Treasurer Josh Frydenberg is urging insurers to assist the progression toward net zero emissions by helping traditional industries such as agriculture and mining adapt to a “structural and systemic shift in our financial system, which will only gain pace over time”.

Increased disclosure was “guiding the mobilisation of trillions of dollars in support of the transition” as global investors reallocate funds to low emissions activities, and fund manager heavyweights such as BlackRock, Fidelity and Vanguard commit to the net zero by 2050 goal.

“For these investors, there is a clear alignment between the commercial opportunities and the environmental outcomes,” Mr Frydenberg said in a speech to Australian Industry Group members today.

“There is a message to Australian banks, superannuation funds and insurers: if you support the objective of net zero, do not walk away from the very sectors of our economy that will need investment to successfully transition,” he said in the “Capital markets and the transition to a low emissions future” speech.

Hundreds of countries have committed to reaching net zero emissions by 2050 and financial markets are currently assessing the challenge as climate change drives asset allocation.

Mr Frydenberg says the transition requires investment in emissions reduction strategies across all sectors, be it agriculture, mining, manufacturing, and others, to cater for increased demand for clean energy and associated critical minerals exports, and the creation of new markets such as clean hydrogen and carbon capture and storage.

“It is wrong to assume that traditional sectors, like resources and agriculture, will face decline over the course of the transition. These new or expanded markets will present new opportunities for Australia,” he said.

The value of Australia's nickel and copper and lithium exports is forecast to increase by $11.1 billion over the next five years, driven by demand for technologies like electric vehicles.

“When I talk to these and other large Australian companies about how they are positioning for the future, they not only expect to be around in 2050, but to be bigger and stronger,” Mr Frydenberg said.

Since 2017, more than $35 billion has been invested in renewable energy in Australia, and Australia’s emissions are down by more than a fifth since 2005, faster than comparable countries like the US, Japan, Canada and New Zealand.

The equivalent of 3 million cars have been taken off the road for 15 years, he said, and one in four Australian households have solar panels, the highest rate on a per capita basis anywhere.

Australia's best interest lies in capital being accessed at the lowest possible cost and any reduction in access to foreign capital markets in response to greenhouse emissions would impact interest rates on household and business loans and the financial viability of large-scale infrastructure projects.

“Australia has a lot at stake,” he said. “We cannot run the risk that markets falsely assume we are not transitioning in line with the rest of the world.

“It will be those businesses that recognise these trends and put plans in place to adapt that will have the most promising futures.”

In the global financial crisis, the mispricing of risk and a lack of understanding of who was exposed caused a seizing up of liquidity, and in the context of climate change, a sharp and unanticipated adjustment in expectations around future policy could similarly see a sudden reassessment of risk and create uncertainty over exposure to those risks, the speech said.