Energy and utilities entities continued to broadly align in their climate reporting, emphasising similar climate-related risks and opportunities and taking similar approaches to board and executive accountability.
A key focus in these reports was the investment opportunities associated with the energy transition including solar, hydrogen, and decarbonisation. Nuclear, for the moment, was not explicitly identified by any of the entities as an investment opportunity.
While timing for the energy transition was broadly accepted within this sector and focused on 2030 and 2050 targets, entities diverged in how heavily they emphasised the need to meet growing global energy demand alongside their emissions reduction goals.
Some entities emphasised this balancing act as an area of focus for industry as well as regulators, governments and market operators. Some acknowledged the need for the energy sector to meet the dual goals of decarbonisation and global energy demand.
This divergence extended to the climate scenarios being modelled, and the extent to which published targets covered scope 3 greenhouse gas emissions.
Aligning climate risks and opportunities
There continued to be strong alignment amongst energy and utilities entities on their climate-related risks and opportunities.
On risks, many entities continued to emphasise similar policy and legal risks, including exposure to litigation, delays to obtaining regulatory approvals, expanded carbon pricing and changes to government climate-related policies. On the technology front, these entities also noted the risks associated with unsuccessful technological investments, over-reliance on policy to support commercial viability and the inability to scale technologies.
On opportunities, these entities leaned into the investment prospects associated with expanding their clean energy portfolios, noting opportunities across battery development, transmission networks, hydrogen, solar, and decarbonisation. They also highlighted the savings associated with efficiency improvements in shipping, building stock, and the substitution of fuel gas for biomethane. In particular, these entities emphasised their investments in technology to assist in meeting their own emissions reductions targets, as well as economy-wide decarbonisation, including through commercial partnerships with infrastructure providers and downstream customers and through strategic acquisitions.
We await the result of the upcoming federal election in Australia to see whether nuclear is included as an investment opportunity in coming years given the Coalition’s announced intentions to introduce zero-emissions nuclear energy in Australia.[1]
Adopting similar approaches to responsibility and remuneration
Similarly, entities in this sector were aligned in relation to oversight of climate-related risks, with risk committees retaining primary responsibility.
However, there was some divergence on the extent to which climate-related considerations were factored into executive remuneration and the level of disclosure provided.
Notably, we observed that:
- one entity’s chief executive officer and executive leadership team had at least 10% of their FY24 short term incentive determined based on the entity’s performance against priorities aligned with implementing the entity’s climate transition plan;
- another entity amended its executive remuneration framework such that scope 1 and 2 emissions, alongside progress of the entity’s new energy projects, impacted performance-based remuneration for its executive leadership team; and
- other entities noted generally that performance against sustainability measures and metrics formed a part of their remuneration policies.
Energy and utilities entities are especially focused on reducing methane emissions because of their near-term importance to achieving global climate goals. Actions taken included:
- continually reviewing and monitoring methane emissions;
- implementing methane emissions reduction plans;
- becoming signatories to the Oil and Gas Climate Initiative’s ‘Aiming for Zero Methane Emissions’ initiative;
- endorsing the ‘Zero Routine Flaring by 2030’ initiative; and
- setting targets for reducing methane emissions by 2030.
Diverging in emphasis of goals, targets and reporting
Entities in the energy and utilities sector also recognised the growing gap in opposing objectives to reduce carbon emissions and meet climbing demand for energy in the Australian market. However, these entities differed on how heavily they emphasised one over the other. In the process, these entities highlighted that it is not only commercial enterprise but also government and regulatory bodies placing focus on how to balance these competing objectives.
There was also some divergence amongst entities in the scenario analysis used to identify climate-related risks. While 1.5°C scenarios continue to be the most popular, other scenarios are also being modelled, with one entity also modelling 2°C outcomes and another modelling 1.8°C, 2.7°C and 4.4°C scenarios respectively.
We also observed differences between greenhouse gas emissions targets and the extent to which those targets covered scope 3 greenhouse gas emissions. Some entities have now published long-term ambitions to achieve net zero scope 1, 2 and 3 emissions by 2050 and interim reductions targets for 2030. Other entities were still in the process of developing their scope 3 emissions targets or had opted to supplement existing scope 1 and scope 2 emissions targets with emissions abatement capacity targets. One entity engaged with its key suppliers to obtain their scope 1 and scope 2 emissions data to aid its scope 3 emissions analysis and reporting. Another extended the timeframe for its scope 2 emissions reductions targets from 2040 to 2050 as a result of the slower than anticipated progress towards grid decarbonisation.
When it comes to meeting those targets, some entities were explicitly reporting on the extent to which they are using carbon credits to achieve or otherwise offset their targets.
Stakeholder feedback and just energy transition principles
Entities within this sector also explicitly noted that stakeholder feedback provided on previous climate reports or transition plans had been taken seriously and, in one entity’s case, explained mitigation measures and other steps taken to address concerns raised.
In most cases, these entities highlighted the value of continued engagement with stakeholders to inform the approach to climate initiatives and their projects broadly, energy transition or otherwise. One entity specifically noted open and transparent engagement with stakeholders as a key consideration emphasised by the just energy transition principles.
On the theme of a just energy transition, some energy and utilities entities referred to Ipieca, the global oil and gas association for advancing environmental and social performance across the energy transition. One entity engaged with the association to bolster its knowledge from external sources and explained that its sustainability disclosures were guided by, among other things, the Ipieca oil and gas specific reporting guidelines. Another entity adopted the principles set out in the Ipieca statement on just transition.
For those entities which did not expressly state that they follow the Ipieca guidelines, they nevertheless recognised their role in the just transition, with one entity noting its complete support of the Paris Agreement and highlighting it had established internal working groups to identify opportunities to implement the just transition principles recognised as imperative by the Paris Agreement.
Global developments
Globally, we also observed recent developments in the energy and utilities sector which further entrenched the shift towards greater accountability. This has largely been driven by continued scrutiny from the public, courts and media.
A report by Oil Change International and Zero Carbon Analytics noted a tripling of climate-related lawsuits since 2015 against oil and gas companies, with a significant proportion demanding compensation for climate damages or addressing misleading advertising.[2]
In 2024, litigation activity in this space included California’s lawsuit against ExxonMobil alleging decades of misleading the public about single-use plastic recycling,[3] Marathon Oil’s $241.5 million settlement with the Environmental Protection Agency for air quality violations[4] and a criminal case against the CEO and directors of French energy company, TotalEnergies, alleging their fossil fuel exploitation had contributed to the deaths of victims of climate-fuelled extreme weather disasters.[5]
However, shareholder activism (and the right of shareholders to engage in this activity) also remains front of mind with reports that ExxonMobil was suing two of its shareholders for proposing actions to reduce greenhouse gas emissions[6] while a climate resolution urging Shell to align its emissions with the Paris Agreement was rejected, receiving lower-than-usual support compared to previous years.[7] It has now been reported that ExxonMobil no longer faces any shareholder proposal this year, for the first time in 25 years. [8]
What’s next?
Looking ahead, we expect entities in the energy and utilities sector may continue refining their climate reporting, with a particular focus on setting and achieving more comprehensive emissions targets, including scope 3 emissions. It will be interesting to see whether recent geopolitical shifts influence a subtle rebalancing of priorities, in particular a greater emphasis on retaining existing operations to meet global energy demand, and how developments in global litigation impacts entities’ strategies.
To learn more about climate governance and reporting trends in 2024 across other ASX50 sectors, click on the relevant sector below:
Otherwise, for further advice on navigating the Australian mandatory reporting regime, please contact a member of the King & Wood Mallesons or Owl Advisory team.
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