ESG Impact: What you need to know - September 2022
In Westpac IQ’s September wrap of the latest ESG developments making the headlines, Westpac Institutional Bank’s team of ESG experts explain what’s happening globally, why it matters and what it means for you.
POLICY
US makes history with clean energy investment
In a major achievement for its ambitious climate agenda, the Biden Administration’s Inflation Reduction Act as been passed into law, marking the largest federal clean energy investment in US history.
The legislation includes USD369 billion investment in clean energy and climate change mitigation initiatives, including tax credits for households to offset energy costs, funding for clean energy production and tax credits aimed at reducing carbon emissions.
The Inflation Reduction Act also includes a new corporate minimum tax rate, plus a range of measures aimed at reducing costs of health care and prescription drugs. Its clean energy investment is expected to reduce US greenhouse-gas emissions by approximately 40 per cent on 2005 levels by 2030.
Why does it matter?
Rather than a broad goal to reduce carbon emissions, the Inflation Reduction Act includes targeted initiatives to drive the country’s net-zero transition, including direct incentives for consumers. For example, depending on household income, consumers can receive upfront discounts or tax rebates on energy-efficient upgrades to their homes, and the Bill extends and adjusts an existing tax credit on the purchase of electric and hybrid cars.
Greater climate action has also been enshrined in Australia with the new government's Climate Change Bill clearing the Senate this month. The Bill pledges to cut carbon emissions by 43 per cent by 2030 and to net-zero by 2050, however is not as detailed as the Inflation Reduction Act.
Carbon reduction legislation in high-emitting economies like the US and Australia is becoming more prescriptive in an effort to provide greater confidence for organisations to decarbonise, knowing their peers will be required to follow the same path.
New framework supports National Energy Transformation Partnership
Australia’s State, Territory and Federal energy ministers have signalled their joint commitment to a clean energy future with the establishment of a framework for the National Energy Transformation Partnership.
The framework includes the historic decision to consider the environment as part of the National Electricity Objective (NEO), marking the first change to the NEO in 15 years. The ministers have also agreed to develop a First Nations Clean Energy Strategy co-designed with First Nations people, to identify transmission projects of “national significance” and ensure better community consultation and timely delivery of projects.
Such projects include the Victoria to NSW Interconnector West (VNI West), which involves the development of a 500-kilovolt high-voltage alternating current interconnector between the Snowy Mountains region and Melbourne, and HumeLink, a 500-kilovolt line connecting the NSW centres of Wagga Wagga, Bannaby and Maragle. Projects also include the Marinus Link, a proposed 1500-megawatt capacity undersea and underground electricity connection between Tasmania and Victoria.
Why does it matter?
A smooth transformation of Australia’s energy system requires an integrated approach. Multi-state projects can take years to gain approval, but there is no time to waste if the Federal Government is to achieve its aim of more than 80 per cent renewable energy in Australia’s electricity mix by 2030.
Classifying key transmission projects as being of “national significance” will help to streamline the approvals process and reduce the red tape. With government ministers aligned in driving policies for the net-zero energy system, the National Energy Transformation Partnership will also help to deliver on the objectives of the new Climate Change Bill by ensuring that future energy projects are assessed against the country’s emissions target.
CORPORATE
BlackRock delivers boost for battery storage
Australia’s rapidly growing battery storage market looks set for a boost with BlackRock Real Assets acquiring one of the country’s leading energy storage developers, Akaysha Energy. The US firm plans to commit more than AUD1 billion to support the development of 1GW of battery storage assets across Australia.
Akaysha has a portfolio of nine battery storage projects across Australia’s National Energy Market, including the Orana Battery Energy Storage System in central-west NSW. The project will have a capacity of between 200-400MW and provide up to eight hours of energy storage, compared to around 1.5 hours for existing Australian battery projects.
The acquisition marks BlackRock’s first investment in battery storage in the Asia Pacific region.
