ESG Impact: What you need to know - April 2024
This month we report on the looming deadline for large corporations and asset managers to prepare for mandatory climate reporting in Australia, Queensland’s new legislation with ambitious targets for carbon emissions and renewable energy, plus the faster focus on nature-based that’s coming from corporates and government, and more.
Policy
Deadline extension for climate reporting
Large companies (Group 1 entities) will have an extra six months to prepare for the proposed mandatory climate disclosures with the start date for reporting now planned for 1 January 2025, rather than 1 July this year.
The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill was introduced into Parliament on 27 March 2024, and, with the exception of the proposed timeline, it mostly aligns with the draft legislation released in January.
Why does it matter?
Mandatory climate reporting represents an important reform for Australia’s business sector and is expected to provide the transparency that many stakeholders have been calling for. But it is not expected to not be easy. There are significant challenges for companies to navigate, with organisations like the Business Council of Australia and the Australian Council of Superannuation Investors campaigning for the delayed kick off.
The legislation is still required to pass through parliament. However, even with the proposed six-month extension, companies face a tight timeline in finalising their strategy for identifying and addressing climate-related financial risks and opportunities.
Upskilling may be required for companies to meet their reporting requirements and, as their data will need to be assured, the government calls on the Auditing and Assurance Standards Board (AUASB) to develop the requisite auditing standards. With less than 12 months to the proposed start date, there is much preparation to be done.
Sunshine State boosts efforts to tackle climate change
The Queensland Government passed two key pieces of legislation this month to address climate change. The Clean Economy Jobs Act 2024 and the Energy (Renewable Transformation and Jobs) Act 2024 have locked in renewable energy generation targets to support 100,000 new jobs in areas including manufacturing, renewable energy generation and power transmission.
An emissions reductions target of 75 per cent by 2035 has also been entrenched in law, and three renewable energy targets – 50 per cent renewable energy by 2030, 70 per cent by 2032 and 80 per cent by 2035 – have been locked in. A world-first AUD 150 million of guaranteed financial support has also been introduced as part of the Job Security Guarantee to upskill and support workers.
Why does it matter?
Along with its ambitious transition targets, the Queensland Government’s Job Security Guarantee paves the way to addressing just-transition concerns for those likely to experience the greatest impact of the climate transition. Queenslanders working in a publicly owned power station or relevant coal mine will be given opportunities for training and financial security as part of the transition.
As policymakers across Australia and the globe continue to sharpen their focus on climate change, just transition considerations will be vital to ensuring that those most affected by the energy transition are supported and do not bear the cost of change.
Corporate
Green hydrogen manufacturing launches
Australia’s first commercial-scale hydrogen electrolyser manufacturing facility opened this month at Fortescue’s 100 hectare Gladstone site. The 2GW facility will produce proton exchange membrane (PEM) electrolyser stacks that have been developed in-house by Fortescue teams in Australia and the US.
The development of the site was supported by the Queensland Government through the provision of an electrical substation, road network, communications and local scheme water connection, as well as the allocation of land. The Federal Government also contributed AUD 44 million from the Collaboration Stream of the Modern Manufacturing Initiative.
The facility is the first stage of a wider Green Energy Manufacturing Centre being developed by Fortescue in Gladstone. The company has also received approval to build a 50 MW green hydrogen production facility at the site.
Why does it matter?
Australia’s high hopes for a hydrogen industry have been off to a slow start, but Fortescue’s announcement may pave the way for further green hydrogen investments.
Green hydrogen has long promised to support the decarbonisation of hard-to-abate domestic sectors and assist in the creation of new industries, such as domestic green steelmaking, and the 2019 National Hydrogen Strategy positions Australia as a significant global supplier of green hydrogen by 2030. The South Australian government has also committed half a billion dollars to the Hydrogen Jobs Plan to build hydrogen power plant, electrolyser and storage facility near Whyalla by early 2026.
However, unclear potential for future contracts, high upfront capital expenditure and gaps in planning and policy continue to present obstacles. According to energy consultancy Wood Mackenzie, Australia has the second least comprehensive hydrogen policy framework of the world’s 16 largest hydrogen jurisdictions.
The recently announced Future Made in Australia Act seeks to enhance development of clean energy projects. Treasury’s announcement alludes to more opportunities for green hydrogen, but details are yet to emerge.
Qantas introduces a Nature Action Plan
More companies are turning their attention to nature-related risks and opportunities with Qantas launching a Nature Action Plan that outlines its commitment to address nature and biodiversity loss.
Highlights include an AUD 10 million investment over 10 years in the Reef Restoration Fund to support scientists, traditional owners and local tourism operators to restore corals across the Great Barrier Reef and other iconic Australian coral reefs. The airline has also committed to publishing disclosures aligned to the Taskforce on Nature-related Financial Disclosures (TNFD) by the middle of next year.
The increased focus on nature in the corporate world follows the release of the TNFD’s final framework in September last year. The ground-breaking Kunming-Montréal Global Biodiversity Framework, signed by 188 countries at the UN Biodiversity Conference in December 2022, also casts a brighter light on biodiversity loss and sends a powerful message for companies to begin tracking and disclosing biodiversity-related information.
Why does it matter?
The business sector is becoming more aware of the economic value of biodiversity with the World Economic Forum estimating more than half of the world’s GDP is moderately or highly dependent on nature. Ecosystems sequester carbon and there is a growing recognition that the emissions-reduction targets of governments and corporations cannot be achieved without nature-based solutions.
Like Qantas, companies such as Lendlease, Barrick Gold and property group GPT have nature and biodiversity as a core element of their sustainability goals. The Australian Government’s TNFD Pilots – Australian Case Study Report is also encouraging many companies to begin assessing the impacts and dependencies that their operations have on nature.
Earlier this month, the Government announced plans to progress the second stage of its Nature Positive Plan, including the establishment of two new bodies, the independent national Environment Protection Australia and Environment Information Australia (EIA).
Australia’s emissions-reduction targets are highly dependent on investment into renewables, and the second stage of the Nature Positive Plan includes an AUD 100 million commitment in resources to enable faster environmental approvals. The establishment of the EIA and the subsequent provision of nature-related data information is also expected to help in assessing nature-related risks and opportunities.
While some components of the Nature Positive Act have been delayed, we expect the focus on biodiversity to grow as more companies look to the TNFD to track and disclose risks and impacts on nature.
Westpac in Action
State of the carbon markets
How are carbon markets rising to the net-zero challenge? This question is the focus of a new carbon market report produced by the Carbon Market Institute (CMI) and supported by Westpac.
The report, Carbon Markets and Australia’s Net Zero Challenge, provides an analysis of the state of the carbon market and its contribution to net-zero targets. It explores how the Australian Carbon Credit Unit (ACCU) scheme is essential to meeting the Paris Agreement goals by helping to create a climate change policy ecosystem that encompasses and connects technology, capital and the community. However, regular health checks of the carbon market will be required to ensure it is operating in a way that best serves capital allocation and social benefit.
The report also notes that Australia is likely to become one of the largest producers of carbon credits in the world in the next decade, with ACCU demand forecast to peak at 31 million units in 2031. However, under a 1.5-degree scenario, it will require a significant boost of up to eight times the current level of land-based sequestration by 2050.
Related articles
ESG Impact: What you need to know - February 2024
Browse topics
Disclaimer
©2024 Westpac Banking Corporation ABN 33 007 457 141 (including where acting under any of its Westpac, St George, Bank of Melbourne or BankSA brands, collectively, “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.
Disclaimer
This information has been prepared by the Westpac 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.