ESG Impact: What you need to know - March 2023
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
Urgent call for climate action
Ambitious action is required to reduce greenhouse gas emissions and avoid the worst of climate change – and there’s no time to waste. That’s the key message from the Intergovernmental Panel on Climate Change’s Synthesis Report 2023, which summarises five years of reports on global temperature rises, fossil fuel emissions and climate impacts.
The United Nations body for assessing the science related to climate change, the IPCC was created in 1988 to provide governments with scientific information to help develop climate policies. It’s Synthesis Report 2023 highlights the devastating loss and damage already experienced as a result of climate change, especially for vulnerable communities and ecosystems hardest hit.
Described by UN secretary general, António Guterres as “a clarion call to massively fast-track climate efforts by every country and every sector and on every timeframe”, the report highlights how climate change impacts could be avoided by limiting global warming to 1.5°C, compared to 2°C, or more. For example, by 2100, coral reefs would decline by 70-90 per cent with global warming of 1.5°C, whereas virtually all would be lost if temperatures rise 2°C.
The report also examines urgent ways to cut greenhouse gases, such as increased renewable energy, restoring nature and technologies that capture and store carbon dioxide. It also notes that increasing finance to climate investments is important to achieving global climate goals.
Why does it matter?
Rising global greenhouse gases are threatening irrevocable damage to the planet and the IPPC’s Synthesis Report 2023 provides a critical warning that climate action cannot be delayed. However, the report also provides a clear overview of the opportunities for reducing carbon emissions.
It notes that solutions lie in climate resilient development, which involves integrating climate responses and adaptation options with effective actions to reduce or avoid greenhouse gas emissions. For example, resilient power systems will be promoted through a higher concentration of renewables, while sustainable land use and urban planning will be supported through energy-efficient buildings and electric vehicles.
The IPCC’s report notes that climate resilient development becomes progressively more challenging with every increment of warming, and the decisions made in the next few years will play a vital role in shaping the future of the planet. It also notes that there is sufficient global capital to rapidly reduce greenhouse gas emissions and, if technology, knowledge and suitable policy measures are shared, it is possible that every community can reduce or avoid carbon-intensive consumption.
Mandatory reporting in sight
The disclosure of climate-related financial risks was once a recommendation, but it’s soon to become a requirement. Early preparation is critical and a new report, ‘Gearing up for mandatory climate reporting’, provides a high-level snapshot of what directors need to know.
A joint publication by the Australian Institute of Company Directors, Deloitte and MinterEllison, the report recommends that boards review existing governance structures to identify responsibility and accountability. It also suggests they establish measurable sustainability and climate strategies and ask management about any gaps between current and future resourcing, data and disclosure needs.
With the potential for significant scrutiny of organisations’ climate reporting from stakeholders such as regulators and investors, the report also notes that directors and senior management may require expert advice to navigate complex legal issues.
Why does it matter?
The first instalment of international sustainability-related financial reporting standards, issued by the International Sustainability Standards Board (ISSB), is expected in June 2023.
The recent Commonwealth Treasury Consultation Paper on Climate Reporting also indicates that mandatory climate reporting in Australia may start in the 2024/2025 financial year.
While many companies have preparations underway, others have no time to waste in understanding climate reporting expectations. Questions remain about who the reporting standards will apply to, and include how Scope 3 emissions will be reported and regulated. However, the new reporting standards represent a step up from the Taskforce for Climate-related Financial Disclosure (TCFD) framework.
The ISSB’s standard will outline a global framework for sustainability reporting. Increased disclosure and market comparability presents opportunities for deep strategic thinking about the transition to net-zero emissions.
Transport emissions offset electricity gains
Despite gains from more renewables to Australia's grid, emissions rose slightly in the first nine months of last year. The increase was largely driven by a significant increase in transport emissions, mainly from diesel, as well as a rise in agriculture emissions.
The findings come from the Federal Government’s National Greenhouse Gas Inventory, which shows a 0.1 per cent increase in emissions for the 12 months to the end of September. Emissions for the September quarter were also up by 300,000 tonnes, or 0.3 per cent, compared to the June 2022 quarter.
While electricity generation emissions declined by 5.1 million tonnes, or 3.1 per cent, transport emissions offset the gains, partly due to the recovery from COVID-19 travel restrictions.
Why does it matter?
While it is pleasing to see the decline in electricity generation emissions, thanks to the significant volume of renewables coming into the grid, the jump in transport emissions indicates that Australia’s greenhouse gas inventory is not falling fast enough.
The National Greenhouse Gas Inventory shows Australia’s greenhouse gas emissions are now 21 per cent below June 2005 levels, which is the base year for the country’s 2030 Paris Agreement target. Its quarterly updates help policymakers, markets and the public to understand how Australia is tracking against its net-zero targets.
While the lift in transport emissions in 2022 was partly due to increased use following COVID-19 restrictions, it also reflects a jump in diesel consumption in mines. Government policy may soon shift toward transport-related emissions to help accelerate the transition to clean energy.
ENERGY TRANSITION
Clearing a pathway to industrial decarbonisation
The transition to net-zero emissions is complex and challenging, especially for hard-to-abate sectors. However, a new report outlines a decarbonisation pathway for five of the country’s heavy industry supply chains – iron and steel, aluminium, other metals, chemicals and liquefied natural gas.
