ESG Impact: What you need to know - June 2025
This month’s ESG Impact newsletter explores the upfront carbon intensity of Australian homes, the launch of the Australian sustainable finance taxonomy, greater governance of the ‘blue economy’, the G7 Critical Minerals Action Plan, and more.
INDUSTRY
Upfront lower-emissions opportunity for housing
The Federal Government has committed to building another 1.2 million homes, but is there an opportunity to review how they will be constructed? A new report, reveals that the upfront carbon intensity (generated from building materials and construction processes) of Australian single-family detached dwellings outweigh their operating emissions when estimated over a 60-year life span.
Developed by the Green Building Council of Australia and TSA Riley with support from the CEFC, DevelopmentWA and Landcom, the report quantifies upfront carbon at around 1 tonne of CO2 equivalent per square metre for conditioned floor area (CFA), which equates to an average total of 185 tonnes of CO2 equivalent for a house. This compares with operational emissions of 24t CO2e over its lifetime – or less if powered by on-site solar and battery storage.
The report’s recommendations for government include committing to upfront carbon reduction benchmarks; government funding support for innovative low-carbon and circular materials; and championing medium-density planning for smaller homes. The report also encourages industry to reduce the size of new homes, simplify design and employ innovative construction techniques, such as modular elements, and choosing low-carbon and circular products.
Why does it matter?
Upfront carbon has received less policy and industry focus in Australia, despite being the single largest source of emissions in a typical new family home. While operational emissions can be reduced over time, upfront carbon is locked in at construction and its intensity is more than seven times greater.
While Australia requires new homes for our growing population, and the Federal Government’s National Housing Accord’s target aims to deliver 1.2 million homes by mid-2029, the report estimates that the construction of new homes could use 7–11 per cent of Australia’s total carbon budget between now and 2050.
Finding ways to reduce upfront carbon, whether through materials, design optimisation, construction methods, dwelling size or circular economy design, can have a significant impact on reducing the carbon intensity of housing for the future.
POLICY
Australian taxonomy for green investment
The Australian sustainable finance taxonomy was released this month for voluntary use and piloting with financial institutions, marking a step towards aligning investment with the nation’s net-zero ambitions.
A classification system that provides common definitions for sustainable economic activities, the taxonomy is a joint initiative between the Australian Government and finance sector and is a key component of the Government’s Sustainable Finance Roadmap. Led by the Australian Sustainable Finance Institute (ASFI), it provides a Paris Agreement aligned classification system for green and transition finance tailored to the local economic and environmental context.
Why does it matter?
The Australian sustainable finance taxonomy creates a common language for investors, issuers and regulators to identify and label green and transition finance assets and activities.
This provides the clarity required for mobilising capital to enable Australia’s transition to net zero. The taxonomy’s common definitions aim to strengthen investor confidence in low-emissions investment claims, reduce the risk of greenwashing and improve the comparability of investment products and sustainability disclosures.
As part of Westpac’s commitment to financing activities that contribute to positive sustainability outcomes across climate, environmental and social objectives, in September 2024 we released our Sustainable Finance Framework, which sets out how we assess, monitor, measure and report on sustainable lending and bond facilitation, along with the targets we are aiming to achieve.
Westpac is a participant in the Australian taxonomy implementation pilot, which also involves other major financial institutions. The pilot will run for several months to explore its practical applications, inform additional market guidance and provide an evidence base for refinement.
More guidance for the global blue economy
Responding to demand for more support from companies and financial institutions operating in the blue economy, the Taskforce on Nature-related Financial Disclosures (TNFD) has released additional ocean-related sector guidance for the fishing, marine transportation and cruise line industries. This includes practical steps to identify, assess and manage nature-related issues, such as dependencies on healthy fish populations for the fishing industry, and interactions with ecologically sensitive areas for the marine transportation and cruise line industries.
