ESG Impact: What you need to know - September 2024
Australia’s transition journey looks a little clearer with the release of the Climate Change Authority’s Sector Pathways Review. Westpac IQ’s ESG Impact explores the report’s highlights, and examines the Federal Government’s updated National Hydrogen Strategy and the latest on corporate transition progress from the Transition Pathway Initiative’s recent report.
POLICY
Laying foundations for the energy transition
The Climate Change Authority has released its Sector Pathways Review, which outlines potential technology transition and emissions pathways for six sectors – electricity and energy, transport, industry and waste, agriculture and land, resources and the built environment.
Commissioned by the Australian Parliament with modelling by the CSIRO, it identifies barriers as well as potential strategies and actions to address them, such as overcoming the ‘green premium’ through policy interventions.
While it finds some sectors can achieve emissions reductions with mature technologies, such as solar and wind for electricity generation and batteries for energy storage, others rely on the rapid development of emerging low-emissions technologies, such as hydrogen and engineered carbon removal.
Why does it matter?
The Sector Pathways Review lays the foundations required for Australia’s ongoing energy transition and is the first report to outline a detailed view on what Australia needs to do to achieve its 43 per cent emissions reduction target by 2030. It emphasises the interdependencies between sectors and the need for collaboration between decision-makers within governments, sectors, businesses and communities.
The report highlights a need to accelerate the deployment of mature zero- and low-emissions technologies, while rapidly developing and commercialising emerging technologies. Effective policy measures will be required to overcome barriers such as an unwillingness to pay the ‘green premium’. Importantly, it finds that using existing technologies is far more efficient and effective than waiting for bigger breakthroughs to accelerate the net-zero transition, noting that “waiting for new, better, cheaper technologies is tantamount to choosing to continue to emit”.
Hydrogen strategy in the spotlight
The Federal Government aims to position Australia as a world leader in the production and export of hydrogen with the release of its National Hydrogen Strategy, which focuses on accelerating clean hydrogen industry growth. The National Hydrogen Strategy’s vision is: “A clean, innovative, safe and competitive hydrogen industry that benefits Australia’s communities and economy, enables our net zero transition, and positions us as a major global player.”
The four objectives identified to help achieve this vision are global cost competitive supply, supported by the Hydrogen Production Tax Incentive and the Hydrogen Headstart Program, demand and decarbonisation, community benefit and trade, investment and partnerships, which includes securing supply chains and setting a 2030 base and stretch export target.
Why does it matter?
The strategy notes that the global hydrogen market is forecast to reach USD 1.4 trillion in 2050 and that Australia should be positioned to capture significant economic opportunities. It also outlines how hydrogen may support Australia’s emissions reduction goals and outlines production targets that could help to avoid emissions of between 93 million tonnes and 186 million tonnes of CO2 per year by 2050.
It also addresses barriers, such as the current high cost of renewable hydrogen production, but notes that focusing on large-scale export and manufacturing industries will help to bring down the cost of producing renewable hydrogen in Australia.
INDUSTRY
Companies focusing on transition
The share of large corporate emitters with long-term climate targets is on the rise globally, with Transition Pathway Initiative’s (TPI) State of Transition Report 2024 revealing that 30 per cent have targets aligned with limiting the global average temperature increase to 1.5°C above pre-industrial levels by 2050.
This figure is up from 7 per cent in 2020, however the report notes that the credibility of long-term climate ambitions is often unclear. The Carbon Performance Assessment is based on current and future planned emissions of 409 companies against international climate targets and national climate pledges.
The report also assesses the quality of carbon management and governance of more than 1,000 of the world’s highest-emitting public companies. It finds 57% of these companies have at a minimum, recognised climate change as a relevant business risk and/or opportunity, developed a policy commitment to act, set quantified targets to reduce greenhouse gas emissions in relative or absolute terms, and disclosed their Scope 1 and 2 emissions. A further 26% have also tied climate change performance to senior executive remuneration, incorporated climate change risks and opportunities into their strategies and undertaken climate scenario planning.
Why does it matter?
With an increased focus on how companies are managing the climate transition, particularly from banks and investors, the Transition Pathway Initiative provides an independent perspective on the progress being made in establishing high-quality transition plans.
Closer to home, assistance with best-practise guidance on transition plan disclosures is underway via the Australian Federal Government’s Sustainable Finance Roadmap, released in June. Under the priority to support net-zero transition planning, Treasury will undertake consultation in late 2024-early 2025 ahead of publishing guidance on best practice transition plan disclosures before the end of 2025.
Company leaders are optimistic about the potential for effective climate action, with results of the Deloitte 2024 CxO Sustainability Report showing that each surveyed Australian executive believes their company can continue to grow while reducing greenhouse gas emissions.
WESTPAC IN ACTION
Boost for sustainable bonds
Australia’s sustainable bond market is continuing to mature with Westpac partnering with organisations on a series of deals recently, including partnering with the South Australian Government Financing Authority (SAFA) on a third issuance under its innovative Sustainability Bond Framework.
The framework was launched in November 2023 and sets out how SAFA’s borrowings can be used by the state government to fund services and infrastructure that drive positive environmental and social outcomes.
Westpac is also a proud partner of NBN Co’s AUD 750 million, seven-year green bond, which will enable the ongoing deployment of more energy efficient digital infrastructure across Australia. The nation’s wholesale broadband provider, NBN Co, is raising finance to support its purpose of lifting the country’s digital capability and supports the Federal Government’s commitment to achieving net-zero emissions.
Export Finance Australia has mandated Westpac as a Joint Sustainability Advisor to establish a sustainable finance framework. Export Finance Australia is the Australian Government's export credit agency. Export Finance Australia provides commercial finance to SMEs, corporates and governments for export trade and overseas infrastructure development that delivers benefits to Australia. Notes issued by Export Finance Australia are explicitly and unconditionally guaranteed by the Commonwealth of Australia.
Westpac teams up with AFR Energy and Climate Summit
Does Australia have the policy frameworks required to foster investment in the transition to a low-carbon economy? Will the Future Made in Australia policy boost clean industries? And what does the future look like for hydrogen in Australia? These are some of the questions to be explored during the AFR Energy and Climate Summit, which will be held on 21 and 22 October at Hilton Sydney.
Westpac is a Platinum sponsor of the event and David Scrivener, Head of Energy, Infrastructure & Resources, Westpac Institutional Bank, will join a panel discussion on the ‘big picture’ of the energy transition, discussing topics such as Australia’s net-zero challenges, workforce obstacles and identifying the country’s energy superpower potential
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