20 April 2021

    It’s time to be proactively a‑changin’

    Sustainability at Australian companies

    Robbie Urquhart

    Head of Australian Equities

    Email Robbie
    Robbie Urquhart

    Head of Australian Equities

    Email Robbie

    Major Australian companies are making changes that will improve their sustainability credentials and attract investors and customers. Companies may be wise to make change now — proactively — rather than wait for change to be forced upon them.

    Bob Dylan’s ‘The Times They Are a-Changin’ has been an anthem for many campaigns for social change. The lyrics came flooding back to us as we saw  significant, proactive shifts in corporate Australia’s approach to the environment.

    An example from our Australian portfolio is Next DC, the data-centre operator. In a recent call, the company’s CEO, Craig Scroggie, reminded us that ‘The best carbon is that which is not emitted at all.’

    A data-centre operator is using techniques that other companies could copy

    Next DC has been carbon neutral since November 2018. The company is the only data centre provider in Australia that is certified carbon-neutral under the government’s Climate Active scheme. The company uses three sustainability techniques to achieve its carbon neutral rating.

    First, when it builds data centres, the company procures environmentally sound materials, and uses environmentally-sound building practices. Second, the company runs its data centres in energy-efficient ways — it has the only data centres in Australia with 5-star energy ratings. Third, the company offsets the carbon it does produce through the Qantas’ Future Planet Programme.

    Many other companies — across a raft of industries — could use the same techniques.

    A major iron-ore miner is investigating using clean energy in steel production

    We don’t own shares in Fortescue, but were interested in a recent lecture by Andrew Forrest, chairman of the iron-ore mining behemoth. The speech outlines his ambition to build Australia’s first green steel pilot plant this year. He sketched a broader vision to grow hydrogen-powered steel processing capacity in Australia.

    Coal is currently the steel industry’s main fuel, and a major pollutant.  Hydrogen offers a greener alternative.  It can be created by using Western Australia’s energy intensive solar and wind powered renewable electricity to split water into hydrogen and oxygen.

    This is quite a shift in rhetoric from one of Australia’s largest mining companies.

    Mr Forrest is not waiting for governments or regulators to drive change. He’s making the change now. Fortescue have committed to being carbon neutral by 2030.  This is ten years ahead of the company’s previous target date for carbon neutrality.  And this is a full 20 years ahead of 2050, a date targeted for carbon neutrality by a number of countries in line with their commitments to the Paris Agreement on climate change.. As Mr Forrest noted, a lot of environmental damage can be done if we wait until  2050.

    The country’s largest polluter is aiming to split in two

    We don’t own shares in AGL Energy, a 180-year old Australian utility and the country’s biggest emitter of greenhouse gases. AGL raised eyebrows in March when it announced plans to split into two companies. One would house its electricity generating assets, powered by a mix of thermal coal and wind. The other, its electricity-retailing assets — which would be carbon neutral.

    AGL recognises that to survive, it needs to make changes. Customers and communities want action on climate change. Changing to a new technology can also drive down the cost of renewable energy.

    Making change now may help energy-intensive companies succeed

    An increasing array of investors are roadblocked from investing in AGL in its current form on environmental grounds, due to its exposure to thermal coal. Splitting into two companies may help its electricity-retailing business find investors who are willing to fund its growth. It will also increase the valuation transparency of AGL’s two divisions.  

    These companies are shaping their businesses to fit an environmentally sustainable and decarbonised future. Next DC, Fortescue and AGL are all energy-intensive companies. And all of them are taking practical steps today — before regulators and government drag them, kicking and screaming towards change.

    For them, the times are indeed — and proactively — a-changin’.