ESG Impact: What you need to know - June 2024
There were several roadmaps to follow this month, with the Federal Government outlining its courses of action on sustainable finance and decarbonising the transport sector. We also report on the progress of zero-emissions haulage, a groundbreaking new electricity deal for a New Zealand aluminium smelter, how sustainable snake meat may boost food security, and more.
POLICY
Government charts a course for sustainable finance
The Federal Government released its Sustainable Finance Roadmap this month with three key pillars of focus: improving transparency on climate and sustainability; financial system capabilities; and Australian government leadership and engagement.
While the government’s focus continues to be on the introduction of mandatory disclosure of climate-related financial risks and opportunities, the new roadmap also looks at delivering sustainable finance reforms.
These include funding the completion of Australia’s preliminary sustainable finance taxonomy, developing a labelling regime for investment products marketed as sustainable, and supporting credible business transition planning through best-practice guidance.
Why does it matter?
The Sustainable Finance Roadmap aims to mobilise capital to achieve net-zero emissions through initiatives such as the Australian Sustainable Finance Taxonomy and the development of sustainable investment product labels.
Globally, the International Financial Reporting Standards (IFRS) Foundation’s International Sustainability Standards Board (ISSB) just announced further harmonisation of the sustainability reporting landscape. As part of ISSB’s new two-year work plan, the IFRS Foundation will assume responsibility of the Transition Plan Taskforce (TPT) disclosure framework, as well as an agreement with the GHG Protocol aimed at ensuring compatibility between reporting standards. This aligns with the Australian government’s announcement under Priority 3 of Pillar 1 of the Sustainable Finance Roadmap to support credible net zero transition planning with consideration of emerging domestic and international frameworks and standards.
The government has pledged to continue to elevate sustainable finance as a key pillar of Australia’s broader climate- and nature-related international engagement. Its roadmap provides much welcomed clarity and momentum.
Roadmap for decarbonising Australia’s transport sector
Australia’s transport industry is the country’s third largest and fastest-growing source of greenhouse gas emissions and, without further measures to cut its carbon footprint, is projected to be the highest emitting sector by 2030.
In a first step to support the sector’s decarbonisation efforts, the Federal Government is seeking feedback on its Transport and Infrastructure Net-Zero Consultation Roadmap, which outlines the actions or policies required to decarbonise transport and related infrastructure.
The consultation roadmap includes increasing the use of active transport (such as walking and cycling) and public transport, improving fuel efficiency, accelerating the shift to electric vehicles, and other ways to reduce emissions in road, rail, maritime, and aviation sectors. Submissions close on 26 July 2024.
Why does it matter?
Road transport is responsible for about 86 per cent of transport emissions in Australia.
While Australia’s population growth presents a key challenge in decarbonising the sector, with passenger cars accounting for 42 per cent of total transport emissions, and heavy vehicles adding more complexity to the task, the Climateworks Centre has released a report with recommendations to apply the globally recognised Avoid, Shift and Improve (ASI) framework. This includes avoiding the need for some travel, shifting to lower-emissions modes of transport, and improving vehicle and fuel efficiency.
The Centre recognises the more challenging decarbonisation pathway for trucks and recommends a two-pronged approach. First, implementing already available opportunities and solutions in short-haul road freight – replacing fossil fuel vehicles with zero-emissions technology, shifting freight to low-zero emissions modes such as e-cargo bikes, and optimising logistics and freight transport. The second, a focus on a smoother transition towards emerging solutions and scaling existing solutions in long-haul freight.
Decarbonising the transport sector will require a significant shift and momentum in policies for various options in addition to new technology advances.
CORPORATE
Collaboration key to zero-emissions haulage
Mining giants are exploring the potential of zero-emissions haul trucks in a bid to cut their carbon footprint.
BHP and Rio Tinto have joined forces to trial four electric haul trucks at mine sites in Western Australia’s Pilbara region. The vehicle trials will involve ongoing testing, development and refinement of truck and battery design.
Meanwhile, Fortescue’s aim to decarbonise heavy industry has reached a milestone with its hydrogen-powered haul truck prototype ‘Europa’ running on hydrogen for the first time.
In June 2022, Fortescue and Liebherr established a partnership for the development and supply of zero-emissions mining haul trucks. Europa will undergo further site-based testing and commissioning.
Why does it matter?
Zero-emissions haulage is necessary for the decarbonisation of miners’ operations, and investment is taking different pathways with both electric and hydrogen options being explored. Diesel usage accounts for a significant portion of emissions from miners, ranging from 12 to 40 percent for Rio Tinto, BHP and Fortescue.
Sustainable fuels also present opportunities for decarbonising heavy vehicles. Waste management company Cleanaway is exploring the use of a renewable diesel called HVO100, which is a hydrotreated vegetable oil made from used oils and fats such as used cooking oil. It began operating two heavy collection vehicles on HVO100 from February this year and is collecting data to determine performance and scalability to decarbonise its fleet.
Along with electric and hydrogen options, sustainable fuels may help to power the future of zero-emissions haul trucks.
Electricity deal transforms smelter into giant reverse battery
After previously announcing plans to close its New Zealand Tiwai Point aluminium smelter, Rio Tinto is giving the asset new life through a groundbreaking electricity deal.
