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ESG Impact: What you need to know - October 2023

This month we are reporting on delays in renewables generation in Australia, draft standards for mandatory disclosure for Australian businesses, new global commitments on critical minerals, and much more.


Crunch time for Australia’s energy transition

Decarbonising Australia’s fossil-fuelled electricity grid is proving slower and more costly than expected, and progress of the country’s energy transition is currently falling behind the target of 82 per cent renewables generation in the National Energy Market by 2030. 


The delays in progress were confirmed during this month’s Australian Financial Review Energy and Climate Summit, where regulators, producers and users highlighted the combination of supply side disruptions, Snowy Hydro 2.0 delays, skilled labour shortages, planning approval bottlenecks and social licence delays as key challenges.

Why does it matter?

Reaching 82 per cent renewables by 2030 is critical to achieving Australia’s 43 per cent emissions reduction target and net-zero by 2050 goal. However, the energy transition involves a highly complex system of push and pull. 


The desire for power purchasing agreements and the transition from gas to electricity, which increases the electricity demand, are pushing up demand for renewables, but projects typically have long lead-times – about three-and-a-half years for batteries and six years for wind farms. Recent inflationary pressures also mean that a battery approved two years ago might cost almost 50 per cent more today.


Government policy and community co-operation must step up quickly to address the challenges faced today.


Next step for Australian sustainability standards

The Australian Accounting Standards Board (AASB) has released an exposure draft to support the country’s mandatory disclosure of climate-related financial information. It includes three proposed Australian Sustainability Reporting Standards (ASRS Standards):


  • Draft ASRS 1 General Requirements for Disclosure of Climate-related Financial Information, which outlines the general requirements for the preparation and presentation of climate-related financial disclosures.
  • Draft ASRS 2 Climate-related Financial Disclosures, which specifies the climate-related financial disclosures that an entity is required to make.
  • Draft ASRS 101 References in Australian Sustainability Reporting Standards, which is developed as a ‘service standard’ to list the relevant versions of any non-legislative documents published in Australia and foreign documents that are referenced in ASRS Standards. 


The AASB has requested exposure draft comments by 1 March 2024.

Why does it matter?

The draft exposure aims to provide users of general-purpose financial reports with a complete set of climate-related financial disclosures. It sets out general requirements for the presentation of climate-related financial disclosures, as well as guidelines for their structure and minimum requirements for their content.


Draft ASRS 1 and draft ASRS 2 are closely aligned with the corresponding International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards issued by the International Sustainability Standards Board, however ASRS 1 does not require an entity to disclose sustainability-related financial information for topics other than climate.


While less prescriptive in the disclosures required around Scope 3 emissions, the draft ASRS standards specify that climate resilience assessments must consider at least two possible future states. One of these must be consistent with the most ambitious global temperature goal set out in the Climate Change Act 2022, which is 1.5°C above pre-industrial levels.


Critical minerals in the spotlight

Last month, the International Energy Agency hosted the first global summit on critical minerals and their role in clean energy transitions. Madeleine King, Australia’s Minister for Resources and Northern Australia, chaired the members-only session of the event, which benchmarked countries’ progress on shaping global critical minerals practice and policy. 


The summit aimed to build a broader consensus on ways to diversify mineral supply chains, accelerate innovation, enhance market transparency and promote sustainable and responsible development practices.


During the summit, IEA members committed to:


  • accelerating progress towards diversified minerals supplies
  • unlocking the power of technology and recycling
  • promoting transparency in markets
  • enhancing the availability of reliable information
  • creating incentives for sustainable and reliable practices
  • fostering international collaboration.


The IEA will meet again in February 2024 to gauge progress and agree on next steps. 

Why does it matter?

Critical minerals are vital for global decarbonisation and will underpin the clean energy transition. The outcomes from the IEA summit may help to address some of the challenges associated with sourcing them, such as supply reliability and resilience. 


Australia has some of the largest recoverable critical minerals deposits on earth, including cobalt, lithium, manganese, rare earth elements and tungsten. Independent modelling cited in Australia's Critical Minerals Strategy found that 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.


Last week, the Australian government announced a $2bn expansion to the Critical Minerals Facility following the inaugural meeting of the Australia-United States Taskforce on Critical Minerals. Australia is set to work closely with the US to leverage opportunities arising from the US Inflation Reduction Act. 


A rich supply of critical minerals, coupled with a significant industrial base and a skilled minerals workforce, puts Australia in the box seat to develop a new sustainable industry as the energy transition gathers pace. 


Carbon tax on the cards?

Long the subject of fierce political debate and division, could a carbon tax be back on the table for Australia? 


Putting a price on carbon allows the market to identify the most efficient and cheapest unit of greenhouse gas to cut. The mechanism was introduced in Europe in 2005, but some economies have been resistant, citing a range of concerns, such as an increase to consumer costs.


