2020's 'new normal': climate change risk review and governance issues to watch in the year ahead

The bushfire crisis has brought a sense of immediacy to conversations on the impacts of climate change on Australian businesses. What many viewed as only a long-term issue, or simply a matter of carbon policy, this summer has seen Australian communities and businesses experience first-hand the impacts of a changing climate. The impacts on people, communities and the environment are devastating. There is also an economic cost: ASX-listed insurers have issued revised earnings guidance; agribusinesses are reporting massive livestock losses; the tourism industry has seen the 'worst summer on record'; transport interruptions are causing disruption to many industries; and the wine industry is dealing with the impacts of smoke taint on vineyards. As these first, second and third-order impacts of the bushfires compound across the economy, Goldman Sachs has estimated the impacts could reduce Australia's GDP by 0.4%, with significant longer term tail risks.

While for some this summer has been a turning point in understanding the financial impacts of climate change, leading market stakeholders have recognised that climate change poses financial risks to Australian businesses and the broader economy for some years now. With the building momentum towards net zero emissions, climate change is a dominant trend creating risks and opportunities for businesses across all sectors of the economy and over mainstream investment horizons. For the first time, all of the top five risks in the World Economic Forum's annual Global Risks Report released this month are climate and environmental risks.

Our Climate Risk Governance team outlines the most significant developments in climate risk governance over the past year, and looks ahead to what is in store for 2020 and beyond. Not only do we see these trends continuing, but the focus on climate risk will increase significantly with two key factors at play. Domestically, the profound devastation and destruction caused by the bushfires will keep climate change in the collective Australian consciousness and put renewed pressure on governments and businesses to act. Internationally, in the lead up to the COP26 in Glasgow in December 2020, the most important international climate change conference for five years, international governments with ambitious climate policies will put pressure on perceived laggard countries with trade levers on the horizon that may directly affect Australian businesses.