Transcript of Question & Answer Session Climate Change and the Economy

Thank you, Guy, from Dorothea Mackellar to Deniliquin to data quite the trio. If you would like to make your way to the panel, Guy, that would be terrific.

So, two particular words jumped out of that very important speech by Dr Debelle. The first was this idea of climate change is a trend, and the second was in relation to that trend, with first order impacts on the economy right now. The second word was the importance of a smooth transition and it's precisely for that reason that I have been buying time for about 15 seconds while we transition to Sam Hurley, CPD Policy Director, who will introduce our esteemed panel and keep the conversation going.

Thanks, Trav, and good evening everyone. I am Sam Hurley from the Centre for Policy Development. It's really great to have you all here tonight for what strikes me as another clear example of really important leadership in this country, really. On the implications of climate change, in particular, the economic and financial dimensions of climate change. There's a lot to digest and a lot to discuss from Guy's remarks tonight. We have a great panel here with us, to help us do exactly that.

To my right we have Katharine Tapley, who's the Head of Sustainable Finance at ANZ. Blair Comley, who's a Director at Port Jackson Partners, and the former Secretary of the New South Wales Departments of Premier and Cabinet, and also the Commonwealth Department of Climate Change and Energy Efficiency as it then was, earlier this decade. To Blair's right, Kate Mackenzie, a CPD fellow, a consultant at the European Climate Foundation, formerly of the Climate Institute and Climate KIC, and the FT, and a few other places along the way. And lastly, Dr Guy Debelle, MIT, economist, one of Australia's most respected and authoritative economists and the Deputy Governor of the Reserve Bank.

And then you have me. I was Vice Captain of my Primary School which I think, you'll all agree, rounds things out really nicely. I'm Director of CPD's Sustainable Economy Program. One of the main focuses of our work, in the last few years, has been exactly in this area of climate risk and the financial implications of climate risk and particularly on what we thought regulated in this country should and would do to take part in a growing regulatory agenda on those risks.

It's been a real privilege to be here in this room several times and now tonight to see that agenda take shape before our eyes. Thanks for being here with us. I'm conscious as well as an expert panel we also have a very expert audience, so I'm very keen to make sure we preserve enough time for some Q and A from the floor at the end. We've got about 45 minutes, so we should have plenty of time for that.

But first, I thought we'd go to the panel for some high-level reactions to Guy's remarks. So I might start with you, Katharine, just for your thoughts and anything you can share from your perspective seeing the scale of the financial flow in sustainable and green finance there at ANZ.

Thank you, Sam, and thank you to the work that you do to bring all these people together here to talk about these really important issues. My immediate reaction is, yay, really welcome, might sound like an odd thing for a banker to say, but really welcome what the Reserve Bank is saying to us today and obviously off the back of previous comments by Geoff Summerhayes, and John Price. These are the kinds of comments that, they're way markers really for the industry I'm in. They're ones that actually change the conversations that we have with our clients around how we can deploy our balance sheet to them, in order to address climate changes and invest in climate change.

It's really interesting watching what's going on in Europe. I've been doing that for a couple of years in this role now, and watching how quickly regulation is unfolding in Europe and off the back of that, the conversations that our regulators here are engaged in. I'm excited by that. I think one of the things that struck me the most about your comments, Guy, was towards the end when you're reinforcing what has been said by John and Geoff in the past. Certainly, reinforcing the message to the financial services industry that we need to be listening. I think we are, and I think we can go into a bit more in detail, Sam, in terms of some of the reactions from the banking industry.

Sure. Thanks a lot Katharine. We might go to Kate next if that's all right. Just get some thoughts from your perspective, Kate, I guess on how the wider regulatory agenda here that we've spoken about in passing that's taking shape.

Thanks. It's a really interesting speech for me in lots of ways as well as for many people here. Having thought about the role of the financial regulators in Australia with regard to climate change, for nearly four years now. Initially, my thinking was, as someone who was looking at it through a climate lens was climate change manifesting as a financial factor across the financial system as well as the economy was something that maybe hadn't been looked at in very much detail up to that point.

Therefore, it was probably something that was going to require all of the regulators to look at it in different respects. With respect to the different mandates. When I was with the Climate Institute, one of the first things that happened when I started working there in 2014 was we had people from industry and to some extent the climate movement saying, why aren't the financial regulators doing anything about this. And the answer I think was that it's not easy to relate climate change to make those sorts of translations. I guess from climate change manifesting as a financial factor and we now can all talk about physical and transition risks, but then in turn translating that into the mandates of the respective regulators and authorities.

I guess it's nice to see that we've now got all of the key regulators in the country not only engaging in climate change in terms of their own mandates but also collaborating on it through the Council of Financial Regulators which Guy mentioned in his speech and through other forums as well, the international forums. I think that's probably my main initial response is that it's really good to see that collaboration within the regulators as well as outside with other disciplines, like climate science and energy.

Thanks Kate, we'll get back to maybe how that international agenda is taking shape and what might next a little bit later, hopefully. Blair we might go to you next. You've been thinking about these issues for a decade or more and you've had five minutes to digest Guys speech, what are you thinking at this point?

I generally try to stop thinking about them. It's easier to sleep at night. I've made three points that I think came up, and I think Guy's speech was a really interesting one in framing the issues. The first point, it's in Guy's speech about the question of, winners, losers those affected, and the desirability of having a smooth and early transition is almost the best way of making your chance of society adjusting well and be there. I suppose my observation about climate policy over certainly the last decade is that that motivation of a smooth and gradual transition was the motivation for a lot of policy work that was done over 10 years. But it failed in some cases to get traction, because a call to arms for moderate and incremental activity, doesn't quite incite the imagination like other things.

