Top 10 ESG Markers - December 2023

The month of December covers the EU taking a historic stride by criminalising environmental damage, setting a potential global precedent, Australia eyes a nature-positive transition, anticipating a substantial AU$47 billion economic boost by 2050, according to the EY Net Zero Centre and the UAE achieves consensus at COP28 with key outcomes. Meanwhile, New South Wales passes a Net Zero Bill, aiming for a sustainable future. However, global fossil CO₂ emissions reach a record high in 2023, emphasising the urgent need for climate stability. In domestic fronts, the Australian government strikes a deal with the Greens on a nature repair scheme, while Greenpeace initiates legal action against Woodside Energy over alleged misleading climate communications. Queensland's Premier unveils an ambitious plan, targeting a 75% emissions reduction by 2035. Additionally, unprecedented cyclone-induced flooding in North Queensland raises concerns about the escalating impacts of climate change. Finally, IOSCO emphasises global cooperation to combat greenwashing risks in sustainable finance, highlighting the collective responsibility of stakeholders in building trust in sustainable finance markets.

Again, if I happen to miss some key markers in a particular month. Just drop me some comments, and I will pick them up next month! 

*‘ESG Markers’ – like biomarkers that tell us how healthy our body may be, ESG Markers showing us the big movements in the field of ESG in Oceania and globally. 

So, here are my Top 10 for December 2023, again in no particular order.

EU Takes Historic Step to Criminalise Environmental Damage, Setting Precedent for Global Action

The European Union (EU) has become the first international body to criminalise significant environmental damage, described as "comparable to ecocide." Lawmakers agreed to update the EU's environmental crime directive, imposing harsher penalties for severe ecosystem destruction, including habitat loss and illegal logging. Although the term "ecocide" is not explicitly used, the directive aims to criminalise actions causing widespread, irreversible harm to ecosystems. The directive, set to be formally passed in the spring, gives member states two years to implement it into national law. It covers activities like water abstraction, pollution, and ozone destruction but doesn't address issues such as fishing or carbon market fraud. The law introduces new penalties, including prison sentences for individuals and exclusion from public funds for companies, with fines reaching up to 5% of turnover or fixed amounts. While the directive does not extend obligations to offenses outside EU borders on behalf of EU companies, individual member states can choose to do so. The move is hailed as a landmark decision, ending impunity for environmental criminals and potentially paving the way for increased environmental litigation in Europe.

Australia's Nature-Positive Transition: Unlocking a AU$47 Billion Economic Boost by 2050: EY Net Zero Centre

Australia has the potential to gain significant economic benefits, estimated at AU$47 billion annually by 2050, by transitioning to a nature-positive economy. The EY Net Zero Centre's analysis suggests that a nature-positive approach could enhance national income through increased tourism (a potential $12 billion boost) and a 31% rise in agricultural profits, while restoring over 11 million hectares of native habitat and removing 130Mt of carbon emissions annually. The report outlines three scenarios, emphasising the need for policies beyond carbon markets to protect and restore irreplaceable natural assets. Australia's unique advantage lies in its ability to generate high-integrity land sector carbon credits. The analysis underscores the importance of a balanced approach, combining carbon sequestration with biodiversity incentives for habitat restoration, to achieve both environmental and economic gains. Business leaders are urged to integrate nature considerations into existing frameworks, manage nature-related risks, and align climate and nature actions for mutual benefits. The global push toward net zero emissions presents Australia with a time-limited opportunity to establish leadership in nature-positive action.

The UAE Consensus: key outcomes from COP28

The COP28 climate conference concluded with the 'UAE Consensus,' addressing the first Global Stocktake under the Paris Agreement. Despite progress, global greenhouse gas emissions remain off track. The consensus urges a transition to net zero, advocates for economy-wide Nationally Determined Contributions, sets targets to triple renewables and double energy efficiency by 2030, and seeks a new climate finance architecture. Parties also agreed on a loss and damage fund for vulnerable nations and a framework for the Global Goal on Adaptation.

While significant, progress in Paris Agreement workstreams, including Article 6 negotiations, lagged. The conference, with over 100,000 delegates, showcased diverse interests in climate mitigation and adaptation. Australia faces crucial implications; global commitments provide opportunities for renewable energy expansion, but the urgent shift from fossil fuels poses challenges for a just transition. COP28 outcomes underscore the need for collaboration between the Australian government and industry to enhance renewable energy and navigate a fair transition.  The following are some of the key takeaways.

