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Fear & Greed, Fear and Greed

Australia’s biggest businesses are ramping up their climate goals, with more ASX200 companies committing to a net-zero target. And those who aren’t are being held to account by a very powerful group of investors. 

The Australian Council of Superannuation Investors (ACSI) is a group of 26 super funds who manage over $1 trillion in assets, and on average own ten per cent of every company on the ASX200. Louise Davidson, CEO of ACSI, talks to Jennifer Duke about the progress companies are making, and why it matters to her members.

Find out more: https://fearandgreed.com.au

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Jennifer Duke: Welcome to the Fear and Greed daily interview. I’m Jennifer Duke.

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Jennifer Duke: Australia’s biggest businesses are ramping up their climate goals, with

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Jennifer Duke: more ASX 200 companies committing to a net-zero target. And importantly

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Jennifer Duke: for investors, nearly 70% of the index is now reporting against

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Jennifer Duke: The Task Force for Climate-related Financial Disclosures’ (TCFD) framework. This gives

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Jennifer Duke: some consistency in reporting and it allows investors to compare

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Jennifer Duke: the efforts made by Australian companies to improve their operations.

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Jennifer Duke: According to new research by the Australian Council of Superannuation Investors,

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Jennifer Duke: it focuses attention on those not reporting or giving limited information.

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Jennifer Duke: The Australian Council of Superannuation Investors, ACSI, is a group

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Jennifer Duke: of 26 super funds who manage over $ 1 trillion in assets.

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Jennifer Duke: On average, they own 10% of every company on the ASX 200. Now,

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Jennifer Duke: I know Sean Aylmer mentions the statistic every time he

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Jennifer Duke: speaks to ACSI, and with really good reason. It illustrates just

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Jennifer Duke: how powerful this group of investors really is. Louise Davidson

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Jennifer Duke: is the CEO of ACSI. Louise, welcome back to Fear

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Jennifer Duke: and Greed.

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Louise Davidson: Thanks, Jennifer. Great to be with you.

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Jennifer Duke: So Louise, why does this issue matter so much to

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Jennifer Duke: your members?

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Louise Davidson: Climate change is, I think, going to be one of

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Louise Davidson: the biggest economic impacts or changes for our economy for

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Louise Davidson: many years. And so because our members are big investors,

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Louise Davidson: the impact of climate change on their investment portfolios has

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Louise Davidson: a really financial materiality. And so our members are really

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Louise Davidson: keen to make sure that their investments, the companies that they

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Louise Davidson: invest in, are managing that risk and looking at the

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Louise Davidson: opportunities that are available to the best possible light.

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Jennifer Duke: And with those risks and opportunities in mind, are you

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Jennifer Duke: satisfied with the increase in the number of ASX 200 companies

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Jennifer Duke: committing to net-zero?

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Louise Davidson: So the research that we’ve just produced shows, I think

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Louise Davidson: that the system is starting to mature. We’ve been talking

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Louise Davidson: to companies for many years about increasing the extent to

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Louise Davidson: which they’re measuring and disclosing on their activities to manage

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Louise Davidson: climate risk within their organisations. And it is really good,

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Louise Davidson: I think, to see that 70% of the ASX 200, so the

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Louise Davidson: bigger companies in the index, are now disclosing. There’s still

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Louise Davidson: some way to go, though. We can still see that

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Louise Davidson: there’s some room for improvement. And if 70% are disclosing,

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Louise Davidson: that means that there’s still 30% of course that are not.

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Jennifer Duke: Does that make you a little bit worried for when

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Jennifer Duke: mandatory climate reporting kicks in if the government introduces it?

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Louise Davidson: Yeah, so we do expect that the government will introduce

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Louise Davidson: mandatory climate reporting for larger organisations probably to take effect

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Louise Davidson: for the ’24, ’25 financial year. And I guess the fact

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Louise Davidson: that we’ve seen such a big uplift in the number

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Louise Davidson: of companies that are reporting shows that companies are starting

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Louise Davidson: to position themselves to be ready for that change. I

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Louise Davidson: guess the 30% that still haven’t come forward with very

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Louise Davidson: sophisticated reporting ought to be on notice now, I think,

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Louise Davidson: to be really making sure that they are going to be

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Louise Davidson: in a position to report adequately against the new regulations

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Louise Davidson: when they come in. We think that there’s still some

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Louise Davidson: room for improvement, in fact, across even the larger companies,

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Louise Davidson: to be honest. I mean, some companies are doing a

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Louise Davidson: fantastic job, there’s no doubt about that. But some companies,

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Louise Davidson: even those in the 70% that are reporting, we still

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Louise Davidson: see that there are some areas that there needs to

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Louise Davidson: be improvement in order for investors to have real confidence

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Louise Davidson: about what’s going on in terms of climate change management

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Louise Davidson: within those organisations.