I almost borrow, there is a phrase and it's very risky to quote a macroeconomic phrase with Guy here, but I think someone once said, unsustainable things often go on for longer than you anticipate but they almost always correct in a much less orderly way than you intended. My framing of this which comes to my next two points is, it seems to me the mostly likely scenario for more the policy response than the underlying physical actions, but it could the physical actions too because of non-linearities, is that we are likely to muddle globally in broadly the right direction but not at the right pace, until such time as there is a call to arms and then we'll have more dramatic adjustment.

That brings me to my second point, which is, this is all about risk management and dealing with risk. There are lots of actors in the society, including governments, that are not particularly good at dealing with risks. And my experience in many policy areas is that the government has enormous difficulty engaging with the public on genuine questions of risk. Questions of what's a right ex-ante decision versus what's a good ex-post decision. If it worked out, it must have been a good decision. If it didn't work out it must've been a bad decision. I think that, particularly if you put to this question of how do we deal with risk with a smooth versus abrupt transition, I think this is really hard for policy makers in the economy.

The last point I'm making, and this is really, I think, the focus of Guy's speech, these different time horizons are really quite hard to reconcile, I think. Not just for monetary policy and for climate action, but I think sometimes, even in climate change policy in general, we often talk about radical transformations of the economy and then say, but here's a really modest measure. It's partly because the radical transformation of the economy is what do you look like in 30, 50, years. The actual policy response, is a pretty heavily compensated short-term package that is designed to be pretty moderate. That's quite hard to do.

And then, the technical issues of integrating these modellings is itself hard to do. Now at Port Jackson, I would say you need good professional advice, and I've got a recommendation.

Thanks Blair. Guy, we might go to you now, if that's okay. Obviously to respond to anything you've just heard. I thought I might pose a couple of question on the way through of my own as well. We can get back to the substance we've got plenty of time for that.

I guess my question is, why was it important from your point of view to make this statement? And second, who are you looking to both domestically and internationally to guide and develop your thinking on this? Recognising as you said at the end, it's quite a complex area and lot of the challenge here is about skilling up, building your capabilities at the RBA.

You can actually thank Kate and CPD for actually pushing us in this direction. I think it's also the recognition of the size of the impact. To talk completely like an economist now, we have limited resources to devote to all the challenges we have and so we have to work out how to allocate them across that. There are any number of forces which we always have to be analysing which are affecting the Australian economy at any given point in time. I think what has become more apparent as we look at, is the size of these forces coming from climate change, as I said during the talk, are of first order importance and so, I think as that is more obvious and it's clear that we have to be thinking about them and the impact they are going to have on the economy.

Part of it comes back to what Blair said about the horizon. Our horizon for monetary policy is a couple of years and if we're looking at seeing these developments in 25 years' time, how do we map that back to that horizon, or some of these developments are actually happening now, so that horizon is very much within our monetary policy horizon. But also, it's the recognition, that actually that path that we look to in the future, we can extrapolate that back to what that might imply today.

The other thing to come to one of the points Blair made is, I think one of the things which is causing some of the change in public opinion around this is actually just straight up, the current extreme events. If the transition were smooth then I think a lot of the challenges that Blair would talk about would be absolutely there, but for better or worse, we've had a number of extreme events over the last few years with increased frequency and that has tended to provide a touch point for public opinion, I think, which has changed things a little. It's not the way you would actually like this to come about unfortunately, and to some extent if we'd had extreme events in the other direction, that would have been problematic as well in terms of generating that change in public opinion. But unfortunately, we've had a set of extreme events on the upside, on the temperature side at least, or on the natural disaster side in other parts of the world which I think has changed the general public view around this.

Sorry, in terms of who are we talking to, I mean, probably through the aid of yourselves and Kate we've been able to tap into, and certainly there's a strong domestic network of people who are looking at this including the Bureau of Metrology and the CSIRO. There are good climate modellers in this country who we're able to tap into. But there is a global body of wisdom which we're trying to draw on as well. This is one area where absolutely, it's a question of learning from what others have done, translating it into the way that we are more accustomed to thinking about things.

There's a large amount of work out there which is mostly a question of us just getting across and talking to people as to what they think are the most useful things to be focused on.

Thanks Guy, I might go to the rest of the panel just on teasing out some of what we think are the key economic impacts of climate. Guy talked about two in his speech, the surge in renewable-related investment in Australia and also the possibility or the reality of policy changes in places like China that have a significant effect on demand for exports from Australia and flow on impacts throughout the economy.

Do we think that these are the two key impacts? Are there others that we want to put on the table Kate? I might start with you. Do you have any other suggestions there?

Yeah, I guess for me, one of my pet topics has been housing. The role of the housing sector particularly mortgage debt in both the real economy and the financial system. It's a really fraught thing to analyse or to understand, I suspect anyway. Guy will know much more about this than me. Because you've got this mixture of time horizons, theoretically mortgage debt extends for 25, 30 years, in practice if often turns over much more quickly than that. But still you have this hypothetical horizon that is very much within a realm that we're all comfortable talking about in terms of climate change.