Global Stocktake: Parties at COP28 acknowledged the shortcomings in collective action to meet Paris Agreement goals. The decision emphasises the urgency of a just transition away from fossil fuels for net-zero achievement by 2050. Parties are encouraged to submit ambitious, economy-wide emission reduction targets in their next Nationally Determined Contributions (NDCs), recognising gaps in current climate change responses.

Loss and Damage: Parties made an early decision to operationalise the Loss and Damage Fund, hosted by the United Nations Office for Disaster Risk Reduction (UNDRR) and the United Nations Office for Project Services (UNOPS). This fund aims to provide financial assistance to vulnerable nations suffering from climate change impacts, establishing a dedicated secretariat under the Santiago Network on Loss and Damage.

Climate Adaptation: The adoption of a framework for the Global Goal on Adaptation (GGA) outlines four 2030 targets for climate change risk assessments, planning, implementation, monitoring, and learning. The framework aims to guide global adaptation efforts and enhance support for adaptation in developing countries, addressing issues such as climate-induced water scarcity and improving climate resilience to water-related hazards.

Article 6 Markets: COP28 witnessed disappointment as Parties failed to adopt texts progressing markets under Articles 6.2 and 6.4 of the Paris Agreement. While bilateral cooperation under Article 6.2 continues, uncertainties persist in transparency, reporting, and authorisation processes. The absence of agreement on methodologies for Article 6.4 delays the operationalisation of the crediting mechanism. Despite this, political and business leaders supported carbon markets as a vital source of climate finance, with voluntary standards collaborating to strengthen integrity and accountability in the voluntary carbon market.

In the food and agriculture sector, 158 countries signed a declaration committing to cut carbon emissions in the global food system, marking a crucial step in addressing climate-related challenges in this domain.  In the realm of nature, land use, and oceans, $186.6 million in new financing was announced to support initiatives related to forests, mangroves, and the ocean. China unexpectedly joined the High Ambition Coalition for Nature and People, pledging to protect 30% of land and ocean by 2030. Additionally, the UAE and China issued a Joint Statement on Climate, Nature, and People.  On the financial front, numerous pledges were made, and 13 national governments endorsed the UAE Leaders' Declaration on a Global Climate Finance Framework. Another noteworthy development was the establishment of the Joint Declaration and Task Force on Credit Enhancement of Sustainability-Linked Sovereign Financing for Nature and Climate, aimed at unlocking sovereign debt for nature and climate through mechanisms like debt-for-nature swaps. However, discussions on Article 6 and carbon markets were deferred to COP29 in Azerbaijan in 2025.

NSW passes Net Zero Bill

The NSW net zero bill recently passed with significant bipartisan collaboration and amendments, showcasing the Coalition's push for increased climate ambition. The strengthened bill, supported by the Liberal and National Parties, includes a 70% emissions reduction target by 2035, surpassing Labor's initial goals. This collaborative effort in the NSW Parliament, devoid of a culture war on climate action, sets a positive precedent for future ambition. Covering a third of Australia's economic output, the bill provides policy certainty with clear emissions reduction targets, fostering confidence for investments in new economic opportunities. The bill establishes the Net Zero Commission, introduces a 'ratchet mechanism' for ambitious targets, and mandates joint responsibility for achieving net zero by 2050 for the Premier and the Minister for Climate Change. Community groups and experts played a crucial role in engaging with the bill, emphasising the importance of cross-party collaboration in advancing climate legislation.

Record High: Global Fossil CO₂ Emissions Soar in 2023, Urgent Action Needed for Climate Stability

In 2023, global fossil carbon dioxide (CO₂) emissions reached a record high of 36.8 billion tonnes, showing a 1.1% increase, according to the Global Carbon Project's 18th annual report. The total emissions, including land-use change, are projected to be 40.9 billion tonnes. Fossil CO₂ emissions constitute 90% of all CO₂ emissions from human activities. While emissions rose globally, there are variations among countries. China's emissions grew by 4%, the United States saw a 3% decrease, India's emissions increased by 8.2%, and the European Union experienced a 7.4% reduction. The net emissions from land-use change appear to be falling, with an estimated 4.1 billion tonnes of CO₂ in 2023. The remaining carbon budget for limiting global warming to 1.5°C is reduced to 275 billion tonnes, emphasising the urgent need for accelerated emissions reduction and achieving net-zero targets. Despite renewable energy growth, more rapid emissions cuts are required to stabilize the climate.

