ESG Impact: What you need to know - July 2024
The latest edition of Westpac IQ’s ESG Impact puts energy investment in the spotlight with the recent release of the International Energy Agency’s World Energy Investment 2024 report. We also explore new recommendations for increasing First Nations employment in the clean energy industry, the environmental impact of artificial intelligence, efforts to cut the carbon footprint of fashion, and more.
POLICY
Assessment of world energy investment
The International Energy Agency (IEA) recently released its World Energy Investment 2024 report, which provides a global benchmark for tracking the flow of capital into the energy sector.
It reveals that global energy investment is set to exceed USD 3 trillion for the first time in 2024, with USD 2 trillion going to clean energy technologies and infrastructure. The report shows that the boost in clean energy spending is underpinned by factors such as emissions reduction goals, technological gains, and energy security imperatives, particularly in the European Union.
Another factor driving growth is the deployment of new industrial strategies across major economies to spur clean energy manufacturing and establish stronger market positions. While the report shows the world now invests almost twice as much in clean energy as in fossil fuels, it also demonstrates a significant imbalance between emerging market and developing economies (EMDE) and developed nations, with the report showing EMDE outside China accounting for only around 15% of global clean energy spending.
Why does it matter?
The IEA report shows that momentum is building in clean energy investment.
Investment in energy efficiency and electrification in buildings and industry has been quite resilient, despite the economic headwinds, and investments in battery storage are increasing.
The focus on solar is particularly promising, with investment in solar now surpassing all other generation technologies combined. Solar remains central to the power sector’s transformation, with the IEA report showing that each dollar invested in wind and solar PV in 2023 yielded 2.5 times more energy output than a dollar spent on the same technologies a decade ago. Solar panel costs have decreased by 30 per cent over the past two years.
However, the IEA report also reveals that current energy investment trends are not aligned with the levels required to limit global warming to 1.5°C above pre-industrial levels, or to achieve the interim goals agreed at COP 28. The modelling shows this would require a doubling of investments to triple renewables capacity, and a tripling of spending to double efficiency.
There is also a significant divergence in investment, with EMDE outside China accounting for only about 15 per cent of global clean energy spending.
Clean energy holds opportunities for First Nations employment
A new report by the First Nations Clean Energy Network highlights the need to increase the number of First Nations Australians employed in the clean energy sector and includes an action plan for change.
The ‘Powering First Nations Jobs in Clean Energy’ report includes 12 recommendations for how industry, government, employment and training specialists and First Nations communities can increase employment and career paths in clean energy.
Recommendations are grouped across four categories:
- ‘Demand-side’ measures to boost clean energy employment opportunities.
- ‘Supply-side’ measures to increase the volume of First Nations Australians with the necessary skills.
- ‘Enabling’ measures that connect industry, employment and training resources and First Nations people.
- ‘Cross-cutting’ measures to build the capacity of First Nations organisations and change the culture of the clean energy industry.
Why does it matter?
The clean energy sector presents opportunities to First Nations people through training, creating employment and building career paths. The First Nations Clean Energy Network, launched in late 2021 in Mparntwe, Alice Springs, aims to ‘ensure First Nations people play a central role and harness the opportunities from Australia’s renewables boom’.
Self-determination and empowerment of First Nations people is supported by employment, and this new report identifies pathways and options for First Nations people to participate in the workforce in this rapidly growing sector.
First Nations people comprise 3.8 per cent of the Australian population and 1.9 per cent of the workforce across all sectors.
INDUSTRY
AI’s thirst for power
Artificial intelligence is helping to solve complex problems across almost every industry, but as the application of AI increases, it’s creating problems of its own for the energy sector.
According to the World Economic Forum, the computational power required for sustaining AI's rise is doubling roughly every 100 days, and recent analysis from Bloomberg shows how the increase requires bigger data centres, which result in substantial increases in energy demand.
Bloomberg reports that 7,000 data centres have been built, or are in development, around that world – almost double the number since 2015. Bloomberg also estimates that by 2034, global energy consumption by data centres will top 1,580 TWh, which is about as much as is used by all of India. Meanwhile, research from Goldman Sachs estimates that data centre power demand will grow 160 per cent by 2030.
