Page 12 - Ausbil 2024 Annual ESG Report

Looking ahead: 2025
Climate change targets: Demand growth needs to be balanced against climate change commitments and the need for cleaner energy sources; the Paris Agreement aims to keep global warming below 2 degrees compared to the pre- industrial era. This has resulted in individual countries setting ambitious targets and has catalysed significant investment in renewable energy. We will likely see a major challenge to climate change targets with President Trump announcing that the US will withdraw from the Paris Agreement. We are monitoring this closely.
Technology change and the commercial realities: Following the global trend, the majority of S&P/ASX 200 companies have committed to net zero by 2050 and, in many cases, with 2030 interim targets. However, in 2024, the challenges to achieve these targets became increasingly apparent due to commercial realities and slower-than expected progress for some technologies. In some cases, there are divergent views on technologies and when they will be commercially viable between different companies too. While costs for renewable energy are coming down, a pivotal factor for increased usage of renewables at the expense of fossil fuels is large-scale battery technology.
The changing political landscape: With Trump’s re-election, and the US withdrawal from the Paris Agreement, the political drivers have also changed, although not completely. At the time of writing, the EU is pressing ahead with their regulatory agenda and to date, the EU or its member states have not indicated any withdrawal from any climate change targets. In relation to the US, it is also important to remember that individual states set their own policies, that is, everything is not driven just by Federal politics.
In Australia, climate change policy could change, depending on the outcome of the Federal election. This could lead to new changes to the Safeguard Mechanism, environmental approval rules and more. In addition, the coalition has expressed its support for nuclear power as part of the energy mix.
Private capital flows: Independent of climate policy developments globally, private capital flows have been an engine in the decarbonisation process to date. A number of financial institutions, including banks and insurance companies, have made commitments not to fund fossil fuel projects, including the phasing out of thermal coal. It is unclear whether and or, how this will change.
Combined, there are several uncertainties to consider. However, a nuanced view is that if private capital flows into renewable energy and technologies slow down, the decarbonisation will continue, with the use of fossil fuel still playing a role in the energy mix, particularly gas, as a transition fuel.
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Annual ESG Report l March 2025