Another challenge with understanding housing is just the data is really limited with respect to trying to understand how climate change is going to affect the housing stock in the country and what that might mean for the financial sectors, banks, insurers and investors. In fact, one of the most cited numbers, there's very few numbers to go on, but most research that you'll see including work that I've produced refers to a 2009 paper published by the federal government called First Pass Assessment of Coastal Risk. There hasn't really been a significant update to available data on the percentage of housing stock that might be exposed to even some of the more predictable climate change impacts, such as sea level rise.

We've had to extrapolate out from that to estimate what the scale might be and then I think it's a good example also of how complicated this is because you've got a whole number of compounding factors, such as insurance availability, shift in income, which might arise from physical impacts of climate change as well as transition impacts of climate change. So, you know, shifts in energy demand, shifts in tourism industry, say in far north Queensland.

To an extent, there's the mitigating factors, they're houses, to an extent, people can move, houses can be rebuilt. There's certain things that are possible that are painful but still achievable. The other thing about housing is it really highlights the role of public policy which I think is always a challenge for regulators, central banks, is they're having to operate according to a very strict mandate. I think as climate change advances the role of public policy is going to be really elevated in terms of figuring out how are winners and losers going to come about and what the implications of that might be for the measures that a central bank can take, for conventional or even unconventional monetary policy measures.

Thanks Kate. Katharine we might got to you next, if that's okay. Guy talked about some of the real economy changes in policy coming through from places like China. It's also true that there's a lot happening on the financial side, including the level of policy and strategy internationally. Do you have any observations to share on how those conversations are coming together?

I suppose the way I think about this is in terms of access to capital markets in the long term and banks are in the centre of that. So we source our money from places and we are coming under pressure to demonstrate how we are utilising that funding that we source in a way that transitions to a lower carbon economy, not just about climate change actually to a more sustainably developed economy as well and that makes us think about how it is we then deploy that balance sheet. Making decisions about who are we banking now, what do their transition plans look like, and how are we going to help them identify climate change risk and sustainable development risk in their businesses so that we are able to continue providing them with capital in the long term.

Some of the instruments that we use for that, it's pretty well documented, the growth of the green bond market, for example, both globally and here in Australia. There's been exponential growth through that in the last four to five years, projected to be somewhere between 200 and 250 billion of issuance globally this year. That's really tiny in comparison to the trillions in the bond markets globally but it's the exponential growth factor which is the key point.

I think the other part too that's really interesting to me is the growth of the loan market, also, in addition to the point I was making about how we deploy our balance sheet. It isn't just about investor money, it's also about bank lending. Not everyone can go to the capital markets. The loan markets have really come into their own, in fact, I keep telling people 2019 is the year of the green and sustainability loan. We will see that market increase exponentially here in Australia we've already seen it with a couple of landmark transactions.

The loan market actually, because it's a little bit more tricky to do this in the investor-led bond market, the loan market actually enables us to potentially give pricing discount or incentivisation to organisations to carry on that transition path. I think there's an interesting connection there with monetary policy, potentially for banks around what can be provided in terms of capital relief. Perhaps something on the agenda through the Sustainable Finance Roadmap Initiative is launched.

Thanks Katharine. On that issue of pricing risk, Blair, one question I had in mind for you getting back onto the economist terrain, how important is the data gap? What might we do to fill it? Is that a key barrier to getting better market led responses here? Is it one of many?

Yeah, I'll take that first. There's two issues almost and they're really quite distinct but important. One is, where is there a genuine data gap? And the second is, where does data exist, but the range of institutions are not that interested in absorbing the data.

So if you go to the coastal erosion question, it was very topical when you start to do these sea level rise mapping, you start to make it granular so you can actually work out which parts of the Gold Coast are not viable at which point in time. For example, there is actually a number of actors in the economy are quite resistant for that information to be promulgated. Some with direct incentives and it is kind of one of these interesting things because we talk a lot about the mitigation side of policy, you know, how will can reduce emissions and what does that do for this policy? But the adaptation side of how do you respond optimally to that data is critically about, is the data created? Is it available and is it validated and endorsed by people, then feed into economic decision makers?

So, I think the data maps are critical. And the thing that government needs to sit back and say, what is the data that is reasonable on a public good basis, that government should be creating and has to be disseminating it? And which bits of data, is there a strong incentive for the private sector to themselves, create, disseminate and use that data?

What struck me over the last five years in particular is, many things that we previously would have thought as the domain of public good data collection is now being created by the private sector by leveraging off existing data sources, pulling it together, understand there's a commercial reason to do it. So I think the data gap is critical. But it's also the preparedness to use it and the sense of who should do it public and private? Can I make one, last comment not on the risk thing which is that's on the adaptation side. On the mitigation side, when you think about where would you worry about climate impacts? Probably more from the policy side, the transition path response. It's not rocket science, just look at the greenhouse gas inventory and where the emissions are. It's true that renewables in the energy sector is a big part but, it's only 33% of the emission story.

So you've got to think about transport, you've got to think about fugitives, you've got to think about industrial processes and, ultimately you have to think about agriculture. Now, again, that's a time horizon thing that's a fair way down the track but the signposts of where you look for risk are fairly clear if you're looking at the inventory.

Thanks, Blair. I might ask you a broader question that builds on the point you made before, whether we're actually any good at managing risk? Actually, steps back a little bit from that about whether the risk is the right frame for this discussion at all. When Geoff Summerhayes spoke here a couple of years ago, he talked about the importance of seeing climate change as a risk like any other. And that struck me is a really powerful message because it removes the ambiguity about whether people in the financial sector or whether regulators have to deal with climate. It puts it firmly on the table is one of the standard things that you have to front up to. That's a really strong argument, it's been a really productive one, it's really important for getting the issue on the agenda.

