ESG Impact: what you need to know - June 2023
Welcome to the June 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?
WHAT’S MAKING NEWS?
Welcome the latest round-up of the standout ESG developments making the headlines. What’s happening globally? Why does it matter? What does it mean for you?
This month, we consider transmission infrastructure, conserving natural capital, climate targets on the rise, and more.
POLICY
Transmission infrastructure requires a social licence
The rapid development of energy transmission infrastructure is critical for Australia to meet its net-zero targets, but developers have a number of challenges to address. In addition to minimising the impact on biodiversity and overcoming the problem of skill shortages, the issue of a ‘social licence’ looms large.
Speaking at The Australian Financial Review ESG Summit this month, NSW Energy Minister Penny Sharpe pointed to the much-needed support for communities affected by the construction of significant transmission lines. A recent study from Net Zero Australia also shows that approximately 43 per cent of new renewable energy and transmission infrastructure would need to be located on the Indigenous Estate for Australia to reach net-zero emissions by 2060. The National Native Title Council has called for policy reform in response to the study.
Why does it matter?
An efficient rebuild of the grid requires transmission infrastructure that will span state borders and the impact on landholders must be recognised.
Victoria has already announced a payment of AUD 8,000 per year per kilometre for 25 years for landholders whose properties host new power transmission. This month’s announcement of the Victorian Transmission Investment Framework (VTIF) also seeks to ensure environmental, land-use, cultural and social factors are considered early in the process when determining locations for new transmission projects.
The Victorian government recently announced plans to legislate its ambitious emissions reduction targets, cutting its greenhouse gas pollution by between 75 and 80 per cent on 2005 levels by 2035. This will lock in a renewable energy target of 95 per cent by the same year – and it is vital that everyone benefits from the transition.
Conserving natural capital
Global growth has long come at the expense of natural assets, with WWF’s latest Living Planet Report revealing an average decline of 69 per cent in species populations since 1970.
A new policy brief from independent global think tank Observer Research Foundation notes that biodiversity conservation cuts across all 17 of the United Nations Sustainable Development Goals (SDGs).
The brief proposes a number of policy instruments that G20 countries could adopt to foster meaningful business engagement in biodiversity conservation. They include regulatory mandates for businesses to assess and report their dependencies and impacts on biodiversity, enhancing biodiversity finance, and strengthening regulations around the selection of sites for manufacturing and infrastructure development.
Why does it matter?
While governments and corporates are increasing their focus on nature-related risks and opportunities, much work remains in conserving natural capital and abating biodiversity loss. To measure the magnitude of nature-related risk, organisations should understand their operations’ dependencies and impacts on the natural environment.
Stakeholder expectations around nature-based risks will continue to grow and leaders can expect some tough questions about their impact on biodiversity. The Taskforce on Nature-related Financial Disclosures (TNFD) will release a final framework in September this year for organisations to report and act on evolving nature-related risks.
The scope of nature-related risks is broad and the impact is challenging to qualify, but organisations should not allow the perfect to get in the way of the good. Data from the World Economic Forum shows that half of the world’s total GDP is exposed to nature loss. And with 1 million animal and plant species believed to be threatened with extinction, there’s no time to lose.
Circular approach to critical minerals
With critical minerals playing a crucial role on the pathway to net-zero, Australia is in a strong position to capitalise on the shift in commodities demand across the globe. The new Atlas of Australian Mine Waste shows how the country’s strategic metals and minerals supply can also feed into the circular economy.
Launched by Geoscience Australia in partnership with researchers at the School of Engineering at RMIT University and the Sustainable Minerals Institute at The University of Queensland, the Atlas identifies potential opportunities for critical minerals supply from secondary sources. It helps support the sustainable and economic recovery of critical minerals extraction from mine waste, while also bolstering Australia’s ESG goals through the appropriate management of mine waste.
Why does it matter?
Australia is the world’s largest producer of lithium. It’s also the third largest producer of cobalt and fourth largest of rare earths. The country’s significant supply of metals such as aluminium, nickel and copper are also crucial for low-emissions technologies, such as electric vehicles, batteries, solar panels and wind turbines.
