ESG Impact: what you need to know - July 2023
Welcome to our latest round-up of the standout ESG developments making the headlines, from corporate highlights to policy updates. What’s happening locally and globally? Why does it matter? What does it mean for you?
WHAT’S MAKING NEWS?
This month we report on the new announcement for sectoral decarbonisation plans, Australia’s alignment with international standards for sustainability disclosures, the need for zero-carbon-ready buildings by 2030 and the drive to get more electric vehicles on the road.
POLICY
Sectoral plans move on net-zero pathways
Climate Change and Energy Minister Chris Bowen has announced the Federal Government will develop decarbonisation plans for major sectors across the Australian economy.
In an address to the Clean Energy Council, the minister explained Cabinet would begin working on plans for electricity and energy, industry, the built environment, agriculture and land, transport, and resources, while the waste sector will be included in the industry plan – and the circular economy will be in focus across all sectors.
The plans, to be finalised following extensive collaboration with industries, experts, unions and the community, will feed into the government’s Net Zero 2050 plan and 2035 targets in line with Australia’s commitments under the Paris Agreement.
Why does it matter?
According to the Grattan Institute’s latest projections, Australia will be unable to deliver its 43 per cent emissions reduction target by 2030 and achieve net-zero by 2050 without further policy action.
Report authors Tony Wood and Alison Reeve call for Australia’s governments to “act now to create greater momentum towards the net-zero goal through setting the 2035 carbon budgets and targets, with policies to meet them”.
The Federal Government has asked the Climate Change Authority to provide statutory advice on the 2035 target by late 2024. The authority will also be developing the emissions-reducing pathways for each sector. While the electricity sector is making good progress, and industrial emissions are expected to improve due to the Safeguard Mechanism reforms, other sectors including transport and agriculture will likely face high disruption if more is not done between now and 2035.
New standards for sustainability disclosure
Treasury’s climate-related financial disclosure consultation paper, released this month, sets out a roadmap for a proposed phase-in timeline for standardised, internationally-aligned requirements for organisations across Australia.
The paper proposes new rules to apply to the country’s largest companies from 1 July 2024, expanding to include smaller companies over the following three years.
Australia’s disclosure standards are expected to closely align with IFRS S1 and IFRS S2, the first two global sustainability disclosure standards released by the International Sustainability Standards Board (ISSB) in June. While both incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), IFRS S1 sets out disclosure requirements for communicating sustainability-related risks and opportunities to investors, while IFRS S2 focuses on specific climate-related disclosures.
Why does it matter?
As the proposed Australian rules are largely aligned with ISSB baselines, they may help local entities to remain attractive in global capital markets, while streamlining the reporting process for companies and investors that work across multiple jurisdictions.
Under the proposed Australian rules, entities will be required to disclose information about material climate-related risks and opportunities to their business, as well as how they are identified, assessed and managed. While reporting on scopes 1 and 2 emissions would be mandatory from the outset, disclosure of material scope 3 emissions would be required for all reporting entities from their second reporting year onwards.
The proposed standards include a phase-in timeline, which is expected to help entities to prepare for their reporting obligations. The federal government has also proposed a three-year period of regulator-only enforcement in relation to disclosures of scope 3 emissions and forward-looking statements.
Deforestation a risk to net-zero pathway
Despite a recent global pledge to halt deforestation by the end of this decade, the world lost an area of old-growth tropical rainforest equivalent to the size of Switzerland in 2022.
According to a report from Global Forest Watch, which is supported by the non-profit World Resources Institute (WRI), about 41,000 sq km of tropical rainforest was lost last year, and the loss produced 2.7 gigatonnes of carbon dioxide emissions.
Global Forest Watch draws on data collected by the University of Maryland to help manage and protect forest landscapes. Its recent figures reveal that while Indonesia and Malaysia kept rates of primary forest loss to near record-low levels, the rate of Brazil’s primary forest loss increased by 15 per cent from 2021 to 2022, with the vast majority of loss occurring in the Amazon.
Why does it matter?
United Nations reports show that halting and reversing deforestation by 2030 is vital for a credible pathway to net-zero emissions. Deforestation is responsible for approximately 11 per cent of global annual carbon emissions and contributes significantly to the destruction of nature.
Nature plays a critical role in climate change action. Data from the UN shows that eliminating emissions from deforestation and increasing carbon removal through forest regrowth and landscape restoration could reduce global net emissions by up to 30 per cent. It also shows that forests could provide as much as half of the cost-effective climate-change mitigation available over the next decade.
