Take Five: Australia’s Long Haul

This week’s major stories impacting ESG investors, in five easy pieces.  

Regulators and legislators are making up for lost time in Australia and the United States. 

Australia’s Long Haul – While the United States’ clean energy legislation, signed into law by President Joe Biden this week, will have a more meaningful impact on global emissions, Australia’s new climate laws are also significant. Due to be approved in September, following passage through the House of Representatives earlier this month, Labor PM Anthony Albanese’s proposed legislation aims higher than Biden’s, seeking a 43% emissions cut below 2005 levels by 2030. Albanese plans to reduce fossil fuel pollution and boost renewable energy infrastructure, but many predict a tough road ahead for the world’s third largest fossil fuel exporter. Much will depend on the newly-empowered Climate Change Authority, which has already called for a National Carbon Market Strategy. Investors keen to explore Australia’s renewables potential, including green hydrogen, will be watching closely.

Green light for greenwashing – The US Inflation Reduction Act is widely seen as giving the green light to green investments, due to the incentives it provides for allocating capital to renewable energy projects and technologies, but will it also fuel greenwashing? Not if the SEC has its way. The watchdog has already used mis-selling rules to tackle misleading or overstated claims by managers and is also overhauling fund naming and disclosure rules. Feedback to the SEC’s proposals confirms that no regulation will please all stakeholders, but its combination of bark and bite should convince managers of the risk to their reputation if they let marketing departments have the upper hand over compliance.

What a shower – Storms brought temporarily relief from drought conditions in Europe, but the disruption they wreaked often served to underline the inadequacies of existing water infrastructure. Failure to address long-term challenges has been a feature of the UK sector for decades, but there are growing signs that regulators and investors appreciate the need to incentivise water utilities to look beyond their next financial statement. In the US, the latest manifestation of depleted water resources was the inability of western states to agree on a plan to reduce their use of the Colorado River, prompting federal intervention. Investors are increasing their efforts to encourage responsible water usage by investee firms, but many recognise the need also to engage the public sector.

Food for thought – Agriculture has been among the industries hit hardest by northern hemisphere drought conditions, which come on top of food supply chain concerns exacerbated by Russia’s invasion of Ukraine and regulatory pressures to protect biodiversity and support climate goals. Tensions over livestock reduction plans designed to cut nitrogen emissions in the Netherlands – the world’s second largest farming exporter – reflect the complexities facing the industry. But according to at least one informed investor, the Dutch migration to indoor farming offers a sustainable template for others, with its efficient use of water and reduction in harmful chemicals and carbon footprint. More to follow in next week’s ESG Interview.

Wake up – Some have tried to paint the political fallout from the Dutch livestock/emissions reduction proposals as the latest frontier in the culture wars, with ‘downtrodden’ farmers pitched against ‘woke’ globalist politicians. This characterisation would probably raise an eyebrow in the Netherlands, but reflects a wider trend, albeit one which is failing to get off the ground even in the US, according to recent statistics on unsuccessful anti-ESG shareholder resolutions at US AGMs. This week’s company news included record revenues at the world’s largest oil producer and the ports and logistics operator that replaced its UK workers with agency staff without notice. At a time when politicians are still wary of imposing windfall taxes, it’s hard to argue the world is in thrall to – or under existential threat from – ‘woke capitalism’.

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