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.
WESTPAC IN ACTION
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.
©2023 Westpac Institutional Bank is a division of Westpac Banking Corporation ABN 33 007 457 141, AFSL233714 (‘Westpac’). References to the “Westpac Group” are to Westpac and its subsidiaries and includes the directors, employees and representatives of Westpac and its subsidiaries.
Things you should know
We respect your privacy: You can view our privacy statement at Westpac.com.au. Each time someone visits our site, data is captured so that we can accurately evaluate the quality of our content and make improvements for you. We may at times use technology to capture data about you to help us to better understand you and your needs, including potentially for the purposes of assessing your individual reading habits and interests to allow us to provide suggestions regarding other reading material which may be suitable for you.
This information, unless specifically indicated otherwise, is under copyright of the Westpac Group. None of the material, nor its contents, nor any copy of it, may be altered in any way, transmitted to, copied of distributed to any other party without the prior written permission of the Westpac Group.
This information has been prepared by the Westpac Institutional Bank and is intended for information purposes only. It is not intended to reflect any recommendation or financial advice and investment decisions should not be based on it. This information does not constitute an offer, a solicitation of an offer, or an inducement to subscribe for, purchase or sell any financial instrument or to enter into a legally binding contract. To the extent that this information contains any general advice, it has been prepared without taking into account your objectives, financial situation or needs and before acting on it you should consider the appropriateness of the advice. Certain types of transactions, including those involving futures, options and high yield securities give rise to substantial risk and are not suitable for all investors. We recommend that you seek your own independent legal or financial advice before proceeding with any investment decision. This information may contain material provided by third parties. While such material is published with the necessary permission none of Westpac or its related entities accepts any responsibility for the accuracy or completeness of any such material. Although we have made every effort to ensure this information is free from error, none of Westpac or its related entities warrants the accuracy, adequacy or completeness of this information, or otherwise endorses it in any way. Except where contrary to law, Westpac Group intend by this notice to exclude liability for this information. This information is subject to change without notice and none of Westpac or its related entities is under any obligation to update this information or correct any inaccuracy which may become apparent at a later date. This information may contain or incorporate by reference forward-looking statements. The words “believe”, “anticipate”, “expect”, “intend”, “plan”, “predict”, “continue”, “assume”, “positioned”, “may”, “will”, “should”, “shall”, “risk” and other similar expressions that are predictions of or indicate future events and future trends identify forward-looking statements. These forward-looking statements include all matters that are not historical facts. Past performance is not a reliable indicator of future performance, nor are forecasts of future performance. Whilst every effort has been taken to ensure that the assumptions on which any forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from any forecasts.
Conflicts of Interest: In the normal course of offering banking products and services to its clients, the Westpac Group may act in several capacities (including issuer, market maker, underwriter, distributor, swap counterparty and calculation agent) simultaneously with respect to a financial instrument, giving rise to potential conflicts of interest which may impact the performance of a financial instrument. The Westpac Group may at any time transact or hold a position (including hedging and trading positions) for its own account or the account of a client in any financial instrument which may impact the performance of that financial instrument.
Author(s) disclaimer and declaration: The author(s) confirms that no part of his/her compensation was, is, or will be, directly or indirectly, related to any views or (if applicable) recommendations expressed in this material. The author(s) also confirms that this material accurately reflects his/her personal views about the financial products, companies or issuers (if applicable) and is based on sources reasonably believed to be reliable and accurate.
Further important information regarding sustainability-related content: This material may contain statements relating to environmental, social and governance (ESG) topics. These are subject to known and unknown risks, and there are significant uncertainties, limitations, risks and assumptions in the metrics, modelling, data, scenarios, reporting and analysis on which the statements rely. In particular, these areas are rapidly evolving and maturing, and there are variations in approaches and common standards and practice, as well as uncertainty around future related policy and legislation. Some material may include information derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. There is a risk that the analysis, estimates, judgements, assumptions, views, models, scenarios or projections used may turn out to be incorrect. These risks may cause actual outcomes to differ materially from those expressed or implied. The ESG-related statements in this material do not constitute advice, nor are they guarantees or predictions of future performance, and Westpac gives no representation, warranty or assurance (including as to the quality, accuracy or completeness of the statements). You should seek your own independent advice.
Additional country disclosures:
Australia: Westpac holds an Australian Financial Services Licence (No. 233714). You can access Westpac’s Financial Services Guide here or request a copy from your Westpac point of contact. To the extent that this information contains any general advice, it has been prepared without taking into account your objectives, financial situation or needs and before acting on it you should consider the appropriateness of the advice.
New Zealand: In New Zealand, Westpac Institutional Bank refers to the brand under which products and services are provided by either Westpac (NZ division) or Westpac New Zealand Limited (company number 1763882), the New Zealand incorporated subsidiary of Westpac ("WNZL"). Any product or service made available by WNZL does not represent an offer from Westpac or any of its subsidiaries (other than WNZL). Neither Westpac nor its other subsidiaries guarantee or otherwise support the performance of WNZL in respect of any such product. WNZL is not an authorised deposit-taking institution for the purposes of Australian prudential standards. The current disclosure statements for the New Zealand branch of Westpac and WNZL can be obtained at the internet address www.westpac.co.nz .
