ESG Impact: 5 themes and developments to watch in 2024
Welcome to the first ESG Impact for 2024, which looks set to be an eventful year for climate policy. We’ve compiled a list of five key Australia-based ESG policy changes, standards and regulations to keep on your radar for the year ahead and what they’re likely to mean for you.
Australia gears up for climate reporting
Climate-related disclosure will be a key theme of 2024 with the Government releasing draft legislation for its mandatory climate reporting framework earlier this month, and comments due by 9 February.
The Australian Accounting Standards Board (AASB) also released its exposure draft of three proposed Australian Sustainability Reporting Standards (ASRS) in October last year and comments are due by 1 March. Under the draft exposure, entities subject to mandatory climate-related financial disclosure would be phased in three groups over a four-year period.
Why does it matter?
Companies that meet certain thresholds are already required to report their emissions under the National Greenhouse and Energy Reporting (NGER) Act, which has been in place since 2007. However, the proposed standards bring further expectations and complexity around mandatory reporting.
While many companies are currently capturing their climate emissions data, the numbers are historical and are not always accompanied by strong targets and plans for emissions reduction.
The ASRS Standards signal the Australian Government’s commitment to improving the quality of climate-related financial disclosures. They aim to provide the users of general-purpose financial reports with a complete set of climate-related financial disclosures. This will give investors more transparent, comparable information about an entity’s exposure to climate-related financial risks and opportunities.
Sectoral decarbonisation plans in the pipeline
With consultation on the Federal Government’s proposed sectoral decarbonisation plans closing in December, sector-specific guidelines are expected to be finalised this year. Plans are expected to be developed for six sectors:
- Electricity and energy
- Industry (including waste)
- The built environment
- Agriculture and land
- Transport
- Resources
The plans are based on sectoral pathways that are currently being developed by the Climate Change Authority and the circular economy will be a focus. They present a roadmap towards achieving net-zero and will help to inform Australia’s 2035 emissions targets.
The review of the decarbonisation pathways will be delivered by 1 August 2024. The Climate Change Authority is currently developing advice on Australia’s 2035 emissions reduction targets, which are due to government no earlier than 1 October 2024.
Why does it matter?
While global organisations such as the International Energy Agency (IEA) have released emissions reduction pathways and scenarios for sectors, Australian companies have had limited decarbonisation plans specific to their local context.
The proposed plans will include policy actions and technology investments to enable sectors to contribute to the government’s overall climate targets.
They are also expected to assist organisations across the six sectors to map their own decarbonisation targets against specific scenarios, while helping to guide business strategy and climate-related financial disclosures.
Sectoral decarbonisation plans may also stimulate investment. Addressing the Clean Energy Council in July last year, Australia’s Minister for Climate Change and Energy Chris Bowen noted that investors have advised that “government-guided sectoral plans are vital for attracting billions in new investment in decarbonisation in Australia”.
Carbon tariff may reach the border
A Carbon Border Adjustment Mechanism (CBAM) is on the cards with findings of Australia’s Carbon Leakage Review expected to be released in September this year.
Led by Australian National’s University’s Professor Frank Jotzo, the review explores the feasibility of a CBAM, with a particular focus on steel and cement. A tool that enables the application of a ‘carbon tariff’ to certain imports from overseas, a CBAM could level the playing field for domestic manufacturers subject to the new safeguard mechanism.
Introduced in July last year, the safeguard mechanism requires companies that emit more than 100,000 tonnes of carbon a year to reduce their carbon footprint by almost 5 per cent a year to 2030.
Why does it matter?
A CBAM would introduce emissions reduction standards to the supply chains of the most emissions-intensive industries and aims to prevent the offshoring of decarbonisation requirements under the Safeguard Mechanism.
Consideration of a CBAM for Australia follows the lead of the EU, where the transitional phase of a similar mechanism started in October last year. The EU’s CBAM is largely aimed at addressing the challenge of carbon leakage, which occurs when companies move carbon-intensive production to countries with less stringent climate policies.
In Australia, a CBAM may help to protect carbon-intensive industries from imports that aren’t subject to the Safeguard Mechanism. The current assessment of a CBAM feasibility includes the impact on Australia’s trading partners, as well as issues relating to the measurement of emissions embedded in traded goods. It also explores the legislative and administrative requirements for a CBAM’s establishment and ongoing operation.
New standards to hit the road
Standards for Australian vehicles are expected to accelerate in 2024. A draft of new fuel efficiency standards, which will apply to new vehicles sold in Australia, is currently in the works, and the Federal Government is also introducing new fuel quality and noxious emission standards aimed at saving AUD 6.1 billion in health and fuel costs by 2040.
Drivers of electric vehicles can also expect more opportunities to charge their engines, with the Government’s Driving The Nation Fund including AUD 39.3 million to help deliver 117 EV chargers on key highway routes across the country at an average interval of 150kms.
The Fund also includes up to AUD 80 million co-invested with state and territory governments to roll out hydrogen refuelling networks on key freight routes. The aim is to help decarbonise heavy transport across Australia.
Why does it matter?
In 2022, Australia’s transport sector made up almost 20 per cent of the country’s carbon emissions. Without intervention, it is projected to be our largest source of emissions by 2030.
Increasing the number of EV charging stations will be welcomed by EV drivers this year and may also help to remove barriers to take-up. In 2022, EVs represented less than 4 per cent of new car sales in Australia, and the country continues to lag behind others in EV sales.
Taxonomy on the horizon
Australian corporations have been asking for a sustainable finance taxonomy for some time, and this year they’ll have a chance to share their thoughts on two proposed methodologies.
In December, the Australian Sustainable Finance Institute published its two methodology papers, which outline the design features of the proposed Australian sustainable finance taxonomy.
The first methodology report defines the labels “green” and “transition” and outlines how sectors and activities will be assessed for inclusion in the Australian taxonomy. The second considers the classification of other environmental objectives and social considerations in the taxonomy through a lens of “Do No Significant Harm” and “Minimum Social Safeguards”. This will help to ensure that green and transition activities to support climate change mitigation do not undermine Australia’s other sustainability goals.
Public consultations are expected to kick off in the second quarter of this year.
Why does it matter?
A taxonomy enables financial institutions to better support a more sustainable and climate resilient economy by establishing a set of criteria and transparent, credible, comparable standards.
Similar standards already exist in places like the EU, the UK and Canada to help the transition to net-zero by 2050.
An Australian sustainable finance taxonomy will help organisations to report on clearly defined green and transition activities related to their projects. This may not only assist them in securing financial support but may also limit greenwashing risks in how they label emission-reduction initiatives.
Aligning capital allocation and investments with sustainable goals is crucial along the pathway to net-zero. An Australian taxonomy will support this and there’s no time to waste.
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