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Jennifer Duke: Can you dig into that a little bit more for

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Jennifer Duke: me about how those net-zero commitments vary in the detail,

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Jennifer Duke: and is that sort of where The Task Force for Climate-

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Jennifer Duke: related Financial Disclosures’ framework comes into this?

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Louise Davidson: Yeah, so I think the sorts of areas that we see as some

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Louise Davidson: opportunity for more focus from companies include on the setting

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Louise Davidson: of targets. So a lot of companies have set a

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Louise Davidson: net-zero by 2050 target, but they haven’t necessarily, I suppose,

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Louise Davidson: demonstrated a pathway of how they’re going to get to

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Louise Davidson: that net-zero. And we don’t want a situation where everyone

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Louise Davidson: leaves it till 2049 to work out how they’re going

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Louise Davidson: to get to net- zero within the next 12 months.

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Louise Davidson: So what investors are really looking for is the stepping

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Louise Davidson: stones along the way, so some midterm targets so that

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Louise Davidson: we can see how companies are tracking. And I guess

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Louise Davidson: the other thing that we are looking for is there’s

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Louise Davidson: still a lot of reliance within companies on the use

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Louise Davidson: of offsets. What we would like to see is a transitional plan where

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Louise Davidson: companies are first and foremost seeking to reduce emissions. And

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Louise Davidson: only when that is not possible, which for some companies

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Louise Davidson: at the moment, it’s not because the technology doesn’t yet exist.

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Louise Davidson: Only when that’s not possible should offsets be being used.

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Louise Davidson: So we don’t want to see offsets being used as

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Louise Davidson: anything but a last resort. And at the moment, there’s

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Louise Davidson: not enough information to give us confidence for every company

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Louise Davidson: that that’s the approach being taken.

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Jennifer Duke: Stay with me, Louise. We’ll be back in a minute.

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Jennifer Duke: My guest this morning is Louise Davidson, chief executive of

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Jennifer Duke: the Australian Council of Superannuation Investors. Is ACSI having sort

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Jennifer Duke: of direct conversations with these businesses about how to get

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Jennifer Duke: them to a place where you’d be more comfortable with

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Jennifer Duke: what they’re doing?

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Louise Davidson: So ACSI, we have an extensive program of engagement with companies

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Louise Davidson: on behalf of our members. We’ve been doing that for

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Louise Davidson: many years, and so we’ve got a pretty good understanding

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Louise Davidson: of where a lot of companies are in the pathway

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Louise Davidson: that they need to take. You can see with what’s

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Louise Davidson: happening with weather systems around the world, just how urgent

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Louise Davidson: this issue is. And so we are encouraging companies to

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Louise Davidson: be really focused on this and have a sense of

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Louise Davidson: urgency about it. One of the other things that we

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Louise Davidson: have some concern about is some companies we don’t think

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Louise Davidson: are yet looking closely enough at what they’re going to

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Louise Davidson: require from an adaptation perspective. So going back to those

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Louise Davidson: severe weather events that we’re seeing around the world, they

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Louise Davidson: have a huge economic impact of course, on not just

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Louise Davidson: society, but on many businesses as well. So we want

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Louise Davidson: to understand from companies how are they going to manage

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Louise Davidson: those issues in their portfolios.

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Jennifer Duke: And part of that is obviously going to affect the

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Jennifer Duke: smaller end of the scale. And you alluded to this

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Jennifer Duke: before that maybe that smaller end is dragging its heels

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Jennifer Duke: slightly on this. Why is that the case and what

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Jennifer Duke: needs to be done to help them come along on

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Jennifer Duke: this journey?

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Louise Davidson: Yes, it’s challenging because a lot of this work is

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Louise Davidson: quite detailed and takes quite a bit of resourcing and

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Louise Davidson: some of the smaller organisations perhaps haven’t resourced adequately to

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Louise Davidson: really be doing this work as yet. The other part

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Louise Davidson: of the market that might be, I suppose, lagging a

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Louise Davidson: little bit, Jennifer, is those companies that don’t see themselves

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Louise Davidson: as having a big exposure to climate risk. So if

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Louise Davidson: you look at the mining industry for example, they have

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Louise Davidson: been aware of the risk for a lot longer than, say,

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Louise Davidson: some smaller companies that don’t have the same sort of

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Louise Davidson: impact assessment. But I think what we would encourage all

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Louise Davidson: companies to be doing now is understanding that they will

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Louise Davidson: have some form of risk coming their way and to

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Louise Davidson: be starting to measure and manage how they’re going to deal with that.