There's another argument which is that climate isn't a risk like any other. That it's more complex and more profound and more challenging than many of the immediately serious risks that we're used to dealing with and if you buy that argument, it's possible that thinking that we can deal with climate change, like we deal with other risks by slicing and dicing it across the standard kind of set of regulatory mandates or market led approaches that we're not going to get quite as far as we think we are and that might have flow on effects for the credibility of the institutions that are responding to these challenges.

That's a big issue. I'm wondering Guy, how does the RBA face up to the reality that you have to have a stake in how this issue is managed and you've got to be thinking actively about how it intersects with your mandate, but also the recognition that there's a much broader challenge here for a whole bunch of institutions.

Yeah, I think I would to some extent, I would frame it a bit the way you … I think I sort of did this in my talk, the way you framed … that Geoff framed the risk story. And I said, so there are a lot of forces which affect the economy, and climate is one of them, and it has, I think it's been an increasingly large impact and so we have to take account of them. There are any number of other forces that we have to take account of.

The other thing we generally have to do, is that we have to take the policy environment that everyone else is providing as a given in any number of respects, both domestically – I mean, even in the monetary policy side of things, we have to take the global monetary environment as a given and respond to that. That's something which is absolutely directly in our bailiwick, we have to take that as a given. So there's a lot of stuff which we have no choice but to take as a given and, to some extent, policy in the climate space is absolutely one of them. So we have to deal with what's actually happening and what the actual policy environment is, and that's true in climate. But that's true in every sphere which affects the economy, which is pretty much everything. I think we always have to do that and we have to acknowledge that where our core expertise lies is in trying to manage the economy and as I said again, there's only limited human capital and resources to be able to do that.

So there is a degree at which we have to take that as a given and then, if entities like the one that Blair used to head up seem to be more suited for dealing with the actual policy decisions around that. But as I said, it is at a point where it's a force that, part of what I'm saying today, it's something we have to absolutely take account of. There are a lot of other forces out there that we also have to take account of, and by and large, it's not dissimilar to the fiscal policy space.

We take the fiscal policy environment as a given and we have to factor that in to other considerations. We don't, given who we are, provide unsolicited policy advice of the politicians by and large on fiscal policy, for example. They will ask us questions about it, and we have to respond to them. So that, I think, is not a bad analogy, we have to take that policy environment as a given, and we have to deal with that. And particularly over the horizon, again, that our policy instrument operates and we absolutely have to deal with that. Because even if there are policy changes, unless they are particularly momentous, they're probably not going to be affecting stuff over that policy horizon.

So, there is a bunch of stuff that we have to take as a given and I don't think we have too much alternatives but to do that, and with any luck, there is a body out there who is providing the appropriate policy advice and guidance in this space.

Thanks Guy. Kate, I might go to you next. We've spoken about how the regulatory agenda now is taking shape across ASIC and APRA and now the Reserve Bank in Australia and making climate change tractable for that existing set of mandates. That change has been quite rapid in Australia, and it's extremely encouraging. How much more is there left to do? How fast is the pace of regulatory and market-driven change been internationally? What's the task ahead now that we've got a clearer picture of where climate sits across the existing sets of mandates for our key institutions do you think?

Well …

I understand it's quite a lot of questions.

Well, look there's a lot to do in my opinion, and I think that's what Guy's speech has acknowledged tonight, and as Geoff's remarks previously, and John Price's have also acknowledged. I think we've talked a lot about sort of the information gap and the data gap. In terms of responding look, it's not probably partly not for me to say because, without being inside those institutions, I know that APRA has been thinking and working on actually kind of implementing consideration of climate risk into how they do their supervision, into how they conduct their supervision work and that's really quite commendable, I guess, that they moved to thinking about it in that pragmatic way and applied way quite quickly.

It probably also speaks to the nature of their mandate and the nature of this particular set of risks as well, that, you know, obviously being a being the regulator of insurers in a country like Australia, you're going to have to sort of start taking that one on pretty quickly. Even the CEOs of the companies that they supervise have been fairly open about this being a significant factor for them. So, I think that's been really heartening and I think it's also from what I can tell it's kind of benefited their colleagues, partner institutions or peers in the other mandates.

But at the same time, on the one hand we've moved very quickly. Three years ago, it was contested whether this was even a legitimate topic of discussion for these institutions. I still occasionally come across the opinion or point of view that this is a political question, that climate is a political question and obviously to some extent it is but, there's no way one can avoid it even if you're in an absolutely apolitical independent mandate led authority, it's still this factor that's coming through, and it's great that we've all acknowledged that now.

But just that step took, relatively speaking, quite a long time when you compare it to how much time we have to act and the scale and the nature of the challenge that is ahead of us. So, compared to other new factors coming in probably the response has been pretty fast and I really commend everyone who has worked really hard on that in those institutions. On the other hand, we're talking about something that's irreversible, the limit to what we can do in the amount of time that we have is really important. So, when you look at it through that lens, yeah, there's much more to do much more quickly.