Government and Greens Strike Deal on Nature Repair Scheme

The Australian government, has brokered a deal with the Greens to establish a nature repair scheme. The legislation aims to create a market encouraging private investment in biodiversity projects, where businesses receive tradeable certificates. The amended bill prohibits using nature market trades as offsets for habitat destruction. The legislation passed the Senate following negotiations between Environment Minister Tanya Plibersek and Greens spokesperson Sarah Hanson-Young. The nature repair market, initially facing criticism, addresses concerns about offsetting habitat destruction. Plibersek also secured support for fast-tracked legislation as part of the deal.

Greenpeace Launches Legal Action Against Woodside Energy Over Alleged Misleading Climate Communications

Greenpeace Australia Pacific is taking legal action against Woodside Energy, accusing the company of making misleading and deceptive representations in its public communications regarding the environmental impact of its oil and gas projects and its plans for harm reduction. Despite global agreements at COP28 to shift from fossil fuels to renewable energy, Greenpeace contends that companies like Woodside are providing misleading information to investors and the Australian public, hindering the transition. The lawsuit aims to hold Woodside accountable, asserting that false claims divert resources from genuine climate solutions during the ongoing climate crisis. Greenpeace is represented by the Environmental Defenders Office in this legal action.

Queensland Premier Unveils Ambitious 75% Emissions Reduction Target by 2035

Queensland's newly appointed Premier, Steven Miles, has outlined an ambitious emissions reduction plan in his inaugural speech. The state's target has been raised to a 75% reduction by 2035, a significant increase from the previous commitment of 30% below 2005 levels by 2030. Environmental groups applauded the move, noting that Queensland, once among the states with the weakest reduction targets, now boasts one of the most ambitious goals. Premier Miles emphasised the importance of responsible emission targets in securing jobs in existing industries and fostering new sectors like hydrogen, critical minerals, and sustainable aircraft fuel. The target is made possible through the state's $62 billion energy and jobs plan, a major initiative for expanding publicly owned green energy. Miles also revealed that the government rejected approval for Clive Palmer's Waratah coal-fired power station, citing environmental concerns and prioritizing approved renewable energy projects in central Queensland.

Unprecedented Cyclone-Induced Flooding in North Queensland Raises Climate Change Concerns

Unprecedented rainfall from Tropical Cyclone Jasper has triggered severe flooding in North Queensland, forcing evacuations and causing extensive damage. Rain gauges recorded over 2m of rain in some areas, breaking previous records. The cyclone stalled, creating a "stationary convergence zone" that led to torrential rain for 48 hours. This flood event, similar to the 2019 Townsville floods, occurred during El Niño, a climate condition less conducive to tropical cyclones in early December. While it's too early to attribute these events to climate change, the world's warming contributes to an increased risk of extreme rainfall and flooding. The warming atmosphere holds more water vapor, released as intense rainfall under specific conditions. As climate change worsens, such events are expected to become more frequent and severe. After the immediate crisis, authorities must address the "new normal" of extreme weather events, considering climate change effects in emergency planning and development regulations.

IOSCO's Call for Global Cooperation to Tackle Greenwashing Risks in Sustainable Finance

The International Organisation of Securities Commissions (IOSCO) published a final report on supervisory practices to combat greenwashing. The report examines global initiatives to address greenwashing, focusing on asset management and ESG ratings and data product providers. Key findings include the presence of supervisory tools in most jurisdictions to tackle greenwashing in asset management. The ESG ratings and data products market, experiencing rapid growth, remains largely unregulated, with some jurisdictions developing frameworks for providers. Cross-border cooperation is crucial due to the global nature of sustainable finance investments. The report emphasises that greenwashing will persist as a high risk until the quality and reliability of information available to investors improves. Stakeholder collaboration, including corporates, asset managers, regulators, and policymakers, is deemed essential to combat greenwashing and instill trust in sustainable finance markets.

The views expressed in this article are the views of the author, not Ernst & Young (EY). This article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Liability limited by a scheme approved under Professional Standards Legislation.