The ambitious carbon reduction policies by the Albanese government will help support the greater rollout of renewable energy investments, but Australia has a long way to go in catching up with overseas markets, experts say.
In a panel discussion looking at the risks and opportunities associated with aligning portfolios with governments’ sustainable investment policies, Darren Brown, co-head of investment and development at Octopus Investments, said investors in some overseas markets are more comfortable investing in renewable energy than Australian investors, but federal policies are now in place that will support the greater rollout of renewables.
Australia’s complex grid, and a lack of “shovel-ready” projects, has been a factor in Australia lagging other countries such as the United Kingdom in the area of renewable energy, Brown said, forcing Octopus to build a local team with a stronger technical focus, and take a longer-term view on returns.
Speaking at Investment Magazine‘s Fiduciary Investors Symposium held in the Blue Mountains, Brown said a major challenge will be reducing the tens of billions of litres of diesel fuel burned in Australia each year – a significant portion of which goes into critical mineral production–and replacing this with renewable energy.
“Big US companies… are actually coming to you and saying, I want my steel green, prove to me your entire supply chain of making steel and everything else is green,” Brown said.
Octopus launched its first fund in Australia last year, with three institutional investors now involved including Australian funds HostPlus and Clean Energy Finance Corporation.
“Everything we invest in, we own 100 per cent of it,” Brown said. “We’re offering for strategic investors direct co-investment into certain assets, combined with development returns and long-term stable returns of operational assets.”
Australia’s taxonomy will support transition
Also on the panel was Kristy Graham, chief executive of the Australian Sustainable Finance Institute, which was established in 2021 to develop a sustainable finance taxonomy.
Following the Albanese government’s commitment to slash greenhouse gas emissions by 43 per cent from 2005 levels by 2030, and achieve net zero carbon emissions by 2050, ASFI aims to act as a bridge between the government and financial institutions.
Mandatory climate-related disclosures for financial institutions and both listed and unlisted corporates will be required from next year, and the taxonomy will provide a set of credible and consistent definitions to allow finance industry participants to credibly assess and report on sustainability credentials, and guard against greenwashing.
The Australian taxonomy will differ significantly from the EU taxonomy in the area of transition given the country’s heavy reliance on fossil fuels, as the EU taxonomy “wasn’t explicitly designed to encourage allocation of capital to support transition”, Graham said.
“Australia has a big transition challenge across – not just energy – but across a range of different economic sectors,” she said.
However interoperability between jurisdictions will be critical, and a lot of work is being put into this, she said, along with locking Australian supply chains into global value chains to ensure Australia captures the upside on things like hydrogen production.
Robert Hogg, head of fixed income and macro research at UniSuper – which has offered sustainable investment options to its members for almost two decades – said about half the fund’s correspondence from members is about sustainability issues.
“Thinking about investing sustainably is as important as applying valuation metrics, or any other metrics that you would use to look at any sort of asset,” Hogg said.
“And companies that have ESG sustainability factors at the forefront of their minds, we see a correlation there, and I would suggest causation, that they are very, very good in terms of management of shareholders’ capital.”
The growing politicisation of ESG issues within some states in the US has not affected Australian-based funds at this point, he said.