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Tag Archives: Environment

ESG Outlook – What will the Federal election outcome mean for ESG and how should companies be preparing

The extreme weather we have witnessed along the eastern seaboard of Australia, accompanied by wide scale flooding, has once again brought into sharp focus the impact and presence of climate change.  This assuredly means that as we approach the Federal election, all matters environmental can be expected to form a key policy and political battleground between the two major parties.

Many in corporate Australia will no doubt observe this with more than a passing interest, in particular the impact the election outcome will have on so called ESG (Environment, Social, Governance).  The ESG prism presents both risks and opportunities for companies, especially in the way they act to address climate change, most notably what they commit to do and by when, and how they intend to do it.

Specifically, companies are currently grappling with the scale of the commitment they should make with respect to reducing carbon emissions.  Given that both the major political parties support a policy of achieving net zero emissions by 2050, this surely becomes the absolute minimum a company must commit to.  Some have, and will be, more adventurous and it may well be that if Labor wins power, the 2050 date will be reduced even further.  Labor is already committed to a 43% reduction by 2030, (with the Coalition sticking to between 26% to 28%), so emissions reduction and how it is achieved may well become even more ambitious and prescriptive.  Indeed, the Coalition is warning that Labor’s target is just an opening gambit and that if they form government, the figure will be increased.

Regardless of where these targets may eventually end up, some have clearly decided it is beneficial from a business and reputational perspective to make a firm commitment to reducing emissions.  For example, the major retailers appear to be heeding the wishes of their customers and the market () by committing to definite action.  Woolworths says it will deliver a 63 per cent reduction in emissions from its own operations (scope 1 and 2) and a 19 per cent reduction across its supply chain (scope 3) by 2030. Both Woolworths and Coles have also committed to source 100 per cent renewable electricity by 2025.

What is even more important for companies is that they must also decide whether it makes them an attractive investment proposition as a result of building their ESG credentials.  For example, if they undertake significant capital expenditure on renewable energy, which with current low electricity prices can often have a long-term payback, will they be rewarded for their ESG commitment, including greater access to capital at a more competitive rate, so called ‘green financing’.

Australian superannuation funds who between them manage assets totalling $3.4 trillion, have made their intentions clear as to what they are committed to and what they expect companies and significant sectors of the economy to do.  For AustralianSuper, this means reducing their investment portfolio carbon intensity to a net zero level by 2050.  They go on to proclaim that ‘the steps to achieve this include transitioning away from high-carbon investments, such as fossil fuels, and toward renewable investments such as wind and solar. This is consistent with the transition occurring globally.  It also means influencing the way companies operate so they emit less carbon in their business operations.’  This last sentence is telling, and it is effectively a warning to all companies, (not just the energy sector) that they will be expected to take real action to reduce their carbon emissions, regardless of what sector they operate in, and by definition they should also properly assess the financial risks of climate change to their ongoing profitability.

This then raises the question as to how companies will reduce their emissions.  On a macro level, the Coalition has stated that net zero by 2050 will predominantly be achieved through new technology.  If one takes the view that there is eventually a technological solution for everything, then it may well be that technology comes to the fore before or by 2050.  The Coalition also credits recent forecast emissions reductions to Australian households taking up solar energy and other renewables in greater numbers than ever before.  On that basis, it can be assumed the Coalition will seek to make solar energy more affordable, while Labor on the other hand has committed to also boosting electric vehicle numbers, supported by investment in so called ‘green metals’ to enable expanded battery power storage.

Whoever wins the next Federal election, and it may well be that one or two of the so called ‘Climate Action’ independents have a say in the balance of power, it is clear there will be an expectation that corporate Australia play its role in reducing carbon emissions.  In many respects it already is, and the market has spoken, and some companies have undoubtedly taken the lead.  For the others though, both public and private companies, they need to start turning their mind to how they will track, manage and reduce emissions – and the potential costs of doing so.  To be certain, there are many things they could do beyond using renewable energy, such as reduced transport, greater materials efficiency and reducing waste to landfill.