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Jennifer Duke: And as part of that scenario analysis, how does that work in figuring out

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Jennifer Duke: that risk?

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Louise Davidson: Yeah, so scenario analysis is an important part of the

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Louise Davidson: TCFD reporting program and we really encourage companies to be

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Louise Davidson: thinking about, so that’s about what scenarios are they going

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Louise Davidson: to measure against? What sorts of carbon constraints are they

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Louise Davidson: going to assume for their portfolios? What sorts of transition

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Louise Davidson: opportunities will there be? And we are really encouraging companies to

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Louise Davidson: go into that with a really robust mind frame to

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Louise Davidson: really challenge themselves about what the outer reaches of that

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Louise Davidson: might look like. So not just to pick a cozy

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Louise Davidson: scenario that is going to mean that they don’t really

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Louise Davidson: need to change much of what they’re doing, but actually

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Louise Davidson: genuinely challenge themselves on what the worst or best case

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Louise Davidson: scenarios might be. I think the other thing I would

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Louise Davidson: say is that because the government’s going to introduce mandatory

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Louise Davidson: climate reporting, I think we will expect to see the development

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Louise Davidson: of a lot more guidance and tools from federal government

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Louise Davidson: that will help to support companies in doing this work

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Louise Davidson: as well as we get closer to that introduction.

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Jennifer Duke: Is part of the challenge having the skills within the

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Jennifer Duke: organisation to be able to report on these measures, have

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Jennifer Duke: the understanding? That sort of softer, I don’t know if

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Jennifer Duke: that even counts as soft skill, but that level of

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Jennifer Duke: skill shortage I’m hearing is quite an issue in Australia.

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Louise Davidson: There is a bit of a skill shortage in that

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Louise Davidson: area, but I think really in this case, there’s a lot

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Louise Davidson: of information available to companies. And I think one of

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Louise Davidson: the things that we look at when we are thinking

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Louise Davidson: about this with companies is how is the board thinking

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Louise Davidson: about this? What sort of governance have they got in

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Louise Davidson: place to manage this transition that they’re going to have to

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Louise Davidson: be part of? And have they got either the skills

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Louise Davidson: on the board or access to expertise to help guide

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Louise Davidson: them in that? We don’t necessarily think that every board

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Louise Davidson: needs to have a climate expert on them, although some

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Louise Davidson: boards, those that have really big exposure, may well want

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Louise Davidson: to have that. But every board needs to make sure

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Louise Davidson: that they’ve got access to information that they can trust

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Louise Davidson: around this transition.

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Jennifer Duke: I think that boardroom conversation piece is absolutely fascinating. Are

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Jennifer Duke: you feeling optimistic about what the future’s going to hold

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Jennifer Duke: based on the sort of discussions you’ve been having with directors?

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Louise Davidson: Well, I think there is some cause for optimism. I

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Louise Davidson: mean, the results of this research, I guess, give us

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Louise Davidson: some cause for optimism, but it is such a huge

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Louise Davidson: job ahead of us that it’s really going to take

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Louise Davidson: a very committed focus over the next several decades to

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Louise Davidson: get us where we need to get. And I think

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Louise Davidson: one of the things that we would really encourage companies

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Louise Davidson: to do, as I said earlier, is to be approaching

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Louise Davidson: this with a real sense of urgency because you can

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Louise Davidson: see from what’s going on around the world that things

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Louise Davidson: are changing very quickly at the moment, and we really

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Louise Davidson: need to make sure that we are really putting ourselves

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Louise Davidson: in that position to reach the 1. 5 maximum warming

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Louise Davidson: goal. And we’ve got to move quickly to stop that

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Louise Davidson: slipping away from us.

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Jennifer Duke: Louise, thank you for talking to Fear and Greed.

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Louise Davidson: Thanks very much, Jennifer. A pleasure.

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Jennifer Duke: And that was Louise Davidson, chief executive of the Australian

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Jennifer Duke: Council of Superannuation Investors. This is the Fear and Greed

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Jennifer Duke: business interview. Join us every morning for the full episode

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Jennifer Duke: of Fear and Greed, Australia’s best business podcast. I’m Jennifer

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Jennifer Duke: Duke, economics correspondent at Capital Brief, and filling in for

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Jennifer Duke: Sean Aylmer. Have a great day.