate ambition, across governments and capital markets. Indeed, we’ve heard both a message of huge progress and yet still huge work to do. And I think we can hold both those truths. And that is indeed the moment that we are at now. We’ve heard the head of the Australian Treasury say that Australia will need to take further steps to meet expectations. And we’ve heard the head of Macquarie, also a representative on UN commissions set out five tangible areas where further steps are needed. And we’ve heard the head of climate at the US Treasury speaker of four work streams and other actions that the US government is taking at home, but also during the COP with multilateral banks, for example, with the billions of dollars to support nations to retire coal and replace it with renewables.

So there is a huge amount to do, but we are very very appreciative of you sharing with us your perspectives and the deep work that’s already underway and the huge progress so far. We have heard your call to step up today, and thank you to you, the panellists, and to the audience for joining us and please join us also in the stepping up. Thank you again, enjoy the recording afterwards. Good morning.

The Paris Agreement and climate risk

The discussion focused on the role of government and the private sector in achieving the goals of the Paris Agreement, just days after COP26. Steven Kennedy opened the forum with his initial remarks and outlined the way the Australian financial sector is responding to risks from climate change and global carbon transition. In his speech, he focused on:

  • The leadership of the Australian financial sector in climate risk disclosure and reporting  
  • The role of policymakers and regulators in supporting the global financial system to fund carbon transition

Private sector investments that target climate risk

Shemara Wikramanayake made remarks from the perspective of a global investor and highlighted five areas where, she thinks, the private sector need to step up and invest to achieve net zero by 2050:

  • Scaling-up the proven technologies that can reduce emissions
  • De-risking investments in emerging and not-yet proven technologies
  • Creating realistic glide-paths to transition away from emissions-intensive activity in hard-to-abate sectors 
  • Assisting emerging markets to lift living standards while simultaneously transitioning away from fossil fuels
  • Getting the economics right for investment in adaptation, as opposed to mitigation

The Biden administration’s climate risk stance

John Morton provided the perspective of the US Treasury and government actions taken by the Biden administration. His primary focus was on: 

  • The global shift towards needing credible 2030 plans, in order to achieve net-zero by 2050
  • Mobilising $100 trillion of private capital through (1) multilateral development banks, (2) positioning public capital to support countries with plans to transition away from coal, and (3) regulatory and financial disclosure frameworks
  • US whole-of-economy funding packages based around infrastructure investment and “building back better” 

During questions from the audience, Steven Kennedy acknowledged the need to have mandatory financial disclosures on climate action as it has become a global norm. He also recognised the importance of climate modelling and Treasury’s role in the modelling done by the Department of Industry, Science, Energy and Resources (DISER). Shemara Wikramanayake emphasised the need for collaboration between public and private sector actors, and the need to take actions beyond targets and commitments in an orderly way. And John Morton acknowledged the work of GFANZ and their fight against climate change. He wanted to see clear commitments by the group and exclusion areas they plan to cease funding.

In the media

Investors are demanding greater certainty about the path to 2050 net zero emissions
The global climate response may not always align with the national interest, Treasury boss Steven Kennedy says, as investors demand clarity and collaboration.
One of the world’s biggest investors in renewable energy is focusing on opportunities to expand offshore wind into new markets as clean power costs decline