ESG assessment: 2021–22 investment performance

New investment commitments in 2021–22 are forecast to avoid emissions of almost 1.4 Mt CO₂-e annually, with lifetime emissions abatement from all CEFC investments expected to exceed 200 Mt CO₂-e. As in previous years, the CEFC does not claim that the abatement from projects in which it invests occurs independently of other policy measures.

More than 75 per cent of the expected abatement from commitments in 2021–22 was driven by three transactions, representing 10 per cent of the value of new investment commitments. These included landmark investments in manufacturing-related emissions reduction with Manildra Group and Orica, as well as the Blue Grass Solar Farm. 

Further, many of our other commitments this year reflect our increasing role in supporting the broader decarbonisation of the supply chain. In particular, identifying critical investments that are important precursors to significant emissions reduction, but where the emissions are not readily quantifiable at the time of the investment. These cover two broad categories: decarbonisation enablers and decarbonising customers and sponsors.

Decarbonisation enablers

These relate to activities that are innovating, commercialising and/or reducing the costs of the low emissions technologies required to deliver Australia’s net zero ambitions. These include grid-related investments to connect renewable energy generation with customers; the development of the lithium sector, which is central to battery and energy storage; backing for innovative soil carbon technologies to unlock nature-based decarbonisation; and scaling up of processes to facilitate the production of hydrogen.

Decarbonising customers and sponsors

These relate to activities where customers and sponsors who commit to science-based and/or net zero targets, creating increasing demand for the renewable energy, energy efficiency and/or low emissions technology projects required for Australia to achieve net zero emissions by 2050. CEFC investments in the alternatives space, including in and alongside institutional funds in infrastructure, agriculture and private equity are helping shape emissions reduction strategies, complemented by investments in sustainability-themed debt markets.

We collaborate with industry on shared goals to leverage our impact and demonstrate decarbonisation pathways. New commitments in 2021–22 included 10 Australian market firsts across a broad range of sectors, demonstrating the potential for economy-wide involvement in emissions reduction. Samsara Eco continues to develop its portfolio of plastic-digesting enzymes in collaboration with the Australian National University and is evaluating waste streams for a potential commercial deployment in Australia. We continued to set formal commitments with our investment counterparties to support industry collaboration and knowledge sharing. This includes through CEFC Investment Insights, our Green Room webinar series, presentations at external events, participation in industry groups and client-level engagement with research and educational institutions.

Robust climate risk management and disclosure contributes to a smooth transition to net zero emissions, benefits our co-investors and protects the CEFC portfolio. We review our investments for climate risk performance against a range of standards including the Taskforce on Climate-related Financial Disclosures (TCFD), Climate Active, Partnership for Carbon Accounting Financials and the Science Based Target initiative (SBTi). In 2021–22, seven commitments ($342 million) were aligned with TCFD recommendations, and a further six ($296 million) included commitments to net zero emissions. In addition, the CEFC has representation on an investee sustainability committee with IFM Investors Private Equity Growth Partners Fund. The committee is focused on climate-related commitments and reporting. 

Effective waste management can deliver positive renewable energy outcomes, resource recovery opportunities and the diversion of substantial volumes of waste from landfill. We take a “reduce, reuse, recycle” approach to waste-related investments, with a focus on projects and technologies with the potential to make a material reduction to Australia’s waste-related emissions. In the 2021–22 year, we invested in Samsara Eco and Scipher Technologies, which are seeking to tackle some of the toughest waste-related emissions challenges. Existing recycling technologies are not keeping pace with escalating plastics production, use and waste. Equally, increasing consumer demand for ever improving technologies is driving a rise in e-waste volumes, despite the fact that 95 per cent of e-waste components can be recycled.

CEFC investments within the Reef Catchment Area primarily aim to deliver indirect benefits to the Reef in lowering emissions to address climate change, the single greatest long-term threat to the Reef. Our investments also support the objectives of the Australian Government Reef 2050 plan, in contributing to local economic growth by providing a local source of renewable energy, supporting the efficient use of energy, and demonstrating the positive benefits of clean energy to Reef communities. During the reporting year, Reef-related ESG impact included the provision of discounted finance for eligible projects which may include energy and water-efficient irrigation systems, rooftop solar, precision guided on-farm machinery and upgrades to process and manufacturing equipment. Refer to Appendix H.

We seek to prioritise investments that create and/or safeguard jobs and provide training in emerging job markets. While we do not directly estimate or claim credit for job creation, counterparties involved in CEFC 2021–22 transaction commitments expect to create some 140 full time equivalent roles, and more than 2,800 construction jobs, many in regional Australia. These are particularly related to grid infrastructure and large-scale solar farm developments. Ark Energy and TAFE Queensland are also working together to deliver training to assist workers transition from carbon intensive sectors to green hydrogen.

CEFC transactions are reviewed for plans to deliver positive economic and/or cultural impacts to First Nations peoples. During the 2021–22 year, two of our largest commitments reflected strong First Nations initiatives. Both the EnergyConnect and Southern Downs grid infrastructure developments cross large tracts of land with the potential to impact First Nations cultural heritage sites. Project sponsors Transgrid and Powerlink have established Reconciliation Action Plans and engaged with Traditional Owners to ensure the transmission corridors are situated and managed in accordance with First Nations expectations. EnergyConnect has also committed to allocate 2.5 per cent of the project cost to First Nations employment and business opportunities. NBN Co’s sustainability-linked bond has included commitments to benefit First Nations peoples through its Reconciliation Action Plan, including employment, the use of First Nations suppliers and the provision of safe access to the NBN network. 

The transition to net zero emissions offers important benefits for the broader economy, including local communities. This is reflected in the community funding programs established by large-scale renewable energy developments. Energy efficient infrastructure in commercial and residential buildings also provide flow-on benefits. Examples during the reporting year include Blue Grass Solar Farm which has committed to a best practice community support and benefit sharing program. Metro’s Northcote Place in Melbourne will feature 74 energy efficient townhouses that will provide long-term benefits for residents. 

We seek to work with co-investors and co-financiers who share our commitment to leading ESG practice, whether at the technology, asset/project or fund level. ESG factors are considered during the selection, appointment, ongoing management and review of counterparties. Of $1.39 billion in new investment commitments assessed in 2021–22, $638 million was aligned with leading ESG performance, demonstrated via high third-party assessed ESG scores. Five of these counterparties had ESG scores in the top quartile, including Artesian, Optus, Orica, QIC and Woolworths Group. Through our investment in Xpansiv, we are also unlocking sustainability-focused trading opportunities to support investors and corporates lift their ESG performance.