The report ‘Pathways to industrial decarbonisation: Positioning Australian industry to prosper in a net zero global economy’ has been prepared for the Australian Industry Energy Transitions Initiative (Australian Industry ETI) by Climateworks and CSIRO, in consultation with industry and research partners. It identifies five objectives to enable heavy industry to achieve goals consistent with global efforts to limit warming to 1.5ºC, as follows:
- Set a strong, clear, enduring framework with a net-zero emissions goal to align industry, finance and government.
- Transition to the large-scale, cost-competitive, renewable energy system of the future.
- Accelerate development and demonstration of the emerging technologies needed.
- Drive deployment of low-carbon solutions, reduce barriers and support investment towards the transition.
- Develop integrated net zero emissions industrial regions, supply chains and energy network solutions.
Australian Industry ETI brings together key industry and finance companies with the aim of accelerating the achievement of net-zero emissions in supply chains by 2050 across hard-to-abate sectors. Westpac is a partner organisation and a signatory to the collective statement supporting the release of the Pathways report.
Why does it matter?
The report is prepared in collaboration with companies representing about a fifth of Australia’s industrial emissions and a third of the ASX100 market value. It identifies flow-on opportunities from the decarbonisation of emissions-intensive industries, including the potential for 1.3 million jobs to be created between 2025 and 2050 in an ambitious 1.5°C scenario.
The transition to net-zero also represents an investment in modernising Australia’s industrial regions and energy system. The report shows that, over a 30-year period, the investment equates to roughly AUD 20.8 billion per year if Australia continues to limit warming to 1.5ºC. Approximately two thirds of this investment is in the energy system and a third is in industry technologies, electrification and energy efficiency.
The report also underscores opportunities for Australia to play a leading role in decarbonising the global economy by leveraging its renewable energy advantages through new export-oriented industries.
Green light for Waratah Super Battery
Construction is set to begin on Australia’s biggest committed battery project, with the NSW Government announcing final approvals for the Waratah Super Battery.
Located in Colongra in the Central Coast region, it will have an active power capacity of 850 megawatts and usable energy storage capacity of 1680 megawatt hours, surpassing the 300MW/450MWh capacity of the Victorian Big Battery located near Geelong.
Battery storage start-up Akaysha Energy, which is backed by BlackRock, will develop the project at the former Munmorah Power Station site. Construction is expected to be completed by 2025, to coincide with the closure of Origin Energy’s Eraring coal power plant.
Why does it matter?
With Australia rapidly scaling down its coal-fired power stations, batteries present a huge opportunity in the transition to clean energy.
The instant response and flexibility of the Waratah Super Battery and the Victorian Big Battery will provide a cushion for the grid during sudden power surges, allowing the market operator to run transmission lines at their full capacity. This means more power can be delivered to major demand centres, such as Sydney, Newcastle and Geelong.
The project also presents opportunities for investment and employment. The NSW Government expects the Waratah Super Battery to stimulate up to AUD 1 billion in private investment into new energy storage and associated network augmentations and to generate more than 100 jobs during construction.
Queensland powers more renewables
The Queensland Government aims to develop Australia’s largest renewable energy zone through its 1,100 km CopperString 2.0 project in the state’s north. Early works on the AUD 5 billion project will start this year and construction is planned to kick off in 2024.
CopperString 2.0 will connect vast renewable wind and solar resources with mining operations and the processing of critical minerals, such as copper, cobalt, zinc and phosphate, which can be used for battery manufacturing and renewable energy generation.
Queensland Premier Annastacia Palaszczuk has described the CopperString project as the “most significant investment in economic infrastructure in North Queensland in generations”.
“Unlocking affordable renewable energy and our critical minerals will benefit Townsville, Mount Isa and every town in between – unlocking thousands of jobs and billions in investment,” Palaszczuk says.
Why does it matter?
While originally planned to be built by private investors, the Queensland Government’s 100 per cent ownership of Copperstring 2.0 provides more certainty that the project will be completed – and that it will be of an appropriate size to serve the region.
Copperstring 2.0 signals a further commitment to unlock the state’s renewables potential and follows last year’s announcement of a 10-year clean energy strategy as part of the state government’s AUD 62 billion Queensland Energy and Jobs Plan. The Queensland Government has also committed to expedite its exit from coal-fired power stations by 2035.
Construction of Copperstring 2.0 is expected to support 800 direct jobs over six years, as well as thousands of new jobs in minerals mining, manufacturing and the construction of renewable energy infrastructure.
WESTPAC IN ACTION
Supporting Queensland Treasury Corporation
Westpac has acted as Joint Lead Managers supporting the Queensland Treasury Corporation (QTC) with a new 10-year $3 billion green bond. QTC is the financing arm of the Queensland Government and this bond will help deliver water infrastructure and renewable energy projects to the state. This is a great example of how Westpac is supporting Queensland’s transition to a climate resilient and environmentally sustainable economy.
Green Bond Impact Report
Westpac has released its Green Bond Impact Report, showing the ‘impact’ of the bank’s Green Bond Program across environmental impacts such as low carbon buildings, renewable energy and low carbon transport.
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