ESG Impact: What you need to know - October 2022
Welcome to this month’s round-up of the standout ESG developments making the headlines, from corporate highlights to policy updates. What’s happening globally? Why does it matter? What does it mean for you?
POLICY
EU cracks down on forced labour
In a move to curb a modern-day form of slavery impacting 27 million people worldwide, the European Union has announced plans to ban all goods produced via forced labour.
The proposal includes the removal of all products made with forced labour from the 27-nation bloc’s markets, including those made in the EU for domestic consumption, as well as exports and imported goods.
The plan will see national authorities empowered to investigate and withdraw products made via forced labour from the EU market. EU customs authorities will also prevent products made with forced labour from entering its borders.
Under the proposed law, the European Commission will also establish a public database with information on suspect products and practices.
Why does it matter?
Australia’s Modern Slavery Act 2018 mandates that large businesses and other entities operating in the country must report annually on how they are addressing modern slavery risks in their domestic and global operations and supply chains.
While the Act is currently under review to assess whether additional measures are required to improve its operation and compliance, in its present form it does not prevent the importation of goods made using forced labour.
The majority of forced labour worldwide occurs in the private economy. The European Union is viewed as a leader in implementing Sustainable Development Goals and its ability to institute laws across a large group of countries brings considerable global influence.
The proposed ban on all goods produced via forced labour is a significant step in increasing the sustainability of supply chains and sets a new standard that other nations may soon follow.
Buildings turn green in City of Sydney
The City of Sydney has announced net-zero rules, which will require new office buildings, hotels and shopping centres, as well as major redevelopments of existing buildings, to have a minimum 5.5 NABERS (National Australian Built Environment Rating System) energy rating from January next year. New developments must also achieve net-zero carbon in their energy use from 2026.
To propel buildings towards net-zero energy use, the new planning rules combine energy efficiency and the use of onsite and offsite renewables.
The Council expects its new planning measures to save more than AUD1.3 billion on energy bills for investors, businesses and occupants from 2023 to 2040. It also estimates public benefits and savings in health, energy network and emissions costs to the value of around AUD1.8 billion.
Why does it matter?
Energy use in buildings is a significant contributor to greenhouse gas emissions. The City of Sydney’s new rules are a major step toward meeting its target of net-zero emissions by 2035, while also creating a pathway for developers to improve their own energy performance.
While the buildings outlined in the Council’s rules must achieve net-zero energy use by 2016, it is not prescriptive in the types of sustainable technology to be employed.
In addition to the environmental benefits of reduced emissions, the City of Sydney notes that net-zero energy buildings will contribute to a positive and sustainable business recovery for Greater Sydney, while improving building resilience. The clear message for building owners and tenants is to shift focus toward net-zero buildings.
Sunshine State updates renewables target
The Queensland Government has announced a 10-year clean energy strategy as part of its AUD62 billion Queensland Energy and Jobs Plan. It includes an updated renewable energy target of 70 per cent by 2032 and 80 per cent by 2035.
The plans include targets of:
- 22 GW in new wind and utility-scale solar
- 11.5 GW in rooftop PV
- 9 GW in battery storage and 6 GW in utility-scale pumped hydro
- 3 GW of “firming” capacity from gas or renewable hydrogen.
The Queensland Government has also committed to expedite its exit from coal-fired power stations by 2035.
While the new targets expand on Queensland’s 2015 commitment to reach 50 per cent renewable energy by 2030, it faces significant challenges in accessing skilled labour, as well as procuring sufficient solar PV, wind turbines or batteries to meet its goals.
Why does it matter?
Queensland’s new clean energy commitment is a further signal of carbon policy momentum across the country. It follows the June 2022 announcement from the West Australian government that its last coal-fired power station will close before the end of the decade.
These announcements are in line with the Australian Energy Market Operator’s (AEMO) ‘Step Change’ scenario for the pace of energy transformation as the country seeks to reach net-zero by 2050. The scenario forecasts a rapid transformation in Australia’s National Electricity Market, including coal-fired generation withdrawing faster than announced and 60 per cent of capacity withdrawn by 2030.
The scenario also includes significant investment in renewable generation, storage and firming generation as coal-fired plants close, as well as improvements to energy transmission.