Investors are also sharpening their focus on nature-related risk. Nature Action 100, a global investor engagement initiative focused on driving action on the nature-related risks and reducing their impact on long-term shareholder value, has recently released a set of investor expectations to support urgent corporate action on nature loss. They include assessing and publicly disclosing nature-related dependencies, impacts, risks, and opportunities at an operational level and throughout value chains, as well as setting time-bound, science-based nature-related targets informed by risk assessments.
Building a net-zero future
Australia’s buildings consume approximately 50 per cent of the country’s electricity, and this spikes to 77 per cent of system capacity during peak periods. But a new discussion paper from Green Building Council of Australia (GBCA) highlights a crucial role that they may play in achieving a net-zero future.
Developed with support of the NSW Government, GBCA’s paper focuses on the role of grid-interactive buildings, which are designed for smart and efficient use of electricity. They not only shift energy usage to times when it's cheaper and cleaner, they also help to generate clean energy and reduce costs.
GBCA finds that by shifting a portion of the energy usage in buildings for three hours a day, five days a week, Australia could cut its greenhouse gas emissions by 0.6 per cent – equivalent to the impact of 180,000 homes – without decreasing energy use. The report also shows that would reduce the cost of supplying electricity to Australia’s buildings by AUD 1.7 billion each year.
Why does it matter?
The use of efficient and renewable building technologies is accelerating across the globe, along with an increase in minimum performance standards and building energy codes.
However, the International Energy Agency (IEA) notes that more must be done to keep the sector on a path to net-zero emissions by 2050, and that action this decade is crucial if buildings are to be ‘zero-carbon-ready’ by 2030. IEA defines zero-carbon-ready as highly energy-efficient buildings that use renewable energy directly or rely on a source of energy supply that can be fully decarbonised.
Australia’s real estate industry is already a global leader on greenhouse gas emission reduction and a transition to grid-interactive buildings represents a significant step in the sustainable transformation of the country’s built environment. It highlights the potential to align environmental and economic outcomes and to convert Australia’s buildings into dynamic assets for a clean-energy future.
Fuel standards to drive EV uptake
Passenger cars are responsible for almost 10 per cent of Australia’s total greenhouse gas emissions, but the federal government’s planned fuel efficiency standards may accelerate the move to more environmentally friendly vehicles.
By placing mandatory pollution caps on fleets of new vehicles, the policy is designed to encourage car manufacturers to sell more electric vehicles into Australia. Research commissioned by the Electric Vehicle Council and the Climate Council shows the new rules could save consumers up to AUD 10,000 over a car’s lifetime and would see internal combustion engine vehicle prices peak in 2027. It also shows that EVs may comprise as much as two-thirds of new sales by the end of this decade.
Why does it matter?
EVs currently make up about 8 per cent of new vehicles delivered to Australia and the planned fuel efficiency standards would drive a significant increase.
The research from the Electric Vehicle Council and the Climate Council also finds that the higher cost of an EV would be recovered in less than two years due to AUD 1,200 of savings in running costs per year. EVs are also expected to become cheaper over time due to increased competition and lower battery costs.
Battery technology is continuing to improve with Toyota recently announcing a technological breakthrough with advanced solid-state batteries that are expected to halve the weight, size and cost of batteries for its EVs. The company claims the new batteries will drastically increase EV range and reduce charging time. It expects to manufacture solid-state batteries for use in EVs by 2027.
WESTPAC IN ACTION
Renewables target met ahead of time
Westpac has delivered early on its target to source the equivalent of 100 per cent renewable energy for its Australian operations by 2025.
The achievement was made possible through virtual power purchase agreements (VPPAs) with Bomen Solar Farm, owned and operated by Spark Renewables, and Flow Power, through which Westpac sources electricity from Ararat Wind Farm in Victoria, and the new Berri Solar Farm and Battery in South Australia.
Under the agreements, these projects combined deliver about 95 gigawatt hours of clean energy to the grid per annum. Westpac pays for an amount of renewable energy that each provider puts into the grid, and the equivalent amount consumed by the bank is recognised as having zero emissions. The VPPAs also include commitments to support local communities and environmental initiatives.
Westpac is now focusing on delivery of the next phase of its renewables program with the aim of reaching the equivalent of 100 per cent renewables across its international operations, says Carolyn McCann, Westpac Group Executive for Corporate Services.
Read the full story on Westpac Wire.
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