Net zero pledges soar after earnings season boost

Last month, a groundbreaking report from the Intergovernmental Panel on Climate Change, a United Nations body, found temperatures could exceed the 1.5 degree increase above pre-industrialised levels within a decade.

“Corporate Australia is clearly moving now to respond to the momentum around this,” said Hugh Falcon, head of capital markets for Macquarie Group.

Companies also realise the need to set a clear pathway with interim goals to meet their long-dated targets, he said.

“It’s not enough to just make a commitment without being able to substantiate what you are doing,” he said.

Boral, the Australian construction materials company, this month outlined goals to meet net zero emissions targets including a shift to renewable energy and low-carbon concrete products, according to chief executive Zlatko Todorcevski.

Other companies to outline their plans this year include JB Hi-Fi, which has committed to net zero emissions by 2030 and Ampol, the petrol station group. In May, Ampol revealed a $100 million pledge to back future energy projects to help it achieve net zero operational emissions by 2040.

The push to decarbonise will add a further tailwind to mergers and acquisitions, Mr Falcon anticipates.

“We increasingly think we’ll see M&A in all its forms – acquisitions, divestments, spin-offs – with a more pure ESG-driven motivation,” he said.

BHP, the iron ore giant, offers a salient example. Australia’s largest company by market value will exit the petroleum business but has expanded a push into nickel mining, a vital metal for batteries relied upon for production of electric vehicles.

“I think you’re seeing companies in the resources space wanting to get exposure to sectors they think will be long term structural beneficiaries of the energy transition,” Mr Falcon said.

The shift has put extra pressure on businesses in carbon-intense industries such as energy and resources.

Santos, the oil and gas company, has committed to net zero emissions by 2040 but has also placed an emphasis on its end-customers driving changes in demand for energy products.

The push among large Australian companies also comes without a clear policy. The Morrison government has offered hopeful messages about meeting net zero by 2050 but has fallen short of a commitment.

Instead, companies face the prospect of adapting to rules from elsewhere, notably Europe. The EU Taxonomy, a set of reporting requirements for European investment funds, requires asset managers to spell out whether the businesses in which they invest are on track to meet the continent’s sustainability goals.

Australian companies are facing queries from European investors to outline the environmental impact of their activities, according to Perennial, the fund manager.

The heightened focus on sustainability can offer companies an avenue for growth, rather than being a defensive weakness that needs to be addressed, said Mr Falcon.

A survey of Australian companies in April by the investment bank and McKinsey found 40 per cent of businesses anticipated modest or significant value creation from sustainability programs,

“There is a world that is coming where the key economies are going to increasingly differentiate between the carbon intensity of the raw materials they are importing and those they are not,” Mr Falcon said. “Australia could be a big beneficiary of that.”