ESG Update as at 7 May 2019


Australian and New Zealand ESG Updates

APRA reviewing ESG matters

The Australian Prudential Regulation Authority (APRA) has reviewed its superannuation prudential framework, finding it has met its original objectives, but has flagged a few key areas to keep an eye on. Environmental, social and governance (ESG) is at the top of the list.

APRA says it is planning on updating the guidance on consideration of ESG factors for formulating investment strategies to provide clarity on obligations.

AMP compiles 10 ESG issues on investor agendas

AMP Capital has published its ESG Watch List of the top predicted investor issues regarding ESG in the coming year.

  • Climate change

  • The ethics of investing in social media

  • Investing for impact

  • The war on plastic

  • Child labour in cocoa

  • Regaining community trust

  • Access to medicine

  • Palm oil and deforestation

  • Modern slavery and supply chains

  • Antibiotics in our food supply

Sand: the environmental catastrophe you missed

With cities being built on sand, and demand for urban environments increasing, we are looking down the barrel of severe environmental impacts from sand mining. There are an estimated 32-50 billion tonnes of sand and gravel extracted each year from lakes, riverbeds, oceans and beaches to satiate construction appetites. The rate of extraction far exceeds the renewal rate, causing yet another environmental disaster.

Desert sand is apparently the wrong kind of sand to make concrete out of, because the particles are rounded by wind, and don’t bind together well in cement. Dubai, for example, is importing sand from Australia to keep up with construction.

Waterways are being dredged for sand, causing problems for wildlife and flood protections. Sand is being used to expand Singapore, a small country that is one of the world’s most prolific sand importer. In the past, this sand was taken from Indonesia, Malaysia and Cambodia, all of which have banned sand exports to Singapore. Due to this mining in Indonesia, at least 24 islands have disappeared since 2005.

Sand is mined all over the world, including in New Zealand and Australia. The last sand mine in the United States is due to close soon, after severe erosion of California beaches.

In Australia, there are large sand reserves, but premium sand is running low. Prices are set to increase as demand for premium sands increases and reserves get even lower.

Options for alternatives include recycling concrete, recycling building materials, and finding innovative, environmentally-friendly alternative materials.

Is the renewables market busting?

An in-depth article by ABC business reporter Stephen Letts takes a closer look into the renewable energy investment market. Letts says the market looks like it’s going from boom to bust, as prices collapse.

Letts’ key points include:

  • Long-term power buying agreements for large-scale renewable generators fell 30 per cent over the past five years

  • The Australian Energy Market Operator (AEMO) cut prices paid to remote renewable generators

  • Many new projects - ‘equivalent to two Hazelwood plants’ - are due to get started over the next two years, creating an oversupply issue

Read the full ABC article

Westpac going 100 per cent renewable by 2025

A power purchase agreement has been signed with a proposed solar farm in New South Wales, with Westpac pledging to source all of its electricity from renewables by 2025. The Bomen Solar Farm, due to be operational in the second half of 2020 in Wagga Wagga, will provide 63 gigawatt-hours of renewable energy for Westpac’s global operations.

The arrangement is that the farm is paid by Westpac to feed power into the grid, and the amount consumed by the bank of regular power will be considered to have zero emissions. The project will deliver 45 per cent of the bank’s energy by 2021, with the rest to follow with larger installations to hit the 2025 target.


Global ESG Updates

Cannabis - an update on regulatory trends and industry developments

According to Jay Simpson, associate vice president of sector-based screening at ISS ESG, there are three main trends relating to cannabis investments:

  1. A shift in how cannabis is viewed within United Nations drug controls internationally, heading towards decriminalisation, despite prohibitive legal regimes.

  2. Nationally, jurisdictions are looking to regulation over enforcement.

  3. The cannabis industry is looking for medical opportunities and commercial gains, depending on what is available under local law.

Key take-homes from the ISS interview with Simpson

  • Initiatives are progressing regarding the decriminalisation of cannabis and recognition of its therapeutic effects

  • Cannabis remains on international lists of drugs with ‘particularly dangerous properties’

  • A World Health Organisation report published in January 2019 recommended that cannabis be removed from the Schedule IV (most restrictive) of the 1961 Convention and put into Schedule I (second most restrictive), and drugs containing THC added to Schedule III (least restrictive). This must pass the United Nations Commission on Narcotic Drugs (CND), which historically rejects such scientific reviews.

  • Many countries have relaxed laws or legalised cannabis use for medical and/or recreational use.

  • There is a difference between companies targeting the recreational market versus those targeting the medical market.

  • Key considerations for investors include ethical considerations similar to those in tobacco and alcohol for public health and safety, whether a cannabis company is genuinely medical in nature

Renewables supplied 77 per cent of Germany’s electricity on Easter Monday

Strong winds and lots of sunshine meant that on Easter Monday, 77 per cent of Germany was powered by renewables. Wind provided 40 per cent, solar 20 per cent, and biomass 10 per cent. This figure does not include how much power it takes to generate that much power.

Germany has a goal of covering 65 per cent of its power demand with renewables by 2030. It was sitting at 38 per cent in 2018.

Brunei punishing gay sex, infidelity, with stoning and whipping

Severe penalties for gay sex, adultery and rape have been introduced in Brunei. People can now be stoned to death or whipped with 100 strokes for these contraventions of law. Sodomy punishments only apply if the accused admits to it or there were at least four eyewitnesses, all of whom must testify. If there is other evidence, a sodomite can be flogged 309 times and put into prison for seven years.

Women having sex with women face less severe penalties, but whipping or prison loom nonetheless. Brunei also has strict punishments for armed robbery - cutting off a hand or foot - and Muslims caught drinking alcohol will be whipped. It is unclear if two non-Muslims would be punished the same way.

The Sultan of Brunei introduced the laws after more than five decades in power, with theories that the Government of Brunei wants to keep citizens in line with a fizzling economy.

Brunei adopted strict Sharia law in 2014, but backed down from the most severe punishments after widespread outrage. The new laws have been quietly introduced in stages since then.

Brunei is two small pieces of land on the island of Borneo, an oil-rich country with a population of 400,000. The Prime Minister, Sultan Hassanal Bolkiah, is extremely wealthy, rumoured to own 150 homes, 7,000 cars, several aircraft, and live in a palace with 1,788 rooms. There are rumours that Brunei’s oil reserves are declining, resulting in an active push for foreign investment.

Brunei’s foreign reserves are managed by the Brunei Investment Agency, part of the Ministry of Finance. A diverse investment strategy is in place, with holdings in the US, Japan, Europe and the Association of Southeast Asian Nations (ASEAN) countries.

The Australian Government has condemned the laws as ‘cruel and inhuman’. There are no sanctions on Brunei.