Singapore: This material has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (as defined in the applicable Singapore laws and regulations) only. Recipients of this material in Singapore should contact Westpac Singapore Branch in respect of any matters arising from, or in connection with, this material. Westpac Singapore Branch holds a wholesale banking licence and is subject to supervision by the Monetary Authority of Singapore.
U.S.: Westpac operates in the United States of America as a federally licensed branch, regulated by the Office of the Comptroller of the Currency. Westpac is also registered with the US Commodity Futures Trading Commission (“CFTC”) as a Swap Dealer, but is neither registered as, or affiliated with, a Futures Commission Merchant registered with the US CFTC. The services and products referenced above are not insured by the Federal Deposit Insurance Corporation (“FDIC”). Westpac Capital Markets, LLC (‘WCM’), a wholly-owned subsidiary of Westpac, is a broker-dealer registered under the U.S. Securities Exchange Act of 1934 (‘the Exchange Act’) and member of the Financial Industry Regulatory Authority (‘FINRA’). This communication is provided for distribution to U.S. institutional investors in reliance on the exemption from registration provided by Rule 15a-6 under the Exchange Act and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors in the United States. WCM is the U.S. distributor of this communication and accepts responsibility for the contents of this communication. Transactions by U.S. customers of any securities referenced herein should be effected through WCM. All disclaimers set out with respect to Westpac apply equally to WCM. If you would like to speak to someone regarding any security mentioned herein, please contact WCM on +1 212 389 1269. Investing in any non-U.S. securities or related financial instruments mentioned in this communication may present certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the SEC in the United States. Information on such non-U.S. securities or related financial instruments may be limited. Non-U.S. companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in effect in the United States. The value of any investment or income from any securities or related derivative instruments denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related derivative instruments.
The author of this communication is employed by Westpac and is not registered or qualified as a research analyst, representative, or associated person of WCM or any other U.S. broker-dealer under the rules of FINRA, any other U.S. self-regulatory organisation, or the laws, rules or regulations of any State. Unless otherwise specifically stated, the views expressed herein are solely those of the author and may differ from the information, views or analysis expressed by Westpac and/or its affiliates.
UK and EU: The London branch of Westpac is authorised in the United Kingdom by the Prudential Regulation Authority (PRA) and is subject to regulation by the Financial Conduct Authority (FCA) and limited regulation by the PRA (Financial Services Register number: 124586). The London branch of Westpac is registered at Companies House as a branch established in the United Kingdom (Branch No. BR000106). Details about the extent of the regulation of Westpac’s London branch by the PRA are available from us on request.
Westpac Europe GmbH (“WEG”) is authorised in Germany by the Federal Financial Supervision Authority (‘BaFin’) and subject to its regulation. WEG’s supervisory authorities are BaFin and the German Federal Bank (‘Deutsche Bundesbank’). WEG is registered with the commercial register (‘Handelsregister’) of the local court of Frankfurt am Main under registration number HRB 118483. In accordance with APRA’s Prudential Standard 222 ‘Association with Related Entities’, Westpac does not stand behind WEG other than as provided for in certain legal agreements (a risk transfer, sub-participation and collateral agreement) between Westpac and WEG and obligations of WEG do not represent liabilities of Westpac.
This communication is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. This communication is not being made to or distributed to, and must not be passed on to, the general public in the United Kingdom. Rather, this communication is being made only to and is directed at (a) those persons falling within the definition of Investment Professionals (set out in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”)); (b) those persons falling within the definition of high net worth companies, unincorporated associations etc. (set out in Article 49(2)of the Order; (c) other persons to whom it may lawfully be communicated in accordance with the Order or (d) any persons to whom it may otherwise lawfully be made (all such persons together being referred to as “relevant persons”). Any person who is not a relevant person should not act or rely on this communication or any of its contents. In the same way, the information contained in this communication is intended for “eligible counterparties” and “professional clients” as defined by the rules of the Financial Conduct Authority and is not intended for “retail clients”. Westpac expressly prohibits you from passing on the information in this communication to any third party.
This communication contains general commentary, research, and market colour. The communication does not constitute investment advice. The material may contain an ‘investment recommendation’ and/or ‘information recommending or suggesting an investment’, both as defined in Regulation (EU) No 596/2014 (including as applicable in the United Kingdom) (“MAR”). In accordance with the relevant provisions of MAR, reasonable care has been taken to ensure that the material has been objectively presented and that interests or conflicts of interest of the sender concerning the financial instruments to which that information relates have been disclosed.
Investment recommendations must be read alongside the specific disclosure which accompanies them and the general disclosure which can be found here. Such disclosure fulfils certain additional information requirements of MAR and associated delegated legislation and by accepting this communication you acknowledge that you are aware of the existence of such additional disclosure and its contents.
To the extent this communication comprises an investment recommendation it is classified as non-independent research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and therefore constitutes a marketing communication. Further, this communication is not subject to any prohibition on dealing ahead of the dissemination of investment research.