Resources-heavy ASX could be penalised on climate risks

US-based Trillium, which manages more than US$6 billion, has seen its funds under management jump by 48 per cent since mid last year and Mr Patsky said interest in ESG investing had “exploded”. Even so, he said “tonnes” of money was flowing into passive ESG funds that relied on outdated data to make their assessments.

Jenn-Hui Tan, global head of stewardship and sustainable investing at $600 billion fund manager Fidelity International, said he believed some form of carbon pricing was ultimately coming. With ESG investing now “mainstream,” he said companies would face growing pressure from investors and customers over their carbon stance.

“Companies that are more efficient in the way they generate revenue relative to the emissions, or companies that have superior long-term decarbonisation proposals, or companies that have a more robust supply chain. These are the companies that we think are going to be the winners of the future,” Mr Tan said.

Head of ethics research at $6.5 billion manager Australian Ethical, Stuart Palmer, said the country’s high fossil fuel usage could affect the “risk weighting” investors give Australia more generally, and the country’s sharemarket could be penalised.

“I think that’s a high risk, absolutely,” Dr Palmer said.

Global financial firms were key private sector participants in the Glasgow talks, with companies holding $US130 trillion in assets pledging their support of net zero emissions.

The Investor Group on Climate Change, a coalition of major investors including superannuation giants, also highlighted the risk of capital flight if Australia’s carbon reduction targets were lower than those of trade partners.

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Director of corporate engagement, Laura Hillis, said the Glasgow summit should act as a “wake-up” call for fossil fuel producers, pointing to other countries’ commitments to phase out coal and slash methane emissions.

Fidelity announced a new voting policy earlier this year that included minimum standards for climate change. Mr Tan said that by next year the fund manager would vote against the boards of companies that did not meet the standards.