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Could polluting companies be forced to pay a climate tax?

Some say big-polluting companies should be forced to compensate the community for climate change. Pendal Credit ESG analyst MURRAY ACKMAN explains what that means for investors

YOU might have missed it, but last week in Egypt there was a big meeting discussing the future of the world.

Amid war, floods and endless news from China, the 27th UN Climate Change Conference of the Parties (or “COP27”) didn’t get the same headlines as last year’s COP26.

So what was decided at COP27 – and does it matter for investors?

The big announcement was a fund to help developing nations respond to the loss and damage associated with climate change. This has taken three decades to agree to.

Bigger polluters – rich countries and potentially China and oil-producing countries – will compensate poorer countries that pollute less.

Countries that are net exporters of carbon – including Australia – are asked to use some of the money they’ve gained to help those most affected.

Some are calling for this logic to be applied to companies as well as countries.

Heavy emitters, such as fossil fuel companies, could be forced by policy-makers to channel revenue into mitigation efforts.

There are three options for high-emitting companies:

  1. Give profits back to shareholders and let them decide whether or not to invest those returns in climate change solutions. As net zero gets closer, these companies phase down activity.
  2. Heavy emitters invest in transitioning into green companies.
  3. Policy makers take the decision out of company’s hands and apply a tax on emissions to fund a transition.

What does that mean for investors?

This has obvious implications for investors.

If the logic is high emitters bear responsibility for mitigating the impacts of climate change, this adds credit risk. Therefore investors need to be aware of the implications of policy changes.

Find out about

Regnan Credit Impact Trust

About Murray Ackman and Pendal’s Income and Fixed Interest boutique

Credit ESG analyst Murray Ackman joined Pendal’s Income and Fixed Interest team in 2020 to provide fundamental credit analysis and integrate Environmental, Social and Governance factors across credit funds.

Murray has worked as a consultant measuring ESG for family offices and private equity firms and was a Research Fellow at the Institute for Economics and Peace where he led research on the United Nations Sustainable Development Goals.

Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.

The team’s awards include Lonsec’s Active Fixed Income Fund of the Year (2022) and Zenith’s Australian Fixed Interest Manager of the Year (2020).

Regnan Credit Impact Trust is a defensive investment strategy that puts capital to work for positive change.

Pendal Sustainable Australian Fixed Interest Fund is a defensive Australian bond fund that delivers market-leading performance with positive environmental and social outcomes.

This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current at November 22, 2022. PFSL is the responsible entity and issuer of units in the Regnan Credit Impact Trust (Trust) ARSN: 638 304 220 and Pendal Sustainable Australian Fixed Interest Fund (Fund) ARSN: 612 664 730. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund and Trust are available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or Trust or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections. For more information, please call Customer Relations on 1300 346 821 8am to 6pm (Sydney time) or visit our website www.pendalgroup.com

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