Unlocking Australia’s green potential
A new book from Australian economist Ross Garnaut shows Australia has the potential to cut global emissions by 8 per cent and reshape the future of the nation.
In Superpower Transformation: Making Australia’s Zero Carbon Future, Garnaut writes that Australia has a crucial role to play in decarbonising the planet as the largest exporter of smelting mineral ores and the developed world’s cheapest producer of renewable energy. He also points to the nation’s abundance of land for producing biomass and its large reserves of transition minerals.
In his new book, a collection of essays by leading climate experts, Garnaut also outlines how stronger and earlier action on climate change could have a positive effect on jobs and incomes in rural and regional Australia. He also explores how the country can meet the objectives set at the Paris and Glasgow climate conferences, as well as the growing costs of inaction.
Why does it matter?
Australia has the potential to play at a much higher level when it comes to decarbonising the planet.
With an abundance of resources for renewable energy, including silicon for solar panels, a range of metals for wind turbines and rare earth minerals for batteries and electric vehicles, it has the means to support the reduction of carbon emissions for nations across the globe.
One of the book’s contributors, ANU economics professor Ligang Song, notes that “using Australian renewable electricity and hydrogen produced from renewables to convert [iron ore] into iron metal and steel would reduce global emissions by around 2 per cent – almost twice as much as Australia eliminating its own emissions”.
The country also has potential to become a major world supplier of zero-carbon goods and services, such as green steel, to help the rest of the world cut its emissions.
CORPORATE
AGL builds renewables to expedite coal exit
AGL has indicated it will progressively decarbonise it’s asset portfolio with an ambition to supply its customer demand with up to 12GW of new generation and firming capacity, requiring a total investment of up to $20bn in place before 2036, funded from a combination of assets on balance sheet, offtakes and via partnerships, as it announces the closure of 2,210 MW brown coal Loy Yang A in Victoria a decade ahead of schedule.
The move sees AGL exiting coal generation in 2035. The plans for shutdowns of its remaining thermal fleet are unchanged, with Liddell closing in 2023 and Bayswater being retired between 2030 and 2033.
“We have the ambition to supply up to 12 gigawatts of renewables and firming capacity up to 2036 to meet our customer demand, estimated to require up to a AUD20 billion investment,” said Patricia McKenzie, AGL chair, in a statement to the ASX.
Why does it matter?
Loy Yang A is one of Australia’s largest carbon-emitting power plants and AGL’s decision to expedite its closure could avoid up to 200 million tonnes of carbon dioxide-equivalent emissions.
Early closure of coal-fired power stations remains largely dependent on large-scale battery storage, however Australia’s battery storage market is growing rapidly and the Victorian Government announced in September that it would increase its storage capacity target to provide the renewable energy required to power half the state’s current homes at peak energy use.
AGL’s early exit from Loy Yang follows recent announcements from the both the Western Australian and Queensland governments to expedite their cut off from coal power. This all points to the nation’s ability to decarbonise faster.
WESTPAC IN ACTION
Westpac supports Pact Group in landmark Sustainability-Linked Loan
In a first for Australia’s manufacturing sector, Pact Group has converted AUD420 million of existing loan facilities into Sustainability Linked Loans.
Westpac acted as Joint Sustainability Coordinator and Lead Arrangers for the loans, which offer the packaging company margin discounts to deliver against its Sustainability Performance Targets.
Pact Group’s Sustainability Performance Targets are aligned to KPI areas, including:
- Increasing the percentage of recycled content across its packaging portfolio, which is aligned to its End of Waste Promise to offer 30 per cent average recycled content
- Increasing the amount of recycled material processed and distributed to the external market, which is aligned to Pact’s plans to have capacity to recycle up to 120,000 tonnes of plastic waste per annum
- Reducing scopes 1 and 2 greenhouse gas emissions, which aligns with Pact’s newly announced 50 per cent emissions reduction by 2030 target
- Reducing the gender pay gap.
The value of global SLL issuance now exceeds USD1 trillion, and SLLs remain the leading sustainable debt instrument issued by borrowers cumulatively across Australia and New Zealand in 2022, comprising 30 per cent of sustainable debt issuance.
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