However, a recent study published in the Journal of Cleaner Production suggests a carbon tax can have both economic and environmental benefits for Australia. It finds that the introduction of a carbon tax on fossil fuels and a revenue recycling approach would increase Australia's GDP during 13 years after the implementation of the policy and would be effective in reducing Australia's carbon emissions. 

Why does it matter?

There are numerous models for a carbon tax. The one outlined in the recent study takes a revenue recycling approach, where money generated from a carbon tax is redirected back into the economy. 


Many countries, including Canada, China, Denmark, Japan, New Zealand, the UK and the countries of the European Union, have implemented carbon taxes with varying degrees of success. Indonesia recently introduced voluntary carbon emission credit trading and its government is seeking a plan for further national regulations on pollution, which may include a carbon tax.


Current global commitments may be insufficient to meet the Paris target of net-zero emissions by 2050 and countries may experience pressure to step up their efforts during  COP 28, which will be held in Dubai from 30 November to 12 December. It’s one thing to set targets, but how are they going to be achieved? 


David faces Goliath in landmark climate justice case

In late September, an historic two-week legal proceeding for climate justice came to a close at the International Tribunal for the Law of the Sea (ITLOS) in Hamburg, Germany. 


In the case, the Commission of Small Island States on Climate Change and International Law asked the maritime court for an advisory opinion to clarify the legal obligations of countries to cut greenhouse gas emissions. 


Speaking to the 21-judge panel, Gaston Alfonso Browne, Prime Minister of the Caribbean island nation of Antigua and Barbuda, stated: “The time has come to speak in legally binding obligations rather than empty promises.”


Should countries be held accountable for their pollution? ITLOS is expected to issue an advisory opinion in early-mid 2024. 

Why does it matter?

This is the first climate justice case aimed at protecting the ocean. It’s also a David and Goliath story, highlighting how many of the countries most affected by climate change are those that have contributed the least to the problem, and are among the least equipped to respond to it.


The ocean is the planet’s largest carbon sink. It absorbs approximately 31 per cent of carbon dioxide emissions released into the atmosphere. The more CO2 in the atmosphere, the more carbon dioxide in the oceans, leading to acidification which threatens marine life.


ITLOS has been asked to clarify countries’ obligations to protect the world’s oceans from fossil fuel-driven climate change, which threatens not only biodiversity and human rights, but the very existence of many island nations.



Can Australia become a clean hydrogen superpower?

The largest Commonwealth funding program for renewable hydrogen opened for applications this month. 


The AUD 2 billion Hydrogen Headstart program, administered by ARENA, will help tap into the huge global pipeline of private investment in hydrogen in Australia by helping large-scale renewable hydrogen projects to get off the ground.


A new report by Westpac Institutional Bank and AFRIntelligence pressure-tests the viability of Australia’s ambitions with a group of energy industry leaders and finds that to remain competitive, Australia must establish a clear hydrogen direction with meaningful targets for supply and domestic and international demand.


David Scrivener, Head of Energy, Infrastructure and Resources at Westpac Institutional Bank, outlined the report’s findings in recent article published in the Australian Financial Review.

“As a market leader in funding renewable energy projects, Westpac remains optimistic that Australia can still place in the global clean hydrogen superpower race and is ready to play its part,” he wrote, “but there’s much to be done before 2030 to realise these ambitious targets.”


Offshore wind gains momentum in Australia

With the Federal Government earmarking six zones for offshore wind development, Australia may soon release its huge potential for offshore wind generation. 


A recent Westpac IQ story explores the growing momentum for offshore wind development in Australia, including the Star of the South offshore wind project, which is planning to install up to 2.2 GW of new capacity in the Bass Strait off Gippsland, enough to power more than 1.2 million homes across Victoria. 


This story includes insights from Star of the South Chief Executive Charles Rattray, as well as Markus Brokhof, AGL Chief Operating Officer. AGL has formed a consortium with global renewables and offshore wind developers and investors to apply for licensing for a 2.5 GW wind development offshore of Gippsland, which would on its own replace half of its Loy Yang coal-fired power station capacity.


Repurposing power stations

Evolving rather than abandoning energy assets and their surrounding communities makes smart sense for businesses as the transition powers ahead. 


A recent Westpac IQ story looks at what it takes to reimagine a power station and includes insights from leaders at energy companies including AGL and French energy giant ENGIE, as well as private investment company Greenspot, which purchased the dormant Wallerawang power story hear Lithgow, NSW, from Energy Australia with plans for a multi-purpose transformation.


Breathing new life into a power plant requires decommissioning, demolition and rehabilitation of the site, as well as extensive community consultation, a final regulatory green light and transition for the energy workforce. Could some of Australia’s oldest coal-fired power stations propel the clean energy future?


Social linkages shakes the foundations - and validity - of ESG

Participants in the annual KangaNews-Westpac Institutional Bank roundtable, which took place in September, discussed moves to improve the measurability of socialimpact, the sector’s challenges and why the link between the pillars of environmental, social and governance might make the term redundant.

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