What does Net Zero look like for Australian businesses?
Corporate Law - 10 Dec 2021
What is the Glasgow Climate Conference and what does it all mean for Australian businesses?
At ABA Legal Group, our Tax Law, Corporate Advisory, and Commercial Law teams are constantly monitoring key micro and macro trends that may impact Australian businesses, whether they impact their innovation journey or their company’s operations from a legislative perspective. Our goal is to always ensure that we are providing our clients with up-to-date guidance to assist our clients to navigate the legal and business complexities facing them as they seek to grow their businesses in a global landscape. That’s why we closely monitored the progress of the Glasgow Climate Conference. There will be wide-ranging implications for Australian companies from an operational, legal, and reporting perspective.
What actually happened in Glasgow?
The 2021 United Nations Climate Change Conference, also known as COP26, is the 26th United Nations Climate Change Conference. Delegates were asked to accelerate action on climate change and commit to more ambitious cuts in carbon emissions, all in an effort to limit rising global temperatures. One of the key aims and a term you will be hearing a lot of in the media is net zero emissions – the reduction of emissions as quickly as possible to reduce the risk of catastrophic climate change.
What actually is Net Zero?
According to the Australian Climate Council, Net Zero refers to achieving an overall balance between greenhouse gas emissions produced and greenhouse gas emissions taken out of the atmosphere. Think of it like a set of scales: producing greenhouse gas emissions tips the scales, and we want to get those scales back into balance, which means no more greenhouse gas can be added to the atmosphere in any given year than is taken out.
Getting to Net Zero means we can still produce some emissions, as long as they are offset by processes that reduce greenhouse gases already in the atmosphere. For example, these could be things like planting new forests, or drawdown technologies like direct air capture. The more emissions that are produced, the more carbon dioxide we need to remove from the atmosphere (this is called sequestration) to reach Net Zero.
How might Net Zero impact Australian businesses?
This is where things get interesting. The Reserve Bank of Australia (RBA) and the nation’s top financial regulator have publicly pledged to monitor the impact of climate change on the financial system amid fresh predictions that major Australian companies will be forced to disclose in detail how they plan to decarbonise their operations. This follows on the heels of the UK government announcing plans to force major British companies to publicly disclose their yearly decarbonisation plans, with an expert panel to set standards to ensure emissions reduction plans are legitimate.
In Australia, the Australian Prudential Regulation Authority (APRA) and the RBA are committed to drawing attention to the financial stability and macroeconomic consequences of climate change. This follows a move by APRA in April where it released guidance for financial services companies to manage climate risk. It is also requiring companies like major banks to stress-test their operations under a number of climate scenarios. While there are no current mandatory reporting requirements to disclose climate risk to a business’s operations these moves could be interpreted as sending a signal that although a hard law change isn’t going to happen straight away, there could be tighter regulation in the future. This would be aimed at enforcing Net Zero emissions strategies for businesses to combat climate change.
Australian Treasurer, Josh Frydenberg outlined this when he said that the country will be moving to contribute to the development of global standards in this space. However, the Morrison Government have recently released Australia’s Long-Term Emissions Reduction Plan as a result of the Glasgow Climate Conference, which sets out its plan to reach net zero by 2050. Interestingly, the plan is based entirely on existing policy, and it seems unlikely that the current Government will be implementing any meaningful policy to drive its climate change commitments. That said, it is inevitable that Australia will adopt Net Zero as a policy (although this appears unlikely in the short term), there may be regulatory and structural changes in-store for Australian businesses. This will present a significant change for Australian companies and will not be without some challenges in the near to short term, so it’s worth watching this space, and taking proactive steps to ensure that your business is on board with global emissions targets.
Promising signs in the private sector to achieve Net Zero
Aside from the Government’s lack of commitment to achieve Net Zero, some well-known Australian companies have adopted science-based targets and shown how they can be used. According to the Australian Financial Review, the number of major companies who have put in place a target of reaching Net Zero greenhouse gas emissions has more than tripled in the past year as corporates seek to display that they are environmentally sustainable.
According to a survey by the Australian Council of Superannuation Investors, the number of ASX200 companies with Net Zero emissions targets surged to 49 in March 2021, up from 14 in the 12 months to March 2020. Some of corporate Australia’s biggest names are on the list including Commonwealth Bank, BHP, Rio Tinto, and the National Australia Bank.
What can medium-sized enterprises do to accelerate Net Zero?
For medium-sized entities, it will be critical to start building out their own roadmap to reach Net Zero going forward, regardless of whether there is policy informing this or not. Businesses and corporations can lead the way toward reaching global emissions targets.
Below are some tips for those companies wishing to take this path:
1) Find out what your business’ environmental impacts are – consider getting an environmental audit;
2) Implement an environmental management system or policy;
3) Investigate the costs of investments in energy efficiency, renewables and infrastructure;
4) Analyse how these changes may influence your business’s financial performance; and
5) If you are an investor, think about whether these investments will pay off in the long term; if you are a manager, think about how these investments will impact performance.
If you are a business looking for the right advice to guide you through challenging times and identify new opportunities in a changing business environment, we recommend you reach out to our Tax Law, Corporate Advisory, and Commercial Law teams, who will partner with you from start to finish.
Please get in touch to book a complimentary exploratory session and help us realise your true business potential.
The information contained in this blog is general in nature and should not be considered to be legal, tax, accounting, consulting or any other professional advice. In all cases, you should consult with a professional advisor familiar with your factual situation for advice concerning specific matters before making any decisions. By reading this blog, you confirm your understanding of this disclaimer.