Why does it matter?
The research from Goldman Sachs shows data centres worldwide currently consume 1–2 per cent of overall power, but this is expected to rise to 3–4 per cent by the end of the decade. It also shows that the carbon dioxide emissions of data centres may more than double between 2022 and 2030.
The COP 28 climate summit set a target of tripling global renewable capacity by 2030, and electricity efficiency is a lever required for decarbonisation. However, the rapid evolution of AI will continue to place demands on energy supply. The investment in new substations, transmission lines and infrastructure required to support data centre demand may also contribute to more expensive energy for consumers.
While much of the conversation about responsible AI has focused on guardrails for ethical applications, could new insights into AI’s growing energy demand expand the definition of responsibility when it comes to smart technologies?
Changing the footprint of fashion
Australia’s fashion industry looks set for reinvention with the launch of the Seamless Clothing Stewardship Scheme. A partnership between the Australian Fashion Council and a consortium of fashion brands, the scheme aims to transform how clothing is made, used, reused and recycled in Australia to achieve clothing circularity by 2030.
The Seamless scheme became operational on 1 July this year and more than 62 brands have signed up as members. Each member will contribute 4 cents per garment placed on the market to fund the industry transformation.
Sustainable fashion is also in the spotlight in France, where the government recently signalled it would add a tax of up to 10 euros to every item of ultra-fast fashion sold and ban the advertising of ultra-fast fashion in the country by 2030.
Why does it matter?
Fashion is responsible for 2–8 per cent of the world’s carbon emissions and, if it continues on its current trajectory, that could increase to 26 per cent by 2050. While the environmental costs of fashion are considerable, its social impact is also significant with exploitation of garment workers within the global fashion supply chain.
Recent research from the Australia Institute shows Australians are the biggest consumers of fashion per capita, buying an average of 56 new clothing items a year, compared to the US (53 items) and the UK (33 items).
The Seamless scheme takes a stewardship approach. It is funded by a 4 cent per garment levy paid by members of the scheme and, if 60 per cent of the market by volume joins the scheme, a funding pool of AUD36 million will be raised annually to transform the industry.
The funds will be invested in four priority areas:
- Circular design, which includes incentives to design clothing that is more durable, repairable, sustainable and recyclable.
- Circular business models for reuse, repair, rental, and services that prolong clothing life.
- Closing the materials loop by expanding clothing collection and sorting practices for effective reuse and recycling.
- Encouraging change in citizen behaviour around clothing acquisition, use, care, and disposal.
WESTPAC IN ACTION
Growing the links in sustainable supply chains
Supply chain sustainability was the theme of a recent Women in Sustainable Finance (WISF) event, hosted by Westpac at its Melbourne headquarters.
Moderated by Kirsty McCartney, Director, Sustainable Finance, Westpac Institutional Bank, the discussion included insights from corporate and industry sustainability experts and investors: Jessica Storer, Sustainability and External Affairs Manager at renewable energy generator Pacific Blue; Sonya Rand, Head of Sustainability at retail giant Bunnings; Andrea Makris, Head of Business Engagement at the Infrastructure Sustainability Council; and Daniela Jaramillo, Head of Sustainable Investing – Australia, Fidelity International.
An industry initiative backed by the Clean Energy Finance Corporation, WISF aims to promote and support the involvement of women in the sector through a range of networking, educational and leadership opportunities for industry participants.
The panel shared thoughts on opportunities and challenges in supply chains, which is emerging as the new frontier for social and environmental sustainability.
Read more about the latest Women in Sustainable Finance event on Westpac IQ.
Firstmac’s Green Residential Mortgage Backed Securities
In June, WBC supported Firstmac as Joint Lead Manager with their A$306m Green RMBS. Firstmac is an Australian non-bank lender specialising in home loans and investment loans. This is the first solar-backed RMBS issuance in Australia with proceeds of the Climate Bonds Initiative certified issuance used to finance a loan portfolio of new and existing mortgages of energy efficient Australian residential buildings. Loans within this portfolio of mortgages require the homeowners to install rooftop solar panels on their property of sufficient size to place the home in the lowest 15% of emitters.
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