Andrew Leigh

SPEECH

FAIRER, CLEANER: THE TRANSPARENT INVESTMENT REVOLUTION

CLIMATE INTEGRITY SUMMIT 2024, PARLIAMENT HOUSE

WEDNESDAY, 20 MARCH 2024

I acknowledge the Ngunnawal people on whose lands we meet and pay respects to all First Nations people present today.

Thank you to the Australia Institute for hosting this annual summit on climate integrity, and to Richard Dennis for the invitation to deliver this address today. I am delighted to be joining such a distinguished line-up of speakers, including their excellencies Mr Anote Tong, former President of the Republic of Kiribati, and Mr Enele Sopoaga, former Prime Minister of Tuvalu.

My focus this morning is on climate and tax transparency in our financial system so that we can drive down emissions and create a fairer society in the process.

Transparency at work

This time last year, news broke that global biotechnology company Amgen is being sued for hiding its $10.7 billion dollar tax bill from investors. The plaintiffs said that “Amgen’s share price fell 6.5 per cent in August 2021, and a further 4.3 per cent in April 2022, because the company waited until then to disclose its potential liabilities” (Stempel, 2023). The US Inland Revenue Service “accused Amgen of underreporting taxes from 2010-2015, mainly for attributing what should have been US taxable income to a Puerto Rico unit” (Stempel, 2023). It powerfully illustrates how shareholder value is intimately linked to what is known about a company.

Consumers and investors have long understood that what they buy, and the investment decisions they make, have the power to influence ‘grand’ social, economic, and environmental challenges. As far back as the 1700s, John Wesley advised his congregants against “any sinful trade” (Uberti, 2023). When the Methodist Church began investing in the stock market at the turn of the 20th century, they avoided companies involved in alcohol and gambling (Goff, 2006). When investors saw the destruction of the Vietnam War in the 1970s, they created the first ethical fund – the Pax World Fund – so they could avoid investing in weapons and weapons manufacturers (Uberti, 2023).

Meanwhile, debate has raged about what this all means for corporations, and how they balance their responsibilities to shareholders and to the public. We must create a financial system in which Environmental, Social and Governance (ESG) factors into shareholder value, as much as acquisitions or sales. Without transparency and robust public reporting, how will we know about the Environmental, Social and Governance factors faced by a company, and make decisions about where to invest our dollars accordingly?

The more that companies make regulatory or reputational risks they face transparent through data and metrics, the more that investors are empowered to vote with their feet on their values and make long-term, values-aligned sustainable investment decisions. With good ESG data, metrics and standards, people can move their capital with precision and thereby shape the world. “This is how values drive value”, as Mark Carney puts it (2020 & 2021).

The Triple Dividend

Strong, robust, and transparent reporting, particularly on climate and tax, can drive a triple dividend for the climate by 1) increasing investment 2) boosting engagement and 3) working towards net zero.

Boosting Investment

In Australia, total assets overseen by ethical investment funds on behalf of Australian investors are worth at least $1.28 trillion, accounting for 40 cents of every professionally managed dollar (Gluyas, 2021). While investments in renewable energy in Australia are going from strength to strength, there is still significant progress to make on our renewable energy targets. In 2023, investments in utility scale batteries soared to $4.9 billion up from $1.9 billion in 2022, meanwhile financial commitments to utility scale generation slowed significantly in the same period (Clean Energy Council, 2024). The Government has announced a significant expansion of the Capacity Investment Scheme to underwrite investment in renewable and dispatchable capacity. And if we can improve transparency and get the settings right, then we can drive investment in the technologies required for the climate transition, at the scale required.

Our Government wants to motivate investors to commit to opportunities which help us transition to a clean and fair future, at home and in our region. We want to ensure investors can be confident about the Environmental Social and Governance (ESG) characteristics of their investments. To do this, we are committed to strong and clear reporting frameworks in climate and tax.

On climate, our Government has proposed steps to introduce mandatory climate-related financial disclosures, to develop an Australian sustainable finance taxonomy which provides a common set of definitions for sustainable economic activities, and to introduce a sovereign green bond program.

As Treasurer Jim Chalmers previously stated, the goal is to ‘ensure that our businesses and financial institutions are disclosing material climate risks and opportunities in a clear and consistent way that is aligned with global standards and meets investor expectations’ (Chalmers, 2023).

