Altius December 2024 Quarterly Sustainability Report

The quarter had some notable developments with already stalling momentum now further challenged by a shift in political winds that will be unhelpful for climate action.

UNEP says new climate pledges must be significantly more ambitious to meet Paris goals.

The latest Emissions Gap Report by the UN Environment Programme (UNEP) finds that countries need to “deliver dramatically stronger ambition and action” in the next round of nationally determined contributions (NDCs), which are due in early 2025. The report also highlights that the growing emissions gap reflects a lack of political will by countries to address emissions, rather than any fundamental constraint on the world’s ability to rapidly mitigate.

Greenhouse gas emissions reached record levels in 2023, up 1.3% from 2022, and rising notably faster than the average over the past decade. The report noted that the next NDCs “must deliver a quantum leap in ambition in tandem with accelerated mitigation action in this decade”. The current NDCs put the world on a global warming trajectory of 2.6°C to 3.1°C, much higher than Paris goal of limiting warming to “well below” 2°C. The report finds that cuts of 42% are needed by 2030 and 57% by 2035 to get on track for 1.5°C.

In annual terms, 7.5% of emissions must be reduced every year until 2035, a figure that grows with each year of inaction.

The report states that deep decarbonisation is achievable in the next decade at a reasonable cost. A minimum six-fold increase in mitigation investment is needed for net-zero – backed by reform of the global financial architecture, strong private sector action and international cooperation. The estimated incremental investment for net-zero is US$0.9-2.1 trillion per year from 2021 to 2050, compared to the global GDP of circa US$110 trillion per year.

NSW government announces new target for long duration storage.

The NSW government has announced it will legislate an addition to its existing target of 16 GWh of

long-duration storage by 2030, adding a further 12 GWh by 2034. The government will also retain the minimum 8 hours dispatch duration for long-duration storage (LDS) infrastructure in legislation.

The target is intended to provide a clear signal for investors that the state commits the key role for LDS technologies in supporting renewables, maintaining system stability, and reducing reliance on gas generation.

The 2034 date coincides with the scheduled retirement of NSW’s last four coal generators: (Eraring 2027; Bayswater 2033; Vales Point B 2033 and Mt Piper 2040), making it essential to fill the pending power gaps with significantly more bulk energy supply in the form of wind and solar.

CA100+ benchmark shows investor momentum is moving largest emitters to decarbonise.

The latest assessments from the Climate Action 100+ (CA100+) has shown companies in high-emitting sectors, such as airlines, steel, and autos, are making progress in their efforts to decarbonise.

The Net Zero Company Benchmark found that 65% of the 168 companies reviewed had reduced emissions intensity over the past 3 years. However, fewer are reducing emissions at the pace necessary to achieve a 1.5°C aligned pathway.

It also found that 81% of the largest greenhouse gas emitters have now set net zero targets covering Scope 1 and 2 emissions, and 46% have set Scope 3 targets. None have rescinded any targets.

78% of the companies have set a target to increase revenue or production from climate solutions, indicating that those companies setting targets are signaling additional clear commitments to invest.

COP29

The United Nations Climate Summit, COP29, held in Baku, Azerbaijan, achieved some progress despite significant challenges.

Among key developments and decisions from the conference, were financial commitments, carbon trading agreements, and international climate goals.

1. Climate Finance Goals: A major milestone was the agreement to increase climate finance for developing nations to at least $300 billion annually by 2035. This marks a substantial increase from the current $100 billion per year. The funds will support developing countries in transitioning away from fossil fuels, adapting to climate impacts, and addressing loss and damage from climate-related disasters. However, this figure falls short of the $400-$900 billion sought by many developing nations. The agreement also calls for scaling total finance (from both public and private sources) to $1.3 trillion annually by 2035, with details to be discussed at COP30.
2. Loss and Damage Fund: Building on the fund launched in Dubai last year, countries like Australia pledged new contributions, with Australia committing A$50 million (US$32 million). The fund is critical for supporting nations disproportionately affected by climate disasters, which face costs ranging from $100 to $500 billion annually.
3. Global Carbon Market Implementation: · After years of negotiation, COP29 finalized rules for an international carbon trading market, fulfilling the last operational requirement of the Paris Agreement. These rules establish global standards for trading carbon credits, representing either avoided emissions or carbon removal. While the agreement enhances flexibility for meeting emission reduction targets, concerns remain about the integrity and transparency of the market.
4. National Emission Targets: Nations were required to announce updated climate targets by February 2025. Some countries, like the UK and Brazil, unveiled ambitious new goals: The UK committed to cutting emissions 81% below 1990 levels by 2035. Brazil set targets for a 59%-67% reduction below 2005 levels by 2035 but drew criticism for not revising its 2030 goals and planning increased fossil fuel production. The UAE pledged to reduce emissions by 47% before 2035 but faced scrutiny due to its ongoing oil and gas expansion.
5. Fossil Fuels: Discussions on transitioning away from fossil fuels remained contentious, with no explicit mention of fossil fuels in the final agreements. Saudi Arabia actively resisted such inclusions. Last year's acknowledgment of the need for a "just and equitable" energy transition was not advanced, highlighting ongoing global disagreements on this critical issue.