Modelling commissioned by the Department of Industry, Science and Resources shows increasing exports of critical minerals and energy-transition minerals could create more than 115,000 new jobs and add AUD 71.2 billion to GDP by 2040. It also shows that the number of jobs could increase by 262,600, and GDP could strengthen by AUD 133.5 billion by the same year if Australia builds downstream refining and processing capability and secures a greater share of trade and investment.
Waste or residue produced from a mineral processing plant is a significant source of value. Applying a circular economy framework to mining waste also presents new opportunities for mining companies to improve the sustainability of their operations, while maximising the recovery of valuable minerals from existing mines.
Climate targets on the rise
The global 2023 Net Zero Stocktake, released this month, shows that emission-reduction targets among world's largest companies have doubled, but it warns that the integrity of targets should urgently improve if they are to be achieved on time.
The most comprehensive and up-to-date database of net-zero commitments made by nations, states, cities and major companies, the stocktake produced by the international philanthropically funded Net Zero Tracker initiative shows more countries are formalising their climate commitments. It has tracked 72 national net-zero targets, including from the US, UK, Nigeria and Japan, that are either enshrined in legislation or outlined as a goal in policy documents.
These targets account for approximately 75 per cent of total greenhouse gas emissions covered by national net-zero targets overall. This marks a significant increase from less than 5 per cent in December 2020.
Why does it matter?
The Net Zero Tracker, in addition to the ClimateWorks’ Net Zero Momentum tracker for Australia, provides valuable insights for organisations and governments to gauge market trends and compare their own performances with their peers.
Their latest stocktake shows a dramatic rise in the quantity of net-zero targets. Almost 930 companies from the Forbes 2000 list have set net-zero targets. This compares to 417 in December 2020 and 702 in June 2022.
However, the results also include concerns about the credibility of some targets and show that only 37 per cent of corporate net-zero targets fully cover Scope 3 emissions (on a self-reporting basis).
Scope 3 emissions are widely considered the hardest to measure and to address. Closely tracking activities across a company’s value chain provides greater visibility. The internationally recognised GHG Protocol, created in partnership by the World Resources Institute and the World Business Council for Sustainable Development, also provides guidance for calculating and reporting of Scope 3 emissions.
WESTPAC IN ACTION
Addressing nature-related risks
A Westpac-sponsored feature published in The Australian Financial Review this month highlights the declining global stock of natural capital.
In the article, Michael Chen, Head of ESG at Westpac Institutional Bank, noted that government initiatives are “encouraging steps forward to ensure nature is repaired and conserved”. These initiatives include the Australian Federal Government’s commitment to protect and conserve 30 per cent of land and oceans by 2030 as part of COP15, and the NSW government’s Natural Capital Statement of Intent.
The release of the financial framework from Taskforce for Nature-related Financial Disclosures in September will help organisations to report and act on evolving nature-related risks. More than 250 global companies are already testing and piloting the framework before its September release. In Australia, they include Westpac, BHP and Stockland.
Joshua Finfer, Associate Director, ESG at Westpac Institutional Bank, commented in the article that while measuring the impact of solutions for nature loss remains challenging, innovative financial instruments are emerging.
They include Westpac’s sustainability linked loan to North Queensland Airports – one of the first SSLs in the Australian market to address biodiversity and natural capital – which features KPIs that create incentives to enhance the habitat surrounding Cairns Airport and to help save threatened wildlife by working in partnership with the local Yirrganydji people.
Safeguard Mechanism provides certainty
Legislation for the modified Safeguard Mechanism to reduce industrial greenhouse gas emissions will take effect from 1 July. In an opinion piece published in The Australian Financial Review this month, Anthony Miller, Chief Executive of Westpac Institutional Bank, noted that while the reformed mechanism may seem daunting in its complexity, it will serve to accelerate the scale and pace of positive change.
Providing a mechanism for measuring and reducing emissions will bring Australia into line with other economies and provide a greater degree of certainty for businesses, Miller wrote.
“The revised mechanism, which uses Australian Carbon Credit Units as one of the ways to comply, brings carbon pricing sharply into focus for emitters, investors, and customers. It charts a clear path towards a 43 per cent reduction in emissions by 2030, giving emitters clarity over the effort needed.”
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