The 20-year deal with generators Meridian Energy, Contact Energy and Mercury NZ combines renewable energy and demand-response agreements, under which the smelter may be requested to reduce electricity consumption by up to a total of 185 megawatts at times of high demand and tight supply.
The demand-response agreement turns the smelter into a giant ‘reverse battery’, securing electricity supply to New Zealand homes and businesses. The contracts set pricing for an aggregate of 572 megawatts of electricity to meet the smelter’s needs, backed by a mix of renewables from New Zealand’s South Island.
Why does it matter?
Aluminium is a key material to achieving a low carbon global economy. Demand for primary and secondary aluminium is set to increase and switching to renewable energy represents a significant decarbonisation lever.
Smelting is the most energy intensive part of aluminium production, the Tiwai Point aluminium smelter accounting for 13 per cent of all electricity demand in New Zealand.
The demand-response agreement may help to secure electricity supply throughout the country when it’s most needed, while reducing the electricity system’s reliance on coal and gas when the hydro lakes are low.
Furthermore, it paves the way for the second largest wind farm in New Zealand, with Mercury NZ proceeding with the NZD486 million expansion of the Kaiwera Downs wind farm on the South Island following the 20-year deal with Rio Tinto’s Tiwai Point smelter.
The deal sets an example for Australian smelters, where Rio Tinto is currently seeking agreements with governments on ‘firm power’, which could include a significant demand-response component.
INDUSTRY
Is snake the next superfood?
A well accepted source of food in parts of Asia, Africa and South America, climate-resilient snake could soon be on mainstream menus across the globe.
New research from Macquarie University, which focuses on two Southeast Asian commercial python farms, shows it may offer a sustainable and efficient form of livestock to counter global food insecurity.
Groups of pythons were fed sausages made of waste protein from meat and fish offcuts. The study finds that they convert feed into weight gain more efficiently than conventional livestock such as chickens and cattle. Snake meat is high in protein, low in saturated fat and presents a comparatively low-emission food source, the researchers say.
Why does it matter?
Approximately 12 per cent of the global human population is currently undernourished and people in low-income countries are suffering acute protein deficiency due to pressure on livestock and plant crops through climate change, disease and diminishing natural resources.
Global food security is also expected to worsen with climate change. CSIRO data shows methane emissions from ruminant livestock in Australia contribute close to 10 per cent of the country’s total greenhouse emissions. Reptiles are shown to produce far less greenhouse gases than mammals on a kilo for kilo basis.
While snakes were long a source of animal protein for Indigenous Australians, the Macquarie University researchers do not expect Australia to adopt python farming. However, the study highlights significant opportunities in countries where snake meat has a widespread cultural precedent.
WESTPAC IN ACTION
Westpac partners with AFR for CEO climate roundtable event
As a sponsor of this month’s AFR ESG Summit, Westpac Institutional Bank held a CEO roundtable event, ‘Getting Real About Transition Plans’, in partnership with The Australian Financial Review.
Nell Hutton, Chief Executive of Westpac Institutional Bank hosted the event where the CEO participants engaged in a wide-ranging two-hour discussion. Around the table were Seven Group’s Ryan Stokes; Mirvac’s Campbell Hanan; Aware Super’s, Deanne Stewart; AGL’s Damien Nicks and Ampol’s Matthew Halliday.
Major talking points from the event are featured in a four-page AFR special report. Read it now for the CEOs’ views on how businesses are stepping up transition plans, the challenges for decarbonising heavy transport fuels and tackling Scope 3 emissions, the role of government in providing industry certainty, and financing the energy transition.
As Nell Hutton put it, future access to finance for businesses is “where the rubber really hits the road”. Hutton also shares the key takeaways from the CEO roundtable in this video.
Green Treasury Bonds | AOFM
Early June, Westpac supported the Australian Office of Financial Management (AOFM) as Joint Lead Manager, with their inaugural 10-year A$7bn Green Treasury Bond. AOFM is a part of the Department of the Treasury and manages the Australian Government’s debt portfolio.
The green bond’s proceeds will be allocated towards projects that drive Australia’s transition to net zero by 2050 and deliver significant environmental benefits, including lowering greenhouse gas emissions, increasing Australia’s renewable energy production and bolstering biodiversity conservation, restoration and adaptation.
The bond issue was well supported by both domestic and offshore investors with around 35% allocated to offshore investors. 105 institutional investors were allocated bonds, of which 15 were new to AOFM syndicated deals.
FleetPartners’ inaugural Climate Bond
Westpac collaborated with FleetPartners as Joint Sustainability Coordinator, Joint Arranger and Joint Lead Manager to establish a Green Bond Framework and the company’s inaugural A$75,000,000 Climate Bond within a wider A$400,000,000 ABS issuance.
FleetPartners’ Climate Bond, which is certified by Climate Bonds Initiative, is consistent with FleetPartners’ sustainability purpose of “Empowering tomorrow’s destination, today", and commitment to help protect and provide for a sustainable environment for future generations. Proceeds from the Climate Bond will be used to finance/refinance eligible assets focusing on Clean Transportation and Low Carbon Transport, specifically battery electric vehicles.
FleetPartners was the first fleet management organisation to be certified carbon neutral by both Climate Active in Australia and Toitū Envirocare in New Zealand, and the transaction marks the first1 Green EV ABS issue by a fleet management organisation to achieved certification by the Climate Bonds Initiative in the Australian bond market.
1 Based on public information at time of publication
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