I think Katharine mentioned Europe and it might just be interesting to think about what's different here, compared to Europe, I think for Guy's peers in European Central Banks and the ECB and their member banks. There's some quite different questions that they've had to contend with because the ECB has been involved in asset purchasing programs that directly interact with the real economy. I think they've had to more quickly grapple with this question of, what's the actual responsibility of a Central Bank? Should it be using green supporting factors? Should there be a green filter or at least a brown excluding factor on those asset purchases? So that the balance of those purchases or the mix is looking more like the economy that we know we are and have to move towards rather than the current one. So, I think that's another interesting thing. We certainly have our own challenges here, I think, in Australia though, that are not inconsiderable.

Thanks, Kate. A couple of more quick follow up questions for our main panellists from me and then I'm keen to go to the audience so please get your questions ready. On that question of what comes next from a private and public sector point of view? Katharine, I might go to you first. Quite a blind question. Are institutions like ANZ who have a critical role to play here doing enough? Are your customers doing enough?

I think there's always more to do. I think the speed at which we're moving, when I say we, I mean the real economy, not just ANZ ‘we’ or banks ‘we’, is to be commended. So when I think about my day job and what I do, two things are striking me at the moment. So there is very rarely a customer conversation that I will have, whether it's with someone we lend money to, or an investor where issues of climate change are not on the agenda, that's a marked change, really in the last two years.

Then in the context of actually selling green bonds, and I'm in the middle of a road how as I speak, the frequency and increasing numbers of investors who either are creating or thinking about creating specific investment mandates or are embedding ESG investment approaches into their portfolios right across the board and not just in specific sustainable funds, again, is on the increase. There are almost no investors in the Australian market and in the New Zealand market now who are not taking that approach and that's a really marked change even since a roadshow that I was on before Christmas when the New South Wales government issued their sustainability bonds. So, I think there's momentum, I think there is always going to be more that can be done.

Thanks Katharine. Blair, last question for you before we go to the crowd. Guy talked about the importance of other institutions in the public space being able to seize on the momentum that's been created here and lead a little bit. We have a review of the public service happening at the moment that goes with long term capabilities.

You've been at the head of a key department of state in Canberra charged with climate policy, energy efficiency policy. What's your impression of whether our key public sector institutions other than our financial regulators are ready to go on this challenge? Do they have the capacity to gear up as conditions change?

Yeah. I've had the benefit of engaging a fair bit with the APS panel and what I always say to them is I'm actually on the optimistic side about the level of capability that sits within the public sector. My view is they just need to be tasked and empowered to get on with it with clear air and then there is enormous actual and latent capacity that will bring to bear on these issues and I've also got no doubt that the people who are unleashed on that will love to do it.

Thanks Blair. That's a nice note to finish the first phase of our panel discussion. I'd like to go to the audience now for some questions. I'm going to take two at a time and I should say at the outset, this might be the only time that you ever hear this for any journalists in the room. The Deputy Governor of the Reserve Bank will only take questions on climate change today. So, if we can keep our questions focused on that area first. I've got a couple of people I'd like to go to originally, Zoe Whitton from Citi, and also Laura Tingle I might take your questions first if that's okay. We should have a microphone on its way to Laura first.

Thanks for the speech Guy. Taking up a point the panel made and I'm just trying to sort of clarify exactly the scope of where the Reserve Bank sees its mandate, if you like on climate change. As you mentioned, other central bankers around the world are looking at this issue and some of them are contemplating the question of whether Central Banks themselves should be doing more to prevent climate change in the first place. I just wondered what your view was of that? And you mentioned Europe in particular, I just wondered what your view of that was, in terms of the Reserve Bank and the Australian economy?

The contrast of what Kate was talking about at the ECB is that they have this very large asset purchase program which they can think about. My counterpart, Benoît Cœuré, at the ECB talked about this last year, I think. So, that's not something that we do. Not something we're thinking about any time soon so I think that's one clear distinction. I think what I was trying to get across, so our mandate is very much around full employment, inflation and financial stability. On the full employment and inflation point of view, the point I'm trying to get across is, this is like a force that we have to take account of and so our mandate extends as far as, and I'd say that's a fairly important thing to take account of and that's the only sort of mechanism of adjustment we've got, is to deal with that. We need to think about this because it is having a clear impact.

So on the financial stability front then does that mean we're not the regulator that's more Geoff and John's territory? But it's something where we need to think about the system wide financial stability implication. So, I think it fits very much within those two arms or key arms of our mandate but it's very much on the policy front is, monetary policy is one instrument which affects the aggregate economy, we need to take account of the climatic forces affecting those two things we analyse that impact through.

But I think it's hard to see us going the other way around and driving particular outcomes, it's going to be taking account of these outcomes and how it affects the economy as it is a different situation in some of our counterparts around the world where they've got this large asset portfolio to manage and that is another margin of adjustment that we don't have.

Thanks. I might go to Zoe next.

I wanted to sort of … I guess it goes to that question but a little bit more broad, and I am happy to have reflections from the whole panel on this one as well. We've had this conversation around, as the RBA you still need to take some things as a given as you're saying. But we are of course talking about a problem which has strong hysteresis and which might be very significant for your long run policy objectives.

And all of us are trying in the private sector, RBA, all over the place, trying to deal with this issue in various ways. But a number of us face blocks whether they are data blocks they raised, "My models are not capable of modelling things that far out. So, my part of the market can't take this into account even though we know it's coming."

