But one MP said under the condition of anonymity: “It has the potential to reaffirm every suspicion they have about us and play to every stereotype. If banks are weighing up the risks of lending to fossil fuels, I’m not sure we should be stepping in.”
Global rating’s agency Moody’s on Tuesday said environmental considerations including climate change were becoming “more relevant” to the credit quality of businesses and entire industry sectors.
It said there was $4.5 trillion of debt that was at very high or high risk because of environmental issues, with the sector most at risk being coal mining and coal terminals.
Mr Frydenberg, who faced a serious threat from environmentalist campaigners in his inner-city Melbourne seat of Kooyong last year over climate issues, gave approval for Federal Resources Minister Keith Pitt to request the inquiry through the Standing Committee on Trade and Investment Growth.
“It is only appropriate that the Parliament be able to examine trends in banking, insurance and superannuation investment practices and how they may affect our resources sector and the regions in which they are based,” Mr Frydenberg told The Sydney Morning Herald and The Age.
Oliver Yates, a climate activist and banker who was unsuccessful in his attempts to unseat the Treasurer in May last year, said the link between the burning of fossil fuels and climate change is clear.
“The link between higher temperatures and damage to property is clear. The link between property damage and compensations claims is clear. Any sensible bank or insurance company would be reducing its exposure to these risks. It is just good business practice,” Mr Yates said.
The Reserve Bank has also noted that “climate change is exposing financial institutions and the financial system” to risks that will rise over time if not addressed. In its financial stability review of October last year, the bank said insurers were most directly exposed to climate change, warning if they under-priced these risks it could threaten their financial survival.
And the Bank for International Settlements, the central bank to the world’s central banks, this year warned member organisations such as the RBA may be forced into buying “carbon-intensive assets” to prevent an economic collapse.
Mr Pitt said this week that mining services businesses, engineers, ports and small firms connected to coal mining were “having trouble firstly getting insurance if they work in the resources sector and secondly, finance”.
“Now I don’t think that should continue,” Mr Pitt told the ABC. “The International Energy Agency still says there’ll be very large demand for coal. Australia’s coal is a very high quality product – it will continue to be that way.”
Moody’s said the debt risk had climbed 49 per cent or almost $1.5 trillion over the past two years.
The agency expects that, as more countries seek to meet their Paris greenhouse gas emission commitments and the “adverse effects” of climate change, the credit risks for certain industries would grow.
“The heightened focus of investors, lenders and regulators on the risks and opportunities from a shift to a low-carbon economy are increasing the likelihood of a higher cost of capital for many issuers in the sectors most exposed to carbon transition risks,” it said.
Moody’s said that falling demand for thermal coal, partly due to the growing demand for renewable energy, would reduce prices for the commodity and hit ongoing profits.
The agency said Australia thermal and metallurgical coal could mitigate these issues due to their high quality. It also said there were substantial credit risks around oil and gas, car manufacturers and electricity producers outside of renewable sources.
Rob Harris is the National Affairs Editor for The Sydney Morning Herald and The Age, based at Parliament House in Canberra
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.