ESG Impact: What you need to know - October 2024
Welcome to your Westpac IQ monthly wrap on sustainable finance and ESG. Here’s the latest round-up of the standout ESG developments making the headlines, from industry highlights to policy updates. Why do they matter? What do they mean for you?
With consortiums seeking to boost local sustainable fuel production, could low-carbon liquid fuels present a strong export opportunity for Australia? Westpac IQ’s ESG Impact explores landmark investments in sustainable fuels, the mining sector’s latest advances in heavy electric vehicles, the closure of the UK’s last coal-fired power plant, IEA’s 2024 World Energy Outlook, along with the launch of the Taskforce on Inequality and Social-related Financial Disclosures.
INDUSTRY
Investment boost for sustainable fuels
Sustainable fuel production has received a funding boost with AUD 9 million from ARENA and AUD 5 million from Queensland’s Department of State Development and Infrastructure for Jet Zero Australia’s sustainable aviation fuel (SAF) project in Townsville. This marks the first funding announcement from ARENA’s AUD 30 million SAF initiative since its launch in July 2023.
The project uses technology supplied by US-founded SAF developer Lanzajet and is supported by partners and investors such as Qantas, Airbus and Idemitsu Kosan. It aims to convert ethanol derived from agricultural waste into 110 million litres of low-carbon liquid fuels such as SAF and renewable diesel each year.
Why does it matter?
Domestic aviation accounts for about 2 per cent of Australia’s GHG emissions and modelling suggests that the use of SAF could reduce domestic aviation carbon emissions by 70 per cent. However, while SAF may help to decarbonise the hard-to-abate aviation industry, CSIRO notes that the current limited global production means demand will surpass supply.
With vast land areas and a strong agricultural sector, Australia is in a strong position to leverage bioenergy development opportunities. These advantages are enhanced by several measures announced in the 2024-2025 Federal Budget to support a domestic Low Carbon Liquid Fuel industry. Boosting production in Australia not only presents an export opportunity but could also address renewable energy challenges across a range of industries. ARENA’s bioenergy roadmap report suggests that by the next decade, the bioenergy sector could contribute AUD 10 billion to GDP annually and create 26,200 jobs.
Various consortiums are currently seeking to increase biofuel supply in Australia. Examples include Rio Tinto’s partnership with Midway Limited to oversee the planting and management of the oil-rich Australian native Pongamia seed farms in its exploration of potential biofuels. Ampol, GrainCorp, and IFM Investors have also signed a Memorandum of Understanding to explore the use of homegrown feedstocks like canola oil and to evaluate the feasibility of establishing a renewable fuels facility at Ampol’s Lytton Refinery.
Miners charge ahead with heavy EVs
The mining sector is accelerating advancements in heavy electric vehicles. BHP will be the first customer to trial Caterpillar’s Cat Dynamic Energy Transfer (DET) system, which powers diesel electric and battery electric large mining trucks on-site and charges electric haul trucks while the machine is on the move. Fortescue has signed a USD 2.8 billion green equipment partnership with Liebherr which includes 475 zero emission machines. Fortescue also developed a 6MW EV fast charger to charge the autonomous T 264 battery-electric truck in 30 minutes.
Why does it matter?
Based on the latest Sector Pathways Review by the Climate Change Authority (CCA), the transport sector is currently projected to be Australia’s largest source of emissions by 2030. CCA data from 2022 shows heavy vehicle transport is the second largest source of emissions behind cars, making up 24 per cent of total transport emissions in Australia.
The announcements from BHP and Fortescue mark major progress for heavy electric vehicles, which have faced challenges due to their size and the time they take to charge. BHP’s trial may address this obstacle by allowing electric haul trucks to be charged while on the move. Meanwhile, Fortescue’s newly developed stationary EV fast charger will greatly reduce the current challenges of long charge times. It signals a further step in the mining giant’s ambitious goal of reaching “real zero” in terrestrial emissions (Scope 1 and 2) by 2030.
Developments in coal-fired power plants
The UK's 142-year history of coal-fired electricity came to end last month with the closure of its last coal plant, the Ratcliffe-on-Soar station in central England. The station's German owner, Uniper, plans to redevelop the site into a carbon-free technology and energy hub.
Coal-fired power stations are continuing to evolve closer to home with AGL General Manager for Bayswater-Liddell Stations Len McLachlan’s recent announcement of the company’s successful completion of a two-shift trial, which involves taking a unit offline and bringing it back online within a 12-hour period. The idea for the trial was sparked after AGL’s visit to the now closed Ratcliffe-on-Soar station.
Why does it matter?
The UK may be the birthplace of the industrial revolution, but it’s now a leader in decarbonisation. The contribution of coal to the UK’s electricity mix fell from almost 40 per cent in 2012 to just one per cent by 2023.
Coal continues to supply just over one third of global electricity generation, despite being the most carbon-intensive fossil fuel. While the International Energy Agency’s Net Zero Emissions by 2050 Scenario envisions that all unabated coal generation ends by 2040, global CO2 emissions from coal-fired power plants reached a new high in 2022.