Regardless of what the government may do, taking the easy route such as buying carbon credits or seeking to indirectly reduce emissions through the efforts of others, will simply no longer cut it in the world of ESG.  Companies will be expected to take direct action and although they may not know exactly how they will do it. Government, the market and broader community will only allow them a certain period of grace before they make them act, either through a legal requirement or public pressure.

As an election year, 2022 is shaping up as the year in which ESG becomes mainstream and is no longer just a nice thing to do.  Government policy and decision making will contribute to this as will capital and equity markets which are placing ever greater store in how a company addresses the risks and opportunities presented by climate change.  Utilising reporting frameworks such as the Taskforce on Climate – related Financial Disclosures (TCFD) will grow ever more important, but so will practical action, with companies needing to navigate how they will deal with climate change through their entire supply chain.

Those who fail to act or at the very least fail to start planning, will attract not only the attention of government and policy makers, but they will also potentially become pariahs in the marketplace. Those who do act stand to reap the benefits of not only greater access to capital on more preferential terms, but also the reputational enhancement in the eyes of a public that is increasingly demanding greater ESG action from both governments and companies.

Vote #1 Environment, Promoting Sustainability in Times of Uncertainty

Frequent ‘extreme’ climate disasters, a pandemic and international conflict…the unprecedented has become the precedented. Now more than ever, during times of great uncertainty, governments and businesses must take urgent climate action. This is a wake up call to business, it is startlingly evident that no one is exempt from the impacts of climate change, conflict and Covid. The interconnectedness of commodity markets and global supply chains in our ever-more globalised world, highlighted by the recent energy price shocks and Covid-19 pandemic, will mean flow-on effects will touch every type of business in every location. An intimidating prospect to be sure.

Uncertain times are arguably the best time to change practices and habits. Or better yet, make proactive changes to safeguard and reduce the likelihood of risk before uncertainty. A proactive move now to sustainable practices could minimise the impacts felt by economic disruptions and supply chain collapses due climate disasters, international conflicts and the COVID 19 pandemic. Promoting local manufacturing and trade, incentivising the transition to renewable energy generation and nation-wide targets in line with global leaders of climate action would help to mitigate the inescapable risk of international supply chain collapses, shipping delays, energy uncertainty and economic burden of rising fossil fuel prices.

An opportunity exists, to mitigate these risks, creating a resilient and robust system that is both securing its financial future and remedying past wrong-doings against the environment. The solution to help mitigate climate change is in fact a solution to our future inevitable financial woes. Scientists are still analyzing the correlation of climate change and the severe flooding occurring in New South Wales and Queensland. However we do know that climate change will increase the intensity and frequency of these extreme weather events. There will be huge financial challenges ahead for councils to rebuild their communities, but if we can secure natural assets we can secure markets and future growth. Government and businesses investments in promoting the switch to a cleaner electric vehicle would also mitigate the economic burden felt by rising fuel prices whilst lowering carbon emissions and the use of finite resources. Take a risk lense when looking at sustainability and climate change. For companies,governments and businesses the risk of climate inaction far outweighs the requirements to do something now. What we can see from covid response globally is how easy it can be to adapt.

This time of uncertainty presents some exciting opportunities for all areas of business to make an impact. The sustainability movement is moving beyond the messaging of “please recycle” and “switch off the lights”, to look at core roles within core industries, and how they can impact change. Industry and government need to be change makers and apply a sustainability lense to what they are working through to create benefits that will support business, community and society in these “unprecedented” times. Tangible changes from business and governments such as a switch to renewable energy, creating a carbon management program, changing travel processes, increasing building efficiency, supporting local supply changes can all limit the impacts felt by uncertainty. Funding opportunities and grants are available to businesses, councils and governments to support the progression towards a sustainable economy and society. Our projects at Equilibrium have helped clients deliver impactful changes across a wide range of sectors and service areas. Globalization, industry connections and the broadness of sustainability means impacts are affecting every industry, company and supply chain, everyone has an opportunity to contribute.

Vote #1 Environment, Transport

​Transport emissions are increasing in Australia and produce almost 20% of Australia’s total greenhouse gas (GHG) emissions, 60% of that  is from cars alone. Consequently, rapid growth of alternatives including electric vehicles (EV) is an environmental policy area of interest this election. As fuel prices and momentum on climate change rise, pressure is building for governments to provide incentives and policies to ease the switch from traditional fuel engines to cleaner vehicles.

