The article below from the Herald Sun discusses concern of certain Australian companies that their actions ahead of a carbon cap-and-trade system in Australia to reduce their carbon emissions has not been recognized by the markets and investors. The article suggest not only the potential of the market to not fully recognize and appreciate the risk from carbon or greenhouse gas emission limitations, but suggests actions take to reduce carbon emissions in preparation for climate change legislation may not be appreciated by the market as yet. This throws a new wrinkle in the issues relating to environmental governance and disclosure in the sense that companies are usually worried about the need and effect of disclosing risks from carbon emissions and climate change regulation. Here the issue is not the failure to disclose or the concern of a reduction in stock price because of carbon exposure, but the concern that proactive steps have not been reflected in an increase in stock prices.
The global warming debate may be in from the cold in Australia, but some companies are accusing the share market of freezing them out with sluggish attitudes to climate change liabilities.
More than a fortnight after the Federal Government gave carbon emissions trading the nod, brokers and fund managers are being described as too slow to value the upside of listed companies that have taken steps to minimise climate change risks to their earnings.
"A number of organisations cannot understand why the market is refusing to factor these initiatives into share prices," Joanne Saleeba, chief executive of Investor Group on Climate Change, told BusinessDaily. ASX rules prevent these companies from speaking on the record about some aspects of their share prices. But Ms Saleeba said behind the scenes there was a growing frustration among companies that have implemented carbon reduction programs in recognition that global warming carries risks to investor returns.
Origin Energy communications chief Tony Wood told BusinessDaily that he had seen no evidence of the market factoring in the $40 million worth of investments Origin has made in solar sliver technology.
Origin, whose other investments include gas-fired generators, geothermal technology and some hydro-electric interests in New Zealand, believes the Australian share market has proved it is sceptical about the earnings potential of clean energy.
Greg Pritchard, finance director at Energy Developments - one of the largest listed renewables companies - said the group's power generation from coal mine, methane and landfill gas sites around the world had helped it offset about nine million tonnes of emissions.
"When carbon trading starts here in 2012, this will become a valuable part of our balance sheet," Mr Pritchard said.
But not everyone believes the market should wait four years to put a value on abatement.
"These efforts are being overlooked by the market and it is very frustrating for companies leading the charge into an era of carbon restraint," said Ms Saleeba, whose organisation represents institutions with $225 billion of funds under management.
The group's membership includes AMP Capital Investors, Babcock & Brown, BT Financial Group, Colonial First State and Goldman Sachs JBWere. It was established two years ago to bring to the market's attention the fact that big investors viewed climate change liabilities as a serious risk to the earnings of companies. Those risks are divided into five categories: regulatory, physical, litigation, competitiveness and reputation.
Goldman Sachs JBWere head of quantitative research Andrew Gray said there was a "disconnect" between companies that had advanced their business strategies to address these risks and stockbrokers and fund managers that were not reflecting this in their analysis.
"When you consider that many institutional investors have for years taken climate change risk seriously, the disconnect becomes more pronounced," Mr Gray said.
Part of the problem lies in the fact that the federal government is yet to set carbon emissions targets and decide how permits will be distributed.
The uncertainty makes it too difficult for researchers to make a call, according to Dr Ian Woods, senior research analyst at AMP Capital Investors.
He acknowledged that institutions were years ahead of the market on the issue.
"We have been looking at how well companies plan for climate risk for five years because it gives us a good idea of how they plan for risk generally," Dr Woods told BusinessDaily.
Scott Marshall, head of industrial research at Shaw Stockbroking, confirmed that "clean" initiatives were not being factored into valuations by most analysts.
"Being green may be good for the environment, but the only way it is going to be good for the share price is if companies can show it saves money," Mr Marshall said.
"Until we know more about emissions trading, there's no value assigned to stocks for being green.
"It is just too hard to value at the moment."
Mr Shaw said there was "a lot of paperwork estimating the cost of emissions going around between stock brokers and a lot of office commentary on carbon trading", but at this stage this information was not being used to assess risk profile, despite client concerns.
A number of brokers have admitted that big clients and institutions are leaning on advisers for more clarity on how portfolios are likely to be affected when carbon trading starts.
BusinessDaily is aware that numerous organisations have already conducted extensive modelling under different scenarios to assess the impact of carbon trading on different sectors and even individual companies.
But for a number of reasons, the view is that it is premature to reveal this information until the government releases more details on how emissions trading will work.
One organisation that refused to be named said it had already done thorough economic modelling but had been pressured by a government department to not release its findings.
"We used a grant to do the research and now that we have finished, some people are dragging their feet about making it public," the unnamed source said.
But the lid is likely to lift in coming weeks as a number of reports are released in answer to rising demands from institutions for information.
The Climate Institute, which published a climate change report on the electricity sector last month, is expected to produce more detailed analysis at the end of this month on how other sectors are likely to be affected by carbon pricing.
Also at the end of June, institutional investors will begin to have a better idea of how much carbon most of Australia's top 100 companies are emitting thanks to a voluntary reporting exercise.
The investors hope to be able to assess and compare strategies the companies are using to protect shareholder returns from global warming liabilities.
The information will be collated by the London-based Carbon Disclosure Project into a global report and publicly released in September.
Among the project's Australian signatories are AMP Capital Investors, ANZ Bank, BT Financial Group, National Australia Bank, Hastings Funds Management, Portfolio Partners and a number of the biggest superannuation funds.
Last year, just 10 per cent of companies surveyed provided sufficient information for the institutions to gain an insight into how they will manage environmental liabilities.
This year, the response rate from top 100 companies is greater.
The Australian end of the disclosure project is being organised by Goldman Sachs JB Were and the Investor Group on Climate Change.
Mr Gray said responses reveal which companies are fully integrating global warming issues into their planning and are likely to be "better able to turn the climate change issue into a source of competitive advantage and therefore shareholder value".
In a report on the project last year, Mr Gray named 20 Top-100 companies that produced the strongest inclination to embrace environmental risks.
Mainstream investors want to, and need to, consider how exposed they are to climate change liabilities, Mr Gray wrote.
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