Political and Contextual Challenges

The return of Donald Trump, an acknowledged climate skeptic, posed challenges, as he promised to boost fossil fuel production and withdraw the US from the Paris Agreement. However, many countries demonstrated resilience and continued commitment to climate action. China emerged as a leading player, achieving its 2030 renewable energy target early and signaling its ambition to fill the leadership void left by the US. Additionally, The High Ambition Coalition, comprising small island states, the EU, and Latin American countries, played a pivotal role in pushing for greater financial commitments and urgency in climate action. Australia, alongside Pacific nations, actively participated in advancing climate cooperation, despite holding off on announcing new national targets.

Australia's bid to co-host COP31 with Pacific nations remains unresolved, with Türkiye also vying for the role. A decision is expected after Australia's next federal election in mid-2025.

While COP29 delivered incremental progress, particularly in climate finance and operationalizing the Paris Agreement, it fell short of the transformative action required to meet the urgency of the climate crisis. The reluctance to address fossil fuels directly and the disparity in financial commitments highlight ongoing challenges. Nevertheless, the agreements on finance and carbon markets lay the groundwork for more ambitious actions in the coming years, with COP30 providing a critical opportunity to advance these efforts.

An excellent summary was published in Renew Economy

Investor Focus on Climate Taxonomy:

Australian investor groups are urging the national government to integrate the incoming climate taxonomy into existing and emerging regulatory frameworks. Organizations like the Investor Group on Climate Change (IGCC), the Responsible Investment Association Australasia (RIAA), and the Principles for Responsible Investment (PRI) believe this integration will enhance the consistency and credibility of climate-related financial disclosures. They advocate for embedding the taxonomy into transition plan guidance and public finance instruments.

These groups emphasize the importance of aligning the taxonomy with credible, science-based 1.5°C scenarios and decarbonization pathways. They also stress the need for interoperability with other global sustainability classification efforts. However, some differences exist regarding the proposed 'do no significant harm' (DNSH) and minimum social safeguards (MSS) criteria.

While the PRI believes these criteria should be integral to defining taxonomy alignment, the IGCC expresses concern that the high bar required for companies to assess and disclose activities based on these criteria could discourage uptake of the taxonomy. The RIAA believes the environmental criteria of the DNSH component need strengthening, particularly for the minerals, mining, metals, electricity generation, and supply sectors.

Meanwhile, the Victorian government is accelerating its transition away from natural gas with a series of new initiatives, including a proposed mandate to electrify existing homes and a push for stronger climate-related financial disclosures. This aligns with broader national efforts to address climate change and its impact on various sectors, including insurance. The update of its 2024 Gas Substitution Roadmap includes public consultation on proposed regulation which would require homeowners to replace gas appliances, such as heaters and water systems, with electric alternatives when they reach the end of their lifespan. This impacts a significant portion of the state's building stock, with an estimated 76% of homes (over two million), more than 60,000 commercial buildings, and over 800 large industrial users currently connected to the gas network.

This initiative follows a recent mandate requiring all new residential and commercial buildings to be all-electric from January 1, 2024. While the exact start date for the existing homes mandate is yet to be finalized, it is anticipated to come into force as early as 2026. The government aims to reduce Victoria's gas consumption by approximately 70% by 2045, significantly contributing to its decarbonization goals.

APRA's Insurance Climate Vulnerability Assessment:

In a related development, the Australian Prudential Regulation Authority (APRA) has released an update on its Insurance Climate Vulnerability Assessment (CVA). This assessment, which began in July 2023, involves Australia's five largest general insurers: IAG, Suncorp, Allianz, QBE, and Hollard.

The CVA aims to improve understanding of potential future insurance affordability challenges resulting from physical and transition climate risks. It models insurance affordability under different climate scenarios and a baseline scenario to provide stakeholders with a more informed view of how affordability may evolve by 2050. The initiative is supported by the Insurance Council of Australia and various government and private sector organizations. APRA expects to receive affordability data from participating insurers in early 2025 and will publish a detailed report later that year.

These interconnected developments highlight a concerted effort across government, investment, and regulatory sectors to address the challenges and opportunities presented by climate change. Victoria’s push for gas substitution, the investor focus on a robust climate taxonomy, and APRA’s assessment of climate risk on insurance affordability all contribute to a broader national strategy for a sustainable future.