On tax, our Government is committed to boosting multinational tax integrity to avoid tax avoidance and improve transparency through better public reporting. This includes measures to increase transparency through:

• public reporting of certain tax information on a country-by-country basis;
• requiring Australian public companies to disclose information on their subsidiaries and;
• requiring tenders to Australian government contracts to disclose their country of tax domicile.

 The goal is to ensure that multinationals pay their fair share of tax and contribute broadly to society.

Greater Engagement

The second dividend is greater engagement. Transparent frameworks can bring together countries in the region to tackle shared challenges and meet common goals, working towards our commitment to reach net zero by 2050. Last year, the Australian Government released Invested: Australia’s Southeast Asia Economic Strategy to 2040, which includes a recommendation focused on expanded work with Southeast Asian partners on high-quality and interoperable sustainable finance classifications and climate-related disclosure rules (DFAT, 2023). Ensuring interoperability with Australia's emerging standards will ensure investors and businesses do not face new barriers in the region. The Melbourne Declaration resulting from the most recent ASEAN– Australia Special Summit was clear in recognising the significance of the net zero transition and committed to deepening business engagement on the green economy (Albanese, 2024).

Working Towards Net Zero

The third dividend is making sure that investments flow through to change. This is to ensure that investments are made in the corporations which are actively limiting global temperature rises, and recognising the impact of rolling climate disasters on their business.

It is vital that Australia acts to create sustainable finance system, not just because we will feel the impact at home, but because our region is at the forefront of these changes too and we share the impacts together. By improving transparency through better public reporting on climate-related disclosure and sustainable finance classifications, investors better understand negative externalities, and how seriously climate change will impact companies. In turn, they can make robust and well-informed investment choices, at home and in our region. At scale, this amounts to significant progress towards net zero as capital follows values-informed choices.

And by ensuring that companies improve the transparency of their tax information, investors can assess how companies are directing their efforts – whether they are focused on minimising or avoiding tax or focused on their purpose and innovation. If it is the latter, it is much clearer how they are contributing to society by growing quality jobs, boosting productivity, and paying their fair share toward essential public services and programs which work towards a greener, fairer future.

Conclusion

When faced with ‘grand’ social, economic, and environmental challenges in the past, investors have voted with their feet. And past crises have also given rise to how we measure the impacts of companies and their risks. The 1929 Wall Street Crash was followed by the creation of standardised accounting practices by regulators, and after the Global Financial Crisis, measures were put in place to improve bank risk reporting and exposure (Carney, 2020).

Today, we stand at the crossroads of opportunity and crisis. We face rising temperatures, and a race against the clock to achieve net zero. And yet we also have one of the greatest investment opportunities of a generation: a profound chance for socio-economic and environmental transformation. It is vital that we continue to make climate and tax risks transparent so we can harness these opportunities. Measuring, standardising and harmonising data to understand risks and inform decisions will lead to a cleaner and fairer future, for Australia and for our region.

References

Albanese, A. (2024). ‘The Melbourne Declaration – a partnership for the future, Joint statement’. Wednesday 6 March, 2024.

Carney, M. 2020. ‘The Reith Lectures 2020: How We Get What We Value – Lecture 4: From Climate Crisis to Real Prosperity’. 23 December 2020.

Carney, M. (2021). Value(s): Building a Better World for All. HarperCollins.

Chalmers, J. 2023. ‘Launch of Deloitte Access Economics report on mandatory disclosure and digital reporting’. 25 July 2023, Sydney.

Clean Energy Council. (2024). Clean Energy Australia 2024.

Department of Foreign Affairs and Trade (2023). Invested: Australia’s Southeast Asia Economic Strategy to 2040.

Gluyan, A. (2021). ‘Ethical investments surge past $1 trillion mark’, Australian Financial Review, 2 September 2021.

Goff, S. (2006). ‘Ethical funds’, Financial Times, 14 July 2006.

Stempel, J. (2023). ‘Amgen is sued for concealing $10.7 billion tax bill from investors’, Reuters, 15 March 2023.

Uberti, D. (2023). ‘ESG’s Long History: 1700s to Today’, Wall Street Journal, 19 August 2023.