Corporate sector leads the charge to Net Zero
The corporate sector will play a leading role in moving the economy to Net Zero emissions by 2050, according to Lindsay Patrick, RBC Capital Markets Managing Director and Head of Strategic Initiatives and ESG.
Patrick, who recently moderated a panel discussion at the 2022 KangaNews Sustainable Debt Summit in Sydney, said opportunities to reduce greenhouse gas emissions were opening up across the economy, including in hard-to-abate sectors.
“While governments have a responsibility to set the necessary frameworks for a low carbon economy, it is corporate entities, supported by financial institutions, that will drive sustained emissions reductions,” Patrick said.
Beyond the numbers for ESG reporting
The panel, which was drawn from the energy, real estate, transport and manufacturing industries, shared their varying paths to Net Zero and discussed the importance of access to sustainable finance and their progress on Scope 3 emissions.
Patrick noted that ESG reporting was taking on the same relevance as financial reporting as a key measure of a company’s financial health. The panel agreed, noting that companies needed to communicate a long-term ESG narrative to stakeholders outlining the issues specific to their operations. They noted that there was a need to transparently report not just emissions but the strategies, pathway, and the technologies needed to get there so external audiences can understand this specifically for each business.
The panel added that hard-to-abate industries were likely to reduce their emissions through major capex investments, rather than incrementally and that as these new technologies become available, we may see non-linear and a step change in reductions as we get closer towards 2050.
Customers and suppliers are increasingly asking for information on sustainability performance and the panel agreed that they need not only a central repository of information, but also to be thinking about how to communicate that information to different stakeholders.
For businesses experiencing growth that leads to a short-term increase in total emissions, the focus is on demonstrating to stakeholders how they are reducing emissions intensity and highlighting the measures in place to reduce overall energy consumption.
The future of sustainable finance
Patrick said the rapid growth of the global sustainable finance market had created opportunities to support each sector’s unique challenges and opportunities.
“Even companies that don’t have a linear approach to Net Zero will be able to access the sustainable finance market,” she said.
Jarrah Bassal, Sustainability Manager, Energy and Carbon at Transurban agreed those opportunities extended to companies in hard-to-abate sectors, including toll road operators. Noting that these are long-term assets and it’s important not only to decarbonise their construction but manage them through climate change risk.
Others on the panel sounded a more cautious note, sharing their experiences encountering difficulties obtaining capital for innovation and urging financial institutions to support hard-to-abate sectors. They stressed that in a world impacted by climate change, it is going to be essential to have some of these industries domestically located.
The panel noted sustainable finance was evolving in more mature sectors such as property, with independent rating tools to support the identification of green real asset classes. The adoption of those rating tools is supporting portfolios, fund managers and organisations to position their funds into the sustainable finance movement.
Tim Nelson, Executive General Manager of Energy Markets at Iberdrola Australia argued government bodies such as ARENA (Australian Renewable Energy Agency) and the Climate Energy Finance Corporation had played an important role proving up emerging technologies and bringing down the cost structure. This had given Australia a significant comparative advantage in clean energy, and there was scope for governments to drive further change, especially at the state level.
“The most ambitious energy climate change policy in the world is here in New South Wales,” he said.
“There’s a 12-gigawatt renewable roadmap that’s in legislation, with three new renewable energy zones that are all meant to be done by 2030. That’s six Liddell power stations in terms of capacity.”
Scope 3 a game changer
The panel shared their progress assessing Scope 3 emissions within their supply chain, as recommended by the TCFD (Task Force on Climate-Related Financial Disclosures).
Patrick said this had given large corporates a significant opportunity to engage with their supply chain partners in their emissions reduction strategies.
“This is where a company can go beyond their own carbon footprint and accelerate the pace of change towards Net Zero.”
Panellists shared their largely positive experiences engaging with partners on Scope 3 emissions acknowledging that good supply chain partners want to engage in the conversation and partnerships will be critical to making Scope 3 work. They agreed that to be successful, capacity must be built in organisations to communicate with supply chain partners, understand their processes and help them build momentum to reduce emissions.
Some panellists were surprised by the confusion and dread surrounding Scope 3. Noting that it should simply be a matter of building the due diligence on emissions into the procurement processes, in the same manner due diligence is conducted on anything else in the supply chain.
Sustainable financing
The panel agreed that industry needs to look forward and understand customer’s challenges and identify the greatest risks and opportunities, for example how will EV infrastructure start to play out and what role do buildings and toll roads have in this.
There was consensus that we have the technical solutions to decarbonise however, capital was identified as a major hurdle especially for hard to abate industries. While the technology cost curve is coming down it’s really about getting these solutions to scale to be commercially viable.
Finally the panel shared their advice when looking to access sustainable finance. While they agreed it is important to understand the opportunities and the underlying impact they also encouraged the industry to look beyond the obvious such as Green House Gases, consider what beyond percentage targets can be incentivised and don’t overlook the social aspects of ESG.