Why does it matter?
Large-scale energy storage assets will be vital to support renewable energy replacing the future closure of thermal generation in the National Energy Market. By providing voltage management, system strength, inertia and frequency control services, they can enhance the reliability of the energy grid while mitigating the intermittency of renewable sources like wind or solar power.
AEMO’s 2022 Integrated System Plan (ISP) has estimated that over 60GW of storage capacity will be required in Australia by 2050 compared to the current storage of approx. 2GW.
The BlackRock deal provides the opportunity for Akaysha to invest in energy storage assets in markets across the region. BlackRock’s investment is also expected to cut more than 15 million tons of CO2 equivalent emissions over the lifetime of Akaysha’s portfolio of projects.
WESTPAC IN ACTION
Scaling hurdles in the race to net-zero
Lack of reliable and comparable data to measure and track organisations’ progress towards ESG goals has long been recognised as a major obstacle to decarbonisation efforts and for the development of sustainable finance markets globally – but all that looks set to change, according to the latest article in our series exploring the findings of our research report Financing for sustainability: Asia Pacific’s evolving ESG market, conducted by Economist Impact for Westpac Institutional Bank.
In the article, global experts Kristy Graham, Executive Officer of the Australian Sustainable Finance Institute (ASFI), discusses the progress of taxonomies and standards across the region, while Giles Gunesekera, Chief Executive Officer of the Global Impact Initiative argues companies should focus on what they are trying to achieve and not get trapped by the intricacies of data, particularly in social and impact reporting.
Mark Konyn, Group Chief Investment officer at AIA, says the organisation is further strengthening its ESG investment criteria through a more direct focus on the social aspect of its investments.
Landmark finance deal boosts biodiversity
Westpac has partnered with North Queensland Airports in a landmark deal that wraps biodiversity targets into an innovative financing structure.
One of the first sustainability linked loans (SLLs) in the Australian market to address biodiversity and natural capital, the deal puts the airport operator – owner of Cairns and Mackay Airports – at the forefront of a global wave of sustainable finance aimed at “nature positive” outcomes.
North Queensland Airports’ loan includes key performance indicators that create incentives to enhance the habitat surrounding Cairns Airport and help save threatened wildlife by working in partnership with the local Yirrganydji people. Additional KPIs are focused on emissions reduction and Indigenous engagement.
If the loan KPIs are met, North Queensland Airports will be rewarded with a lower interest rate, but a higher rate will apply if they’re missed.
North Queensland Airports Chief Executive Richard Barker says incorporating biodiversity targets into a financing structure makes good business sense and provides extra motivation for the organisation to deliver on its environmental promises.
“We have a role to play in protecting the pristine environment in which we operate,” he says. “We can't just rely on the government to do these types of projects. By actually linking our environmental targets into our refinancing, it really commits us as an organisation to deliver on what we say, not only around reducing our emissions, but to actively encourage the regeneration of biodiversity in this area.”
Westpac Institutional Bank's Head of Sustainable Finance, Eliza Mathews, expects the airport’s pioneering financing deal to be swiftly followed by similar transactions in Australia, as more corporate borrowers and lenders seek to incorporate natural capital into their climate transition strategies.
“Generally speaking, the focus on natural capital is about 10 years behind climate, but it's not going to take 10 years to catch up,” she says.
Carbon trading explained
Carbon markets are in the spotlight with the Federal Government’s announcing a review of the AUD4.5 billion Emissions Reduction Fund, which issues Australian Carbon Credit Units (ACCUs). But how does carbon trading work and what impact do carbon markets have on global efforts to address climate change?
These are some of the questions addressed in Westpac’s latest carbon markets article ‘Cheat sheet: Carbon trading in Australia and beyond’.
The article draws on the expertise of three carbon market specialists to explore the rapid rise in demand for carbon credits, how carbon markets work and their impact and potential for addressing climate change into the future.
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