Current policy proposals from each party offer different strategies and pathways / offer different avenues for such a transition.

The current Coalition Government announced $250 million to be invested in electric vehicles,  mainly to support EV charging infrastructure. Building infrastructure alone delivers no tax or other financial support for Australians to make the switch.In July 2021 the government also invested $260 million to increase its diesel reserves, notably more than the investment in EV.

Labor  has announced plans to introduce an Electric Car Discount to come in effect in July 2022. A major component of the discount is to exempt many electric cars from import tariffs (5% tax on some imported EV cars) and fringe benefits (a 47% tax on EV that are provided through work for private use). These exemptions will only be for cars below the luxury car threshold ($77,565, as of 2021), aiming to encourage car manufacturers to supply more affordable EV models to Australia. These incentives will cost the government around $200 million over three years, it’s unclear what percentage of this will go to infrastructure or to discounts.

The Greens launched a “Spark the EV Revolution” campaign, a plan to institute a range of incentives and subsidies to make electric vehicles affordable to everyone. The Greens plan to remove stamp and registration duty on all new EVs, remove import tariffs and waive registration fees for the first three years of ownership. To pay for these purchase incentives, the party plans to implement a 17% luxury fossil fuel car tax on the value of all fossil fuel light vehicles over $65K for the next four  years. They have also pledged to spend $151 million on fast charging infrastructure.

Leaders in EV technology have started to announce phase out dates for new sales of fossil fuel cars, including Norway (2025), The Netherlands (2030), India (2030) and the UK (2040). The Netherlands has had the most take up to date, with EV currently making up more than one in four vehicles on the road. A stronger commitment like this from Australia would see manufacturers prioritizing the delivery of newer, cheaper models to Australian markets. Accessibility is a key element, otherwise EV technology will remain a luxury commodity and represent inequality rather than the way to our renewable future.

A dead CERT for greenhouse transparency and accountability

The Clean Energy Regulator (CER) has released new guidelines enabling large greenhouse gas emitting companies to get value from being accountable and transparent.

The Corporate Emissions Reduction Transparency (CERT) program, known as CERT, is for large companies and emitters  to disclose their progress towards meeting their renewable and emissions targets. The CERT will promote company commitments and practices, and be consistent with market developments concerning good Environmental, Social and Government (ESG) practice.

Recent research in a KPMG report, “ Looking Ahead ESG 2030 Predictions” highlighted the ESG movement and momentum. The report outlined that 65% of international dealmakers believe ESG is a key consideration when making investments and in mergers and acquisition decisions, a clear indicator of the universal impacts of good ESG practice and potential of the CERT pilot scheme.

In this phase of the CERT, companies that comply  through National Greenhouse and Energy Reporting can disclose targets and progress in;

> Switching to renewable energy
>Reducing operational greenhouse gas emissions
>Their use of carbon units such as ACCUs, various international carbon units and use of large-scale generation certificate

The pilot phase application period is open from now until January 30, 2022. The CER predicts that future versions of the CERT may allow for non NGER reporters to be involved with the scheme, and may evolve into an important tool to compare business involvement in the voluntary carbon market. For now, companies that participate in the CERT report will be viewed as leading the way in providing a clear picture of actions and performance  to reduce their emissions.

2050 Modelling Shifts Net Zero Leadership to Industry

The Australian Government commitment to net zero emissions by 2050 could well be the embodiment of former Indian Mahatma Ghandi’s famous quote: “There go my people, I must hurry to catch up with them for I am their leader”.

The market has spoken. Business and the community is already moving ahead of Government on greenhouse emissions. Equilibrium has been fortunate to see this first hand as for a number of years it has worked with progressive companies on reducing emissions – and this activity has accelerated over the last 24 months independent of Government.

The Australian Government has now released “Australia’s Long Term Emissions Reduction Plan”. The plan provides a summary of the modelling and analysis which underpins the emissions target of net zero by 2050.

