Year in review – 2023 Climate change and sustainability developments
08 February 2024
08 February 2024
Stakeholders should note the market updates below, and consider any impacts on their compliance obligations and climate change and sustainability commitments.
2024 is already shaping up to be another year with climate change and sustainability at the forefront of politics, policy and the boardroom. In this Year in Review, we consider how organisations can prepare and respond to the key developments across climate change and sustainability from 2023, including:
COP28 took place from 30 November to 12 December in Dubai, UAE. COP28 closed 13 December with the GST as its key outcome.
The 4 main developments coming out of COP28 and the GST that are most relevant to stakeholders are:
The first GST recognises the need for reductions in greenhouse gas (GHG) emissions in line with 1.5°C pathways. The Parties were called on to contribute to a number of listed global efforts, including:
The GST called on developed countries to lead in mobilising climate finance – including: adaption finance, grant-based, highly concessional finance and efforts to meet the developed nations' pledge of $100 billion of climate finance per year until 2050 in order to assist vulnerable nations.
The GST also emphasised the role of commercial banks, institutional investors and other financial actors in improving the assessment and management of climate-related financial risks and access to finance.
The UN-convened Independent High-Level Expert Group on Climate Finance (IHLEG) announced at COP28 the that a 15x increase in private climate finance is required by 2030. This is consistent with the IHLEG's Second Report on Climate Finance.
Aside from financing, businesses can:
We encourage our clients and key stakeholders to keep up to date with and consider the:
The Capacity Investment Scheme (CIS) provides a national framework to support 32 GW of new capacity nationally, including 23 GW of renewable capacity and 9 GW of clean dispatchable capacity. The CIS seeks to enhance the future reliability of Australia's electricity market and mitigate the risk of price shocks by providing certainty for financiers and investors.
The CIS is comprised of:
The CIS is intended to work in unison with and enhance other national and State/Territory schemes.
Successful proponents as part of a CIS tender will be awarded a CIS agreement (CISA).
The CISA assists new projects by providing support where revenue falls below an agreed 'floor', subject to an annual cap. In return, projects will be required to pay the Commonwealth a percentage of revenues above an agreed 'ceiling', subject to an annual cap.
In short, the CISA aims to:
The key features of CIS implementation, include:
We see the Federal and State government having to increase their focus on building transmission lines to connect all this new renewable capacity to the grid.
However, a limitation to consider is that the CIS does not currently address how transmission will be built to support the new capacity.
If the CIS is successful, Australia will be getting a more reliable and lower-emissions electricity sector at a relatively low carbon cost.
On 12 December 2023, the ACCC released the final guidance for businesses on greenwashing, to improve businesses' environmental claims and protect consumers from greenwashing.
The guidance aims to address concerning conduct identified by the ACCC’s recent greenwashing internet sweep, which found 57% of businesses reviewed were making potentially misleading environmental claims.
The guidance identifies eight practical principles which the ACCC encourages businesses to apply when making environmental claims.
By following these principles, businesses are less likely to mislead consumers and contravene the Australian Consumer Law:
To companies and stakeholders that are familiar with the Australian Consumer Law, this guidance does not flag anything unheard of. Instead, it reiterates the requirements for companies to be:
The key significance is that it provides businesses with practical guidance and examples.
We encourage our clients and other stakeholders to review their existing practices against the practical guidance provided in the final report released on 12 December 2023 and keep their eyes out for further guidance.
In early 2024, the ACCC will release further guidance for businesses and consumers on emission and offset claims, as well as the use of trust marks. The ACCC will also develop guidance to help consumers confidently assess and rely on environmental claims.
As we see a continuing focus from the regulators regarding greenwashing, companies should expect increased climate-related litigation into 2024. Companies should take a proactive, risk-based approach in order to anticipate and reduce climate related litigation risk to as low as reasonably practicable.
In November 2023, Treasury released the Consultation Paper on Australia's Sustainable Finance Strategy, which will support Australia’s pathway to net zero, by providing a framework that reduces barriers to investment into sustainable activities.
