I’m from Australia, and as many people probably realise, it’s heavily reliant on fossil fuel and mineral extraction, with thermal and coking coal exports alone contributing over A$37B annually, making it one of the largest exporters of coal in the world.
In Australia, the evolution of ESG has been slow and painful with Climate Change being treated like a political football kicked around by successive conservative governments in bed with fossil fuel lobbyists on behalf of the largest mining companies in the world, such as BHP and Rio Tinto.
Furthermore, in its 2021-22 budget, the Australian Federal government still provided over A$11.5B in annual subsidies to fossil fuel companies [1]. This is more than it spends on public school funding (which is around A$10B).
The conservative Australian Federal Government over the last decade has not taken Climate Change seriously, (and in 2018 it even threatened to withdraw from the 2015 Paris Accord, after the Trump Administration withdrew in 2017). Under successive conservative leadership, the Federal government had a low-ambition target of 26-28% reduction below 2005 levels by 2030. Furthermore, none of the climate policies under these conservative governments had any TLC (transparency, certainty, and longevity) leading investors and pension funds to abandon large-scale renewable energy investment, as there were no incentives to create serious fixed targets for emissions reduction. All this inaction and flip-flopping on policy made Australia and the United States (under the Trump Administration), the western world’s clown in regard to Climate Change, while the rest of the west was posturing for serious climate action and setting serious and ambitious net zero targets, based on the 2015 Paris Accord.
However, various State governments around Australia took up the slack (and opportunity), by creating their own renewable energy targets with Victoria and New South Wales creating the most ambitious targets.
In May 2022, on the back of climate action lobbying by the political candidates from the overwhelming public demand for climate action (due to a recent spate of disastrous climatic events such as drought, fire, and floods), there was a landslide victory by the Labor Government (equivalent to a liberal government in the USA). The momentum towards a more serious approach to emissions reductions had now increased. Australia was once the vanguard of such global climate initiatives but had slipped to the bottom of OECD countries, all driven by an agenda of vested interests by fossil fuel, gas, and oil companies.
The new Labor Government has now provided a firm emissions reduction target of up to 35 percent by 2030 and a highly ambitious Net Zero target by 2050, (in line with other major countries). It has now returned to the forefront of leading nations for climate efforts. However, a no-show by Australia’s Prime Minster Anthony Albanese at COP28 in Egypt was very disappointing (although understandably he had simultaneous commitments at the ASEAN summit in Cambodia and G20 summit in Bali).
With its recent rational approach toward a fixed target of net zero, I believe it has opened up new opportunities for ESG investing. Australia already has a number of innovative superannuation (pension) funds operating with an ESG mandate, and I believe this will continue to grow under these new provisions for net zero.
Furthermore, provided there is TLC in the government policy and the future successive governments have a bipartisan approach towards taking Climate Change seriously, then Australia can once again be one of the pioneers in clean technology and renewable energy project investment.
Australia already has the CEFC (Clean Energy Finance Corporation), which was wisely established in 2012 under the previous Labor government. The CEFC has now become a certainty to continue to heavily invest in clean technologies (not Carbon Capture and Storage as was mandated by the former conservative government). More importantly, their flow of finance will open doors towards clean technology and renewable energy project investment for other investors (especially foreign) and pension funds as they scramble to meet their own net-zero targets.
Additionally, both State and Federal governments have promised to ease red tape in new renewable energy project development, which will potentially accelerate the pace of investment and reduce the time to market. With its abundance of renewable energy resources such as sun, wind, and wave, Australia could potentially boom in this area. It is already forecast to reach its initial target of a 35 percent reduction in carbon emissions by 2030, and along with heavy investment in technology, project development, and financial innovation may have a chance to reach its net-zero target by 2050.
Furthermore, Australia already has one of the highest per capita roll-outs of solar PV in the world, with over 6 million households that have installed rooftop solar PV, providing potential for distributed energy micro-grids with peer-to-peer community energy transfer and offtake, (provided the energy can be sufficiently stored and not just feedback to the grid). The Victorian Government has already promised to install micro-battery installations through the suburbs to create, localised baseload to ease forecast energy shortage and will inevitably reduce the cost of baseload power.
However, Australia is still a long way off until batteries and other technologies are able to replace the baseload power provided by coal and gas. But the future does look bright for ESG investment.
[1] Source: https://apo.org.au/node/317140