The modelling focuses on industry and businesses taking a voluntary approach to achieve net zero by 2050, without outlining constraints or incentives. This shift to net zero is to be pushed by “investor expectations” and “consumer preferences”. Fortunately, Australian businesses are well advanced in assessing their carbon outputs and are already working towards contributing to the target.

For example, Equilibrium was engaged by a major food manufacture in 2019-2020 to identify their carbon outputs and a carbon reduction plan. The company is now well advanced on a carbon management program that is aligned to its overall business objectives.

The process involved identifying scope 1 emissions (direct emissions eg. production, manufacturing and transport emissions), scope 2 (indirect emissions, emissions that may be generated at another facility) and scope 3 emissions (indirect emissions, employee travel to work/ transport and disposal of waste). The company set a target to achieve net zero emissions in operations and net-zero climate impact across the value chain by 2040, as well as 2025 interim goals to reduce energy, water and waste.

Equilibrium assists businesses with a wide range of services from carbon accounting to Climate Active accreditation. Please get in touch to develop realistic and measurable approaches to reduce your carbon outputs.

Manufacturing and Life Cycle Assessment

The manufacturing industry plays an important role in global economic development, however it contributes to a significant share of negative environmental impacts in the form of pollution and waste. Manufacturing companies are subject to increasing pressure from consumers and legislation to improve their own activities towards more environmentally conscious manufacturing processes which create less environmentally damaging products. This pressure calls for product designers and production engineers to identify improvement measures for existing manufacturing systems, as well as create innovative concepts for new products. These investigations need to consider the entire life cycle of the manufacturing system and product, including the impacts related to production, use and end of life disposal. 

Life Cycle Assessment (LCA) is a tool used by companies and product designers to better understand their products’ overall and complete impacts – positive and negative. It helps businesses to quantify impacts at the various stages and provides insights  to improve performance and reduce environmental impacts. 

Why undertake an LCA? There are various reasons:

Stakeholder and consumer expectations: Increasingly consumers are seeking products with reduced environmental impacts, this is reflected in product purchasing choices.
> Industry directions: The manufacturing industry in Australia has a leading role in improving sustainability of its products.
> Voluntary environmental management systems: ISO 14001 is driving continuous improvement and uncovering business efficiency. 

While the key objectives for an LCA often begin with aiming to better understand environmental footprint, the framework can be used to assess other issues including economic and social factors. Examples may include:

> Uncovering production losses, which manufacturing business may refer to as ‘scrap rates’.
> Identifying areas of high energy use, where if savings can be made, will reduce costs and greenhouse emissions.
> Transport and logistics reviews may reveal options to reduce emissions and save costs.
> Raw materials choice for manufacture, including reviewing supplier social procurement practices to protect business reputation.

Businesses that are currently assessing their internal footprint are already on the path to developing an LCA. Examples of this include energy efficiency studies, where energy per unit production helps set a benchmark for assessing business improvements. 

If you would like to know more about LCA’s and how an LCA study may help your business development please contact us.

A simple diagram of life cycle assessment

 

 

Climate Active

Climate Active certification provides businesses and organisations with the opportunity to demonstrate their commitment to managing their environmental impacts and committing to sustainable outcomes. Climate Active is the Australian Government backed program that enables business to measure, manage and offset carbon emissions from their operations or products and services. Organisations can also apply the certification to events, buildings and precincts that demonstrates their commitment to driving voluntary climate action in the growing face of pressures from customers and investors.

The Climate Active certification is awarded to organisations and businesses that have credibly reached state of carbon neutrality/ net zero emissions. The certification and verification process as well as public reporting requirements ensures that like for like businesses can be compared with respect to assessing, reducing and offsetting carbon emissions. 

The emergence of voluntary schemes such as Climate Active are driven by “social license” and responsible business practice. The scheme presents the opportunity to achieve greater staff engagement and demonstrate to customers you have in place a robust climate strategy commitment. The scheme aims to incentivise voluntary action, with the certification assisting the greater community by making it easier to identify brands, businesses and organisations that are committing to making a real difference.

Addressing barriers to Product Stewardship in Australia

Product stewardship calls for companies, supply chains and retailers to take greater responsibility for their services and products across their whole life cycle, from design to production to use and, finally, disposal. 