The government sought feedback on this strategy, but this consultation process has since been completed.
The strategy’s policy priorities are structured in 3 key pillars:
There are four policy priorities detailed for each of the three pillars:
|Pillar 1 Improve transparency on climate and sustainability:
|Establish a framework for sustainability-related financial disclosure
|Develop a sustainable finance taxonomy
|Support credible net zero transition planning
|Develop a labelling system for investment products marketed as sustainable
|Pillar 2 Financial system capabilities:
|Enhancing market supervision and enforcement
|Identifying and responding to potential systematic financial risks
|Addressing data and analytical challenges
|Ensuring fit for purpose regulatory frameworks
|Pillar 3 Australian Government leadership and engagement:
|Issuing Australian sovereign green bonds
|Catalysing sustainable finance flows and markets
|Promoting alignment with international standards
|Positioning Australia as a global sustainable leader
In January 2024, Treasury released an exposure draft bill of the proposed changes to the Corporations Act 2001 (Cth) regarding climate-related financial disclosure. See further information here.
The Consultation Paper put forward a number of recommendations to assist Australia in reaching its goal of net-zero by 2050. Reforms include an obligation for large Australian companies and financial institutions to:
Therefore, companies and key stakeholders should keep up to date on the development of:
On 15 December 2023, AEMO released a draft of the 2024 ISP which outlines Australia's pathway to reaching net zero.
The latest plan for the NEM is a product of collaboration with 1,300 stakeholders, 60 presentations and reports as well as over 110 submissions from industry, consumer and community representatives and governments.
The key takeaways of the draft 2024 ISP are as follows:
Therefore, Clients and key stakeholders should:
Electricity markets have been traditionally one-sided, with consumers. This system means that:
A two-sided energy market means that consumers can also play a role in meeting fluctuating energy demands and get rewarded for doing so.
A Two-sided energy market is facilitated by:
The AEMC's IESS Rule determination on 2 December 2021 sought to better integrate storage and aggregate systems in the NEM. This can be seen as a significant step towards a technology agnostic two-way market model for the NEM.
AEMO outlined in a 20 April 2020 media release that a core benefit of a two-sided energy market is that it will unlock data on consumer energy demand that is hidden 'behind the meter'.
A two-sided market will essentially shift the market rules so they are more streamlined and easier for new types of participants to enter the market.
Therefore, we encourage clients and stakeholders to monitor:
DR is the voluntary reduction or shift of electricity use by customers, which can help to keep a power grid stable by balancing its supply and demand of electricity.
For the past year, Australia has been defined by two crises:
According to the Ipsos Issues Monitor, an ongoing quantitative survey of Australians about core issues facing the country, the 2023 year closed with:
However, both crisis are intrinsically linked and solutions should consider both issues to be effective.
It is important to note that action on climate change is action on the cost of living. The following are examples to demonstrate this:
Governments are recognising the link between the two issues and why the climate change should not have to compete with the cost of living crisis for attention and effort. Clients should also do the same.
Accordingly, clients and key stakeholders should:
We look forward to working with our commercial, government and First Nations clients to find ways to address ESG matters on projects around Australia.
We encourage you to contact us if you would like to discuss any aspect of this publication.
Authors: Dan Brown, Partner; Elena Lambros, Risk Advisory Partner; Mikaela Wyndham, Risk Advisory Executive; Samirah Delor, Graduate.
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This material is current as at 8 February 2024 but does not take into account any developments to the law after that date. It is not intended to be a comprehensive review of all developments in the law and in practice, or to cover all aspects of those referred to, and does not constitute legal advice. The information provided is general in nature, and does not take into account and is not intended to apply to any specific issues or circumstances. Readers should take independent legal advice. No part of this publication may be reproduced by any process without prior written permission from Ashurst. While we use reasonable skill and care in the preparation of this material, we accept no liability for use of and reliance upon it by any person.