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ESG Impact: What you need to know - May 2022

In our May wrap of the latest ESG developments, Westpac Institutional Bank’s team of ESG experts explain what’s happening domestically and locally, why it matters, and what it means for you.

CORPORATE

Infrastructure funds join forces in landmark green power deal

Infrastructure fund management giants IFM Investors and Queensland Investment Corporation (QIC) have struck a deal with Origin Energy to jointly enter into Power Purchase Agreements (PPAs).  The deal covers 132 GWh of renewable electricity for seven infrastructure assets in NSW and Victoria, including Melbourne Airport and NSW Ports, Southern Cross Station, Ausgrid, Nexus Hospitals, NorthWestern Roads Group’s WestLink M7 and Transurban’s CityLink. Part of the first stage of a AUD500 million purchase plan, the entire program is expected to save around 250,000 tonnes of CO2-e annually by 2025. Other critical assets are expected to join the program as part of stages two and three, which to be announced in the coming months.

 

Why does it matter?

 

Not only is it one of the country’s first multi-asset, multi-state and multi-owner PPAs, it is also significant in that organisations within the same sector have teamed up in a renewable energy deal to achieve positive outcomes beyond their own organisation. Neither IFM nor QIC take fees for organising the program, and other infrastructure businesses have been encouraged to join the program with the aim of accelerating the sector’s net zero ambitions.

 

The deal signals a new phase for renewable energy deals in Australia and presents a new model for other organisations to follow. Could competing organisations form partnerships to decarbonise their entire sector? Could the links in a supply chain combine for a single renewable energy deal? Watch this space.

 

Green hydrogen prepares for take off

 

The pathway to lower emissions is far from straightforward for a hard-to-abate sector like aviation, but the world’s first zero-emission commercial aircraft may be one step closer to take-off. French aircraft maker Airbus plans to test hydrogen-powered jet engines on a superjumbo A380, which it describes as a “flying testbed fitted with liquid hydrogen tanks". Test flights are scheduled for 2026 and, if all goes to plan, Airbus expects its zero-emission aircraft commercial aircraft to enter service by 2035. The announcement comes a year after Airbus unveiled three ‘ZEROe’ hydrogen-based concept aircraft.

 

Why does it matter?

 

The International Air Transport Association recently introduced a non-binding pledge to achieve net-zero carbon emissions by 2050 and a challenge of this scale requires alternative solutions. Data from the International Energy Agency (IEA) shows the industry will account for 3.5 per cent of global energy related CO2 emissions by 2030, up from just over 2.5 per cent today, despite ongoing developments in aviation efficiency. Hydrogen will become an increasingly important part of the industry’s net-zero puzzle.

 

While Sustainable Aviation Fuel (SAF) presents a promising step toward decarbonisation, widescale deployment of biofuels requires greater availability of raw materials, improved fuel-supply infrastructure and stronger policy to encourage production. And while hydrogen combustion has its own technical challenges, such as on-plane storage, distribution and the investments required to boost its green supplies, it presents an alternative technology for greener skies.

 

 

POLICY

Energy transformation in the wind

 

Victoria is preparing to harness the state’s wild coastal winds with plans to accelerate the development of an offshore wind industry. The Victorian Offshore Wind Policy Directions Paper outlines a staged approach to targets that will help the state to halve its emissions by 2030 and reach net-zero by 2050. It includes the procurement of projects to bring online at least 2 GW of offshore wind – enough to power 1.5 million homes – by 2032, with a further 9 GW target set for 2040.

 

Victoria has the potential to support 13 GW of capacity from coastal regions by 2050, according to the state’s plan. This is five times its current renewable energy generation. The plan is supported by an AUD 40 million Energy Innovation Fund for feasibility studies and pre-construction activities at three major offshore wind projects in the Gippsland region.

 

Why does it matter?

 

Victoria’s blueprint for offshore wind creates more certainty around the phase out of coal-fired power stations. Last year, Energy Australia signalled it would close the Yallourn power station in Gippsland’s La Trobe Valley in 2028 – four years earlier than planned. AGL recently announced it would bring forward the closure of its Loy Yang A coal-fired power station in Victoria's east, along with its Bayswater plant in NSW’s Hunter Valley.

 

Victoria’s plan is highly ambitious, given that Australia currently has no offshore wind farms. But the sector is booming across the globe – Europe, for instance, is the industry leader and home to approximately 116 offshore wind farms. The industry has the potential to generate huge quantities of power in Australia and Victoria looks set to become its hub.

 

Climate report delivers grim warning

 

Over the last few months, the UN Intergovernmental Panel on Climate Change (IPCC) has released the second and third parts of its landmark assessment report. Some scientists have described its warnings as the bleakest to date. While the first instalment, published in August last year, focused on the physical science of climate change, part two explores the impacts as well as capabilities of adaptation and vulnerability and part three explains developments in emission reduction and mitigation efforts. Part two states that about half of the global population lives in areas “highly vulnerable” to climate change, with millions to face food and water shortages, even at the current level of heating. At 1.5 degrees of warming, roughly 8 per cent of global farmland becomes unsuitable for growing food and the cost of defending coastal communities could exceed what many nations can afford.

 

Why does it matter?

 

With UN secretary general António Guterres describing it as “a damning indictment of failed climate leadership”, the report represents an urgent cry for action and a vital tool for tackling climate change and the transition to a net-zero economy. Seven years in the making, it draws on the work of thousands of scientists and is the sixth assessment report to be published since the IPCC was first convened by the UN in 1988.

 

Regular IPCC reporting provides a credible, common reference point for tracking progress on this critical task.

WESTPAC

Westpac explores momentum in ESG market

 

The ESG market continues to evolve across Asia Pacific with almost two-thirds of issuers in the region bringing forward their net zero plans to 2030.  

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