Earlier in July the Product Stewardship Centre of Excellence released a white paper report “Addressing the Barriers: A needs assessment of product stewardship in Australia.” The paper aims to explore and understand the barriers to product stewardship in Australia, investigating opportunities for further development and expansion of product stewardship across the nation.

The paper discusses the major challenge such as free-riders; businesses or organisations that may benefit from product stewardship activity without contributing to the implementation or operation. 

Although not discussed in the paper, the voluntary trend of product stewardship in Australia is also an issue to consider. 

This trend is a particularly Australian phenomenon, as most other countries support regulatory approaches. Australian industry leadership towards product stewardship should be congratulated. For example, the recent announcement of the Australian Toy Association partnering with other leading brands to investigate product stewardship of toys, and the recognition of best practice for Tyre Stewardship Australia are positive developments. 

However, similar to the free-riding organisations, companies and industries who use voluntary as a means to defer, delay or avoid responsibility should be brought to account. 

Voluntary approaches cannot be realistically expected to work in a timely manner where there is no industry agreement and coordination, and where the brand owners are diffuse, have little or no local decision-making authority or are no longer trading. In such cases it at best will be a slow process and many years before some sort of voluntary approach is figured out. 

In general, the need for government intervention is generally greater the more complex the products and supply chain.

For product stewardship broadly to meet community expectations, to reach waste and recycling targets, to discourage free-riders and to support genuine leadership efforts, there therefore needs to be clear market signals that government will regulate when and where needed. 

While the Centre’s white paper correctly highlights key barriers, overcoming them will require the government to act where appropriate to put pressure on industry and ensure accountability, and that includes judicious use of regulatory powers.

ARENA launch $43 million Industrial Energy Transformation Studies Program

The Australian Renewable Energy Agency announced a $43 million grant program on behalf of the federal government to assist in identifying methods to cut industrial energy costs and emissions. The first round of the Industrial Energy Transformation Studies Program will offer $25 million to assist research and the development of business case projects for organisations in the mining, agriculture, manufacturing sectors, water supply, gas supply, waste services and data centres. Applicants can apply under one of two rounds: 

>Round 1A – Feasibility Studies (Up to $10 million available). Grants can be between $100,000 and $500,00 for up to 75% of eligible project costs
>Round 1B –
Engineering Studies (up to $15 million available). Grants can be between $250,000 and $5 million for up to 50% of eligible project costs.

The program aims to fund studies that deliver transformational improvements in de-carbonisation technology and energy efficiency practices for industry. Eligible projects must also demonstrate high replicability potential across similar industry settings.

Applications for the initial round of funding will be open on the 6th of July.

ARENA will be hosting separate information sessions for Round 1A and Round 1B in the week commencing 12 July, further information regarding these information sessions will be published on the Industrial Energy Transformation Studies Program website in the coming weeks.

Greenwashing and the ‘race to zero’

Global markets, shareholders and consumers are impelling corporates to announce climate action and net zero policies across the globe. This movement has resulted in a rush of company directors announcing net zero pledges without fully examining their capacity and ability to meet their goals.

Renew Economy stressed that failures to meet these goals, could be considered “guilty or misleading conduct”, resulting in legal or regulatory penalties. The long timeframe to achieve net zero goals and the current lack of clear, unified regulatory approach, may have set a false sense of ease. In March, The Conversation among other researchers published the first analysis of net zero commitments of 4,000+ sub-national governments and companies which account for 80% of global emissions. The study highlighted that only 60% of plans announced interim targets and 62% of the corporates announced reporting mechanisms.

If corporates are serious with their net zero intent, it will be met with robust measures in place and pledging a target which can be held accountable by shareholders and consumers. Credibility should be demonstrated by accreditations from impartial mechanisms such as a science-based target, which will validate whether the plan is credible. Last week Australia Post and Newcastle Port have become the latest Australian organisation to have their emissions targets recognised by the Science-Based Targets program, validating both the corporates’ efforts to limit temperature rise “well below two degrees”.

Net zero targets are statements of corporate intent, and should not be made unless research has been undertaken to ensure they are deliverable. Corporates are encouraged to seek advice and support regarding this. Goals should be genuine, and importantly realistic in their approach to reach net zero.