ESG Impact: What you need to know - August 2023
This month we report on key developments from the Australian federal and state governments, plans for a green tariff to keep Australian companies internationally competitive, the latest evolution in biodiversity markets, and more.
POLICY
Australian Treasury releases 2023 Intergenerational Report
Australian Treasurer Jim Chalmers recently released the 2023 Intergenerational Report, which provides a 40-year outlook on the Australian economy and budget. Climate change and the net-zero transformation has been listed as one of the “5 major forces affecting the coming decades."
The report warns that rising global temperatures will have a material impact on Australia’s economy, “requiring significant adaptation in order to mitigate potential impacts on productivity and economic growth." However, it also highlights Australia’s unique competitive advantage to benefit from our abundant natural resources.
To support an orderly transition, the government is also establishing a national Net Zero Authority to balance the need to “drive the transformation to a clean energy economy and ensure Australia’s regions, workers and First Nations people benefit.”
Why does it matter?
The report is considered an important step in recognising the potential impacts of climate change on economic growth, as well as additional channels including “biodiversity loss, storm surge, sea level rise and health impacts," over the next coming decades.
It also highlights an urgent need to address opportunities and challenges for Australia to capitalise from our access to clean energy sources and critical minerals reserves.
Australia’s ability to meet its emissions reduction targets and positively reshape the economy in the face of climate change requires coordination and support from governments, businesses, investors, and communities across the entire economy.
Green tariff on the cards for Australia
The federal government is weighing up the adoption of a cross-border adjustment mechanism (CBAM) – or ‘green tariff’ – to avoid disadvantaging domestic companies in industries like steel and cement.
The move would see Australia follow the European Union by imposing tariffs on some imports from nations with less ambitious climate goals, while also presenting opportunities for Australian producers impacted by the government’s Safeguard Mechanism reform. The reform requires industrial, manufacturing and resources firms to cut carbon emissions by almost 5 per cent a year through 2030.
Climate change and energy minister Chris Bowen has announced that the department will begin two rounds of consultation on whether to adopt a CBAM.
“We know of the potential for production to shift from countries with more ambitious emissions-reduction policies to those with lower emission-reduction policies, and potentially resulting in increased global emissions,” he told a meeting of the Australian Business Economists in Sydney this month. “[This] undermines national and international climate action and has long been a key consideration in the development of climate policy across the world.”
Why does it matter?
Steel and cement have emerged as the industries most affected by the government’s Safeguard Mechanism, which took effect from 1 July this year. This is due to high levels of international production and the potential for imports. The government’s consideration of a CBAM acknowledges this and puts a green tariff on the radar for Australia.
Ironing out the details of such a mechanism is likely to take time. However, in his speech hosted by the Australian Business Economists, Chris Bowen noted that the US Inflation Reduction Act, as well as similar industry policy initiatives in other major trading economies, required Australia to “act to stay in the game”.
“The right policy settings are important to ensure a level playing field for Australian firms doing the right thing when it comes to decarbonisation,” he said.
Victoria bans gas for new homes
Next year will mark the end of new gas connections for homes in Victoria, with planning permits for new homes and residential subdivisions only allowing connections to all-electric networks from 1 January.
The Victorian government has also announced that all new public buildings that haven’t reached the design stage will also be all-electric, effective immediately.
The state has the highest use of residential gas in Australia, with 65 per cent of the country’s total household gas use. The announcement on gas aligns with the Victorian government’s recent pledge to cut its greenhouse gas pollution by between 75–80 per cent on 2005 levels by 2035.
Victoria’s decision to ban gas for new homes follows a similar move by the ACT, where regulation is expected to be in place later this year following the passing of new legislation in June to ensure all new builds will be exclusively connected to electricity.
Why does it matter?
The Victorian government has already set one of the most ambitious emissions-reduction targets in the world. The ban on gas connections to new homes is as part of its plan to reach net-zero in the state by 2045.
Along with the state’s target of 95 per cent renewable energy generation by 2035, its renewable energy storage target of 6.3GW and offshore wind target of 4GW by 2035 are also expected to play an important role in achieving the high emissions reduction target.
More than 50,000 new homes are built in Victoria each year, and approximately 40,000 of them connect to the reticulated gas network.
Property giants such as Lendlease have already committed to phasing out gas from the kitchens of new developments by 2030. The Victorian government has also pledged to work with industry, including gas appliance manufacturers and trade unions, to support the transition.
More credit to nature
Biodiversity credits are emerging as valuable economic instruments to finance activities that deliver net positive results for the environment.
A biodiversity market legislation has already been introduced in Australia, largely in response to the 2021 State of the Environment Report, which painted a dire picture of the health of the country’s environment.
More recently, the British Government has published pricing tiers for statutory biodiversity credits as part of its upcoming Biodiversity Net Gain legislation. The law will come into force in November this year and will require new developments across England and Wales to provide a 10 per cent net gain in biodiversity as a condition of planning permission.
Why does it matter?
Biodiversity credits are an extension of carbon markets and are an innovative way to finance conservation. While they elevate the importance of biodiversity, they also represent a link to carbon credits, which are generated primarily from land restoration projects that restore native vegetation and take carbon dioxide from the atmosphere.
In Australia, the recent introduction of the Nature Repair Market Bill 2023 (Cth) establishes a framework for a biodiversity market. It aims to encourage private sector investment in long term nature repair, delivering better biodiversity outcomes for native species and rewarding landholders for enhancing and protecting nature.
With more companies integrating natural capital into their climate transition strategies, the emergence of biodiversity credits underscores the important role of business in preserving and restoring global ecosystems.
WESTPAC IN ACTION
Two-way learning at Garma
Westpac Institutional Bank’s CEO Anthony Miller attended this year’s Garma Festival, as part of the Westpac delegation to the event, which is hosted each year by the Yothu Yindi Foundation in Arnhem Land.
The Garma Festival is Australia’s largest Indigenous gathering and provides a platform for discussion and debate of issues affecting Indigenous Australians, including health, education and economic development. It also serves as a celebration of visual art, dance, music and storytelling.
Garma translates to ‘two-way learning process’ in Yolngu Matha. This year’s theme was djambatj, which means ‘a vision of perfection’.
“It was amazing to immerse myself in the community to better understand the lives of people who live in one of the most remote corners of Australia,” Miller said of the experience. “It was also a really important opportunity to listen to Aboriginal and Torres Strait Islander peoples share their stories about the connection to culture, country and people.”
Real-world solutions to natural capital decline
How are organisations stepping up to manage biodiversity risk?
The imminent release of the Taskforce on Nature-related Financial Disclosures’ final framework for organisations to report and act on evolving nature-related risks – due out in September – is the latest in a range of encouraging moves towards ensuring nature is repaired and conserved – and Westpac was among the 250 global companies that piloted and tested the framework prior to its release.
In a Westpac IQ article, originally published in the Australian Financial Review, Westpac Institutional Bank’s Head of ESG Michael Chen, Associate Director, ESG, Joshua Finfer and Deloitte’s Asia-Pacific and Global Nature Lead, Guy Williams, detail the progress of Australian organisations, including how they are measuring their nature footprints, and outline how frontrunners are finding opportunities along the way.
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