Australia’s coal-fired generators are ageing and are flagged to close in the near future. In the meantime, however, energy giants like AGL are seeking new ways to manage their coal-fired assets more efficiently. Its two-shift initiative could potentially mitigate both supply and price volatility caused by the growing solar duck curve. If two-shifting capabilities are successfully rolled out across coal-fired generators, it could help to address many pressing efficiency challenges in the industry, including solar curtailment, where solar farms are forced to switch down when prices turn negative. Such flexible management of coal-fired stations may provide a boost to solar generation.
POLICY
IEA releases World Energy Outlook for 2024
The International Energy Agency’s annual World Energy Outlook explores the biggest trends in energy demand and supply and what they mean for energy security, emissions and economic development. This year’s report focuses on issues such as energy security concerns caused by geopolitical tensions and market fragmentation, as well as near-term uncertainty due to elections being held in 2024 in countries that represent half of global energy demand.
Progress on the clean energy transition is also an area of focus in the report, which notes a record high of 560 GW of new renewable power capacity came online globally in 2023. Recent years have also seen a significant price reduction for many clean energy technologies. While approximately USD 2 trillion is expected to be invested in clean energy in 2024 – almost double the amount invested in fossil fuel – the total global energy demand rose by 2 per cent in 2023, with two-thirds of the overall increase met by fossil fuels.
Why does it matter?
The IEA’s World Energy Outlook report provides a comprehensive overview of the state of play for the global energy transition. Based on the world’s current progress, it provides updated scenarios and recommendations for policymakers and investors to focus decarbonisation efforts.
With energy security a key focus of this year’s report, it highlights the importance of access to affordable energy supplies, as well as the need to anticipate emerging risks in the electricity sector and to shore up supply chains for clean energy technologies and the critical minerals required to make them. A broad approach to energy security is required beyond traditional fuel sources, which highlights the link between energy security and climate action. The IEA stresses a need for policymakers to find the right balance between energy security, affordability and sustainability.
New taskforce highlights material risk of social inequality
The Taskforce on Inequality and Social-related Financial Disclosures (TISFD) launched last month with the aim of helping corporates and financiers measure and disclose inequality and social-related impacts, dependencies, risks and opportunities. Following on from the Task Force on Climate-related Financial Disclosures and the Taskforce on Nature-related Financial Disclosures, the TISFD’s goal is to highlight social inequality as a material risk and encourage more equitable and resilient societies and economies. The taskforce also aims to seize the significant opportunities that result from building fairer, stronger economies and societies. It intends to provide a framework that is aligned with international standards on business conduct and integrated with reporting standards.
Why does it matter?
The TISFD highlights the link between climate and nature-related risks and rising inequality. The latest United Nations Development Programme data tracking human development over the past 30 years indicates that inequality is increasing and that, as climate change disproportionately affects the poorest regions and people, it can exacerbate inequalities that already exist. International Monetary Fund research also presents the potential for climate change to reverse the gains of the past few decades and cause inequality between countries to rise again. It notes that “people with the lowest incomes are the most likely to depend for their survival on resources provided by nature”.
WESTPAC IN ACTION
Westpac backs climate-focused investment fund
Australian climate tech-focused fund Virescent Ventures has completed an AUD 100 million first close of its second climate technology investment fund with the backing of cornerstone investors Westpac and the Clean Energy Finance Corporation (CEFC). The fund seeks to build on the success of Virescent’s first portfolio, managed on behalf of the CEFC, which has seen more than AUD 270 million deployed across 34 Australian climate tech investments. Westpac’s support for the new Virescent fund aligns with its aim to identify and support Australia’s clean-tech innovators. Read more about how Virescent, with support from Westpac, is empowering climate tech innovators here.
Australia’s outlook for offshore wind
The Australian Financial Review’s Energy & Climate Summit, held this month, focused on progress, opportunities and challenges along the country’s pathway to net-zero. Westpac was a Platinum sponsor of the event and featured an article exploring the potential for offshore wind in Australia as well as the requirements for fine-tuning a business model for a viable offshore wind sector in Australia.
Westpac IQ has also published an infographic on building momentum for Australia's offshore wind industry, which you can access here.
Inside Westpac’s decarbonisation challenge
Westpac’s climate journey stretches back to the 1990s when it became the first bank to join the Australian Greenhouse Challenge. In this Westpac IQ article, Ceri Binding, Westpac’s Head of Utilities and Direct Environment, and Tim Parker, Director of ESG, Westpac Institutional Bank, share the bank’s major operational decarbonisation achievements and challenges, and its increasing support of the net-zero transition through impactful sustainable finance deals. Read the full story here.
Flinders Port Holdings (Sustainability-Linked Loan):
Flinders Port Holdings (FPH) established its inaugural Sustainability-Linked Loan and Framework, tackling sustainability issues that are relevant and material to both FPH and the wider maritime-port sector. FPH’s commitments include reducing absolute Scope 1 and 2 emissions; accelerate Scope 3 initiatives; increasing gender diversity across several measures and achieving Tier 2 accreditation with Mental Health First Aid over the course of the SLL. Westpac was Joint Sustainability Coordinator for FPH’s Framework and the inaugural SLLs.
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