To what extent are we all at risk of taking this as a given until it is a given? And if that's the case, who calls it? If you know what I mean. Because at the moment we have a lot of entities even in the private sector we're all standing around going, "I just need a bit more data." And we've got other entities saying, "Look, it's my job to respond to policy, I can't shape policy." I'd like the reflection from the panel on, when do we get to a point, who is it who are waiting for to sort of say, "We probably can't all stand around taking it as a given?" More part of the story.

I can invoke a couple of things here. One is comparative advantage. So our comparative advantage, potentially is in identifying things like some of those data gaps because we do data, it's one of the things we do. So that's an area where I think we can actually say, "Well, this is information which we would find useful for our purpose." I don't think we have capacity both intellectual and people capacity really to be … nor do I think should we have capacity in terms of other policy.

I do think we really just have to take that as a given. What we can do is in trying to analyse the effect of these forces on the economy, "What is it we don't know?" We can highlight that and try and work with others to try and, as Blair said, identify what the gaps are, and maybe not so much identify the gaps as identify the blockers of the gaps in some cases. But you know, that is information that we can bring to bear to make our on our policy decisions better, that's true in climate and it's actually true in any other number of respects and it's a challenge which we face generally. In some areas we have a complete deficiency of data, but when you look at it in other ways we have so much data we just don't know what to do with it all. So it's a challenge in two sides. But that is one area where as I said we … that's something we know and a scenario where we have some degree of expertise and comparative advantage and can actually play some sort of role in saying that, "Here are some of the gaps."

That's one area which APRA and Geoff was talking about this as recently as last week where we can call out that. I think Katharine mentioned disclosures earlier on. I think one area which APRA is potentially focusing on as well is disclosures need to be useful as well and there needs to be some commonality and I would say some minimum level of consistency to actually make them useful rather than just their sheer existence and I think we've got to the sort of sheer existence part now, by and large. But now, I think we've got to get to the usability. Mind you, I think that gets driven by both sides as well. So, if you're investors … I think, at the panel that you guys had with John last year, we had an investor on the panel who said exactly that. Is that you've got all these different disclosures and I have to spend my whole time unravelling them to work out what they're actually on about to actually make them useful.

So I think that's a role where the regulatory community can play and is working on in providing some level of commonality and at least some minimum level of consistency to actually make them useful. But as I said, I do think, one area where we have some role is in data, because actually that's something we know about. But I think it's hard to make an argument that can extend much further than that because there are other actors in the economy who are going to be able to do that a hell of a lot better than we can and have both the capacity and the mandate to do so.

Thanks Guy, Blair, you have some thoughts on that one as well?

Just one thing as you're talking. I mean, the elephant in the room in climate debate is always the discount rate, which we haven't talked about. So, the flipside of the horizons question is not just can you model out to horizon, but do you care. And so the question of what you take is given, if you're taking everyone operating on commercial discount rates, then things like ocean acidification or species things, it just gets discounted too low. So it's sort of impolite at quarter past seven to start a discount rate discussion. But it is actually almost the critical thing on this time horizon question and including on the adaptation question. When you think about coastal erosion, do you build a house? Do you care how vulnerable it is in 30 years? That's largely a discount rate question when you put it back into a commercial market.

Thanks Blair. I might value a discount rate conversation more highly, a little bit later over a drink, but we'll go to two more questions and I'm going to take these both at the same time. This time, Emma? I'll go to you as well, there's a microphone on its way and Peter. If that's okay? Can I just have a show of hands, while we're waiting just for other people as well? Okay, thank you.

I'll be quick as two questions, Emma Herd from the investor group on climate change, and I just really wanted to pick up on this question on how do you create investment useful disclosure that actually avoids the worst aspects of path dependence that you spoke about? In terms of locking in some of the higher costs of the physical effects of climate change, but also the higher costs of a messy transition. So, how do we really bring together the different economic players in Australia and actually get some better, more consistent standardised, used, investible information on the economic costs of climate change?

Thanks Emma. While we're thinking about that one we'll also take a question from you.

Peter Hannam from The Sydney Morning Herald. A very yes or no kind of question for Guy. Has any government minister sought advice from the RBA about climate change since 2013? That's a yes or no one.

I've been asked about it at a number of Parliamentary hearings including, I don't know, three weeks ago.

And your answer was?

No, I was asked a question about it, that's my answer [off microphone].

Okay and secondly, I assume that means that somebody did ask you. [overtalking 00:48:41] Yes, in any case, something that's not clear, is the government's cut the Paris target basically by half because of the admission of Kyoto credits. It's not well understood in the media, at all, that the 26% now is something like between 12 and 15%. And that the Labor government, if it comes in, says that it may or may not take that decision to include those Kyoto targets, so their 45% is much more like 35 or less. If you're in the RBA, and you're trying to judge what kind of outlook the Australian economy has, how much of a transition it's going to make. How do you take into account such a wide variety of targets?

You're just highlighting the challenge. I mean, that's just one of the number of challenges there's a wide range of different forces which are going to affect some of these outcomes. Someone mentioned earlier there's this path dependence, but we have to take account of that policy environment and whatever that is, and it potentially changes, and that's unfortunately, I'm sorry, not unfortunately, that is one of the complications we have to deal with in this as in actually any number of other spheres. There's no two ways around it, it's just one of those inherent uncertainties in the process. You just, the policy environment and how that effects different people's decisions both in business and households and others and on the financial side or on the investment side, is one of those just inherent uncertainties, and it really highlights one of the challenges in this space. There's no easy answer to it. It's just difficult.