Release of the additional guidance in early June coincided with the UN Ocean Conference in Nice, which resulted in the Nice Ocean Action Plan, a two-part framework that comprises a political declaration and more than 800 voluntary commitments by governments, scientists, UN agencies and civil society. The conference also aimed to accelerate progress on the High Seas Treaty, which was adopted in 2023 to safeguard marine life in international waters. The treaty requires 60 ratifications and, as of this month, an additional 19 countries ratified the accord, bringing the total number to 50.
Why does it matter?
Climate change impacts the world’s oceans, which absorb 90 per cent of excess heat and around 25 per cent of the CO2 generated by the burning of fossil fuels.
A significant driver of global economic growth, the OECD estimates that if it were considered a country, the ocean economy would have equated to the world’s fifth-largest economy in 2019. The global ocean economy doubled in real terms in 25 years from USD 1.3 trillion of gross value in 1995 to USD 2.6 trillion in 2020, according to OECD data.
By strengthening ocean governance, enhancing ocean data collection, promoting technological innovation and ensuring the inclusion of developing countries in global value chains, policymakers can help to promote an economically vibrant and environmentally sustainable ocean economy for the future.
Australia has taken steps to protect the ocean economy, having committed to expanding marine protected areas with a focus on Indigenous-led sea country management, supporting a plastic pollution treaty to stem the flow of plastics into oceans and pledging AUD 50 million to the Fund for Responding to Loss and Damage to assist countries, particularly in the Pacific region, impacted by the climate crisis. And while Australia has signed the High Seas Treaty, ratification requires domestic legislation. This will be introduced in the spring sitting of Parliament this year.
New banking framework for disclosure of climate-related financial risks
The Basel Committee on Banking Supervision (BCBS) has released a voluntary framework for the disclosure of material climate-related financial risks. BCBS is the primary global standard and policy setter for the banking industry and its new voluntary framework aims to improve transparency and support risk management of climate-related exposures in the sector. The framework includes both qualitative and quantitative disclosure elements, and categories for disclosure include governance, strategy, risk management and metrics and targets.
Why does it matter?
The voluntary framework provides a global structure for banks and allows for benchmarking against international peers. It may also improve transparency in climate disclosures and allow for the identification of material financial risks. A framework for disclosure also promotes good risk management of material climate-related risks. While the framework is not mandatory, jurisdictions have been encouraged to consider its domestic implementation, and BCBS has incorporated a level of flexibility to account for the evolving quality and accuracy of climate-related data.
Action plan for critical minerals
G7 nations are sharpening their focus on critical minerals with the agreement of a Critical Minerals Action Plan reached at the annual summit held in Alberta, Canada, this month. Endorsed by Australia, the Action Plan calls on G7 nations to “focus on diversifying the responsible production and supply of critical minerals, encouraging investments in critical mineral projects and local value creation, and promoting innovation”. To protect each nation’s economic interests and national security, leaders have agreed to work together in “anticipating critical minerals shortages, coordinating responses to deliberate market disruption, and diversifying and onshoring, where possible, mining, processing, manufacturing, and recycling”. The plan’s commitments include building standards-based markets, mobilising capital and investing in partnerships and promoting innovation.
Why does it matter?
Demand for critical minerals, including rare earths, continues to grow. According to the IEA Global Critical Minerals Outlook 2025 report, this is largely driven by energy applications such as electric vehicles, battery storage, renewables and grid networks. Geoscience Australia defines a critical mineral as a metallic or non-metallic element that is “essential for the functioning of our modern technologies, economies or national security” and “there is a risk that its supply chains could be disrupted”. As growth in refined material production is heavily concentrated among key suppliers, this may increase vulnerability to supply shocks.
The Australia Government’s Future Made in Australia National Interest Framework identifies the critical minerals sector as a priority industry vital to Australia’s net-zero transformation and it has identified 31 resource commodities that it considers to be critical minerals. Home to some of the largest critical mineral deposits on earth, Australia is well placed to leverage its position as a global supplier. In April 2025, the government announced it will make an initial investment of AUD 1.2 billion for a Critical Minerals Strategic Reserve. A taskforce will be established to consult and finalise its scope and design, which is expected to be up and running in the second half of next year.
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