Thanks, Guy. We might go back to …

Yes, Geoff is a hell of a lot better placed to answer that question than I, and I think APRA are working on doing exactly what you're talking about, I think. They're certainly thinking about that, and very much thinking about how to – it comes to the point I was saying earlier, about how to generates some at least, not minimum standards, I don't think I'd want to quite frame it that way, but at least in consistency in the disclosures.

I do think also, as I said in answering the earlier question, it's not just coming from the regulatory community. Your investors are going to be demanding it as well. I think this is one case where the incentives are pretty well aligned. They going to say, "This isn't usable. We need some consistency." By and large, to date, I would say most of the statements have been pretty high level and therefore fairly hard to object to. But I think the demand for greater detail, as you expressed, is very much there and that's why, I suspect, you know, talking about things taking a long time. This is the only area where you probably see progress sooner rather than later.

I might just take that question and reframe it slightly. Katharine and Kate, you might have views on this. Are we doing enough to bring together different stakeholders on these problems? We've talked about the approach regulators have taken. We've talked about some earlier initiatives from investors and industry. There's a litany of taskforces and agendas and action plans being built overseas on sustainable finance to help to bring this whole conversation together and get everyone inside it and talk about things like disclosure, but a whole bunch of other rules and regulations and strategies for sustainable finance. Do you think that's an important step we could take here in Australia as well?

Well, so we've had three people come out to Australia in the last few months who are members of the high-level expert group on sustainable finance in Europe. One of whom is a former central banker and prudential supervisor Paul Fisher, and the other two were … One had been a civil society representative and the other an industry investment representative, and they all made points about stakeholder groups or sectors of the economy that maybe haven't been brought into that process or that were important to have in that process.

So, I mean, obviously coming from civil society myself that's one that I would say is really important to have there. Also, you know, not just because that's the sector I work in, but also because these issues, you know, the trade example Guy gave in his speech is an example of this, both transition and the impacts of climate change are going to have massive implications for distribution of wealth and equity and general equity of opportunity as well. We really haven't seen anything yet in terms of the difficult questions that we're going to be faced with. I think it's essential to have civil society at the table for that.

The other, I know some other points were made by those visitors, where they had been thinking that the real economy hadn't been represented enough. So there was maybe too much focus on the financial sector. We know they have a special goal as the intermediators of the real economy, but, you know there was some thinking about that. I know Paul Fisher thought that there actually weren't enough banking, like the banking sector was underrepresented and investment was overrepresented. I don't think we have that issue here. We've got a different sort of banking environment/industry. I also felt that scientists, academics should have been there. Actually, I think Paul Fisher also made the point about academics more broadly so, yeah, that's kind of a broad way of saying yes, many stakeholders.

I think Australia's kind of going to get there. It's been a bit hard in the absence of a central government process, I think. Although many people are doing their best to make that happen, including some people here.

Thanks Kate. Katharine, do you have any quick thoughts to add on that one before we get a couple final questions?

Yeah, so, actually I think the collaboration piece is really important, and I think that it would have been my response to you, Zoe, around what breaks this and what helps it move forward? I think within the banking industry, we've been quite good at bringing together our clients around the table and the real economy with investors to talk about this, but I think actually we need to get beyond our own industry, and to your point, bring other parties to the table, Kate. So, I think it's about bringing to get the broader factors and the work that Emma and Simon are doing around the Sustainable Finance Roadmap Initiative will be really important.

Thanks, Katharine. We're rapidly running out of time. We've got time for two more questions only, and if we could make them very pithy that would be excellent. So we'll go to Sharanjit and also over here too. Thanks, Sharanjit.

Thanks, Sharanjit Paddam from QBE. Guy, it was really good to hear you talk about the importance of an orderly transition, and to talk about the role of the RBA as part of the financial stability of the system. And I guess in that context, I'm wondering whether the RBA has the right tools to ensure that in the context of climate change. A lot of your presentation talked about, say for example, the two-year time horizon over which monetary policy acts. But you also talked about the winners and losers in different sectors of the economy, and I think that goes to Kate's point about not the word to use, but just transition and different people being affected. Monetary policy has fairly or unfairly, the image of being a very blunt instrument, and I guess I'm wondering what you think about the fitness of your tools to fulfil your purpose in the light of climate change and maybe what other tools you may need.

Thanks Sharanjit, and we'll just take one final question while we think about that one.

Hello, Guy. Susan Moylan-Coombs, I'm the granddaughter of Dr HC "Nugget" Coombs, who was the first Governor of the Reserve Bank. My question is, I note that a number of people at the beginning acknowledged country, and I think that's really amazing. At what point do First Australians input into this dialogue about climate change, and risks for the future. Because as stakeholders on this landscape and the oldest surviving living culture on the planet, we knew how to live here sustainably. We worked with the climate, so I guess my question to all of you smart people in the room: What are you doing to engage with Australia's First People in this dialogue to move us into the future?

Thanks very much. Guy would you like to start with the first and/or second of those questions?

I mean on Susan's question, I mean that was partly what I led off with. Is that there's some knowledge there that could be useful. Partly comes to Kate's point about the people who could actually contribute usefully to this discussion. So that, I think that's how I would respond to Susan's point and just endorse it.

Sharanjit's question, my point I suppose, I'm not sure that we have an instrument. Our instrument is about managing the outcomes not about affecting them, and it's other people's tools to influence the outcomes. I think we've got to deal with the consequences is partly where I'm going, and that's our mandate. Even on the financial stability front, we don't have many tools. The Council of Financial Regulators as a group as a whole can discuss this stuff, but is actually then the individual agencies, APRA and ASIC generally in this space which have the tools to be able to manage that.

And that's why what Geoff and John were talking about is particularly important. I know you were with Geoff in some part of the world last week or the week before talking about some of these things in the insurance space. APRA has the tools and the capacity to influence outcomes there in a way that we don't. And to some extent even on the financial stability front at least as our institution narrowly we do have to take those outcomes as a given and just assess them and deal with the consequences.

And that's also true in the monetary policy point of view is that others who are making policy decisions, which will affect the environment, the macro-environment as well as the lived environment, and we have to deal with the consequences of that and take it into one of the forces effecting the economy which we absolutely have to take account of. That's basically my point, that I don't know that we really have much capacity given the tool that we have on the monetary policy front, that there's an obvious channel of influence there, again we have those main objectives that drive our setting of monetary policy. I think they're the appropriate objectives and I think it's difficult therefore to layer anything more beyond that when we don't really have much opportunity to influence those objectives.

I don't think that's trying to cop out of that, but it's just that we have to take the environment as a given, the policy environment as a given and the real environment, the climatic environment as a given and deal, assess the consequences of that and deal with the consequences of that. So I suppose it's more responsive rather than changing behaviour, I think that's unavoidable. Others have the policy instruments, both on the financial side and elsewhere to affect those outcomes. Not us.

Thanks, Guy. Blair?

Can I just briefly on the First Nation's question, when I was Secretary of Climate Change, as part of doing our reconciliation action plan, we sat down with indigenous advisory panel and basically said, "We don't want to do a token job." We want to actually ask the question of what's the things that would genuinely engage and empower indigenous people? And what is the things that would genuinely affect the climate change challenge that we look at? What's the intersection of that, because if we find that intersection it will be sustainable rather than being something that drops away.

So we spent quite a lot of time, for example, on offset schemes for bush fire management, et cetera, where we saw there was economic opportunity for First Nation's people at the same time as making a contribution to climate change. Engaged pretty heavily on that. We tried to engage on adaptation, there's always more you can do, but it was a pretty high priority at the time.

Thanks, Blair, and I think that's as nice a note as any to finish on. In a minute, I'm going to invite CPD chair Terry Moran to say a few words of thanks, but first of all, I'd just like to say thank you for coming and being such an engaged audience, and ask you to thank Guy and our panel tonight.

Thanks, Sam. Before I turn to Guy, I'd like to thank Blair, Katharine and Kate for their contributions on the panel. Minters, for the hospitality and the space that we've had tonight. And I'll only speak for another three or four minutes, and after that the drinks will miraculously reappear, along with some nibbles, and we hope that you'll stay around for at least 30 minutes to have a chat and perhaps talk to panel members and so forth.

The thing that struck me about Guy's remarks is, although it wasn't apparent that this would be the case ten years ago, or a decade ago, how much better place we are at the moment to deal with climate change as a problem, even though it's got worse. We now understand the problem better. A lot of work's been done in the RBA and elsewhere to try and make sense of the data and see patterns and where it's all going to think about the fiscal and monetary implications of climate change and the commercial implications. And I think we're probably seeing a trend for the public to move back to wanting to see something done about climate change, but they've still got a way to go given the extent to which they've all had their pants scared off them from time-to-time over the last ten years about might be involved, this is at a political level, what might be involved in a addressing climate change.

But we now know more about the technology that can be used in adaptation. In Sydney, we're putting out really big buildings that are built to be carbon neutral and they will be into the future. We're now well into driverless cars and other vehicles, other possible uses of non-fossil fuel-based technologies and so forth over time. So, there's a reason to be somewhat optimistic about the prospects in the period ahead, as opposed to the prospects that were there when Kevin Rudd treated this as the great moral challenge of our time and it all came to a head at the time of the global financial crisis and a few other disasters.

So, I think that what we should be paying a lot of attention to, is the transition. In one sense, this brings in the First Peoples and their stake in this change, but it also brings in all the other communities in Australia that will be perhaps negatively impacted by approaching climate change sensibly, and how those communities can be told how they're going to be moved on to other things or otherwise taken care of, and actually, we've done it all before. We did it in the 80s and 90s in the end of certainty period where we went through massive economic change and only one region in Australia, according to the Productivity Commission, at the end of that process, ended up being worse than they were at the beginning. So, we know how to do it, it's just that it takes a lot of effort to think it through, but importantly, more than that, it takes a lot of effort to actually talk to those communities and bring them along.

And of course, the other thing is the big uncertainty is in the field of global agreements that are needed to find a way to bring the whole world in the direction that we want to go. So, Guy's remarks were really important because, in my mind, I was seeing things being said that wouldn't have been said a bit over a decade ago, for a lot of reasons, greater sensitivity to the problem, but also because there's been more effort put into the data. We know more about it and the RBA, which is one of the finer public sector institutions in Australia, some would say the finest, but I'll say it's certainly one of the finer ones, has done a great job in this area in a way that it has got onto it, along with the regulators that have spoken at previous forums like this.

So on your behalf, could I thank Guy for being here tonight? For giving a speech that was, of course, carefully prepared as any speech from a senior leader of the Reserve Bank would be, but it actually lifted the skirts, a bit, on the part of the RBA, so we could see a little more clearly the line of their thinking, and I found it all very encouraging. So, thank you, Guy.