Welcome again to the Environmental, Social and Governance (ESG) Wrap, where our team share the latest ESG issues in the media and their implications on investment.

This month the key ESG issues making headlines are:
 
  • Food & Beverage: ‘Urgent’ push for health tax
  • Employment: Regulation of sharing economy urged to prevent exploitation. 
  • Waste Management: Ex-justice to dig into dumps to stop NSW rubbish coming to QLD
  • Victorian Renewable Energy Target (WRET) Legislation Passes
  • Supply Chain: Bangladesh court jails Rana Plaza owner for three years for graft

Food & Beverage: ‘Urgent’ push for health tax

  • A 20 per cent tax on sugary drinks is being proposed by Australia's leading health organisations as part of a tough new strategy to tackle obesity, which they now say poses a greater risk to the nation than smoking.
  • Rates of obesity continue to climb in Australia, with about 63 per cent of adults and 27 per cent of children obese or overweight.
  • Applying a tax on sugary drinks would follow in the footsteps of Britain, Ireland, Belgium, France, Fiji, Mexico, South Africa and regions in the United States, where sugar taxes have or are about to be applied.
  • In Mexico a tax of 10 per cent on sugar-sweetened beverages saw a 7.6 per cent drop in purchases of those drinks over two years. 
  • A spokesman from the Australian Beverages Council disputed this result, arguing that soft drink taxes elsewhere had not resulted in reduced consumption. 
  • So What? We have been engaging with Australian companies on sugar and obesity for quite some time. The Turnbull government has shown no appetite for a sugar tax to date, with only the Greens to have a soda tax on their agenda. Manufacturers of sugary drinks have been trying to prepare for the likely change in regulation by reducing sugar content, replacing sugar with artificial sweeteners and decreasing package sizes. Their strategies also include diversification by bringing other drinks such as flavoured milk, iced coffee, protein drinks and juices to the market, many of which have their own health concerns. 
  • This articles also brings to light the conflicts of interest between soda companies, industry bodies, the government and lobby groups. There is a big concern that health policy is being shaped by food and drink manufacturers who have a commercial interest and industry bodies, such the Australian Beverage Council, who are being funded by soda companies. We hope to see greater transparency around governance and public policy-making because currently there is a lot going on behind closed doors. 

Employment: Regulation of sharing economy urged to prevent exploitation

  • Greater regulation of the short-term online jobs market is needed to prevent exploitation of vulnerable workers, leading workplace experts have warned. Gig work includes short job contracts obtained through online platforms including Uber and Airtasker.
  • A paper published in the latest edition of “The Economic and Labour Relations Review” recommended clarifying or expanding the legal definition of employment to prevent gig workers falling through the cracks of Fair Work laws.
  • The paper cites US research which this year reported that 55 per cent of people who earn money through digital platforms earn less than $100 per month and 85 per cent earn less than $500 per month.
  • Australian researchers have also found that the hourly income for part-time ride-sharing workers often falls well below legal minimum wages for employees.
  • So What?   While this casualisation of the Australian workforce provides flexibility for both employer and employee, it can also lead to exploitation of poorly represented workers.
  • We have seen this with the issue of employment conditions under franchisees for some Caltex, Seven 11 and Domino’s operations. The regulatory and legal response to these issues are such that it raises questions about the ongoing viability for such business models. 

Waste Management: Ex-justice to dig into dumps to stop NSW rubbish coming to QLD

  • A media investigation exposed an organised network of waste transporting and freighting companies sending waste by road and by rail to Queensland to avoid paying the high NSW landfill levy of $138 per tonne. 
  • It is estimated that over 1 million tonnes of waste is sent from other states into Queensland and dumped into old mine sites.
  • The environmental impact is also an issue because of the lack of monitoring hazardous liquids, asbestos and tonnes of building and construction waste being dumped. 
  • The industry is calling for Queensland to introduce a levy, to lift it from zero which will aim to stop the interstate movement of waste.
  • So What?  The issues raised are not new. Companies have previously complained about the transfer of waste to Queensland, in particular, to landfills that were not appropriately operated and the impact it had on its NSW business.  
  • Waste management companies may be adversely affected by regulatory changes.  If these companies are no longer able to benefit from the current cost arbitrage between NSW and Qld landfills if a landfill levy is introduced, this could impact on their operating and financial performance. 
 

Victorian Renewable Energy Target (VRET) Legislation Passes

  • The Victorian Labour Government’s Renewable Energy (Jobs and Investment) Bill 2017 passed the Legislative Council late on Friday afternoon, enshrining the WRET in law. 
  • The VRET sets a goal of 25% renewables by 2020 and 40% by 2025. As a point of comparison, the National Energy Guarantee (NEG) spruiked by the Turnbull Government last week is expected to result in between 28-36% renewables by 2030. 
  • Victoria will hold renewable energy auctions in which companies will bid to supply the market, the first of which is for 650 MW, which the government said it hopes will bring up to A$1.3 billion worth of investment into the renewables sector. However, big energy users and major power producers cautioned against a state-by-state approach to setting renewable energy targets, following the Victorian government's announcement.
  • So What?  As it did over ten years ago, frustration at a state level regarding the lack of a coordinated and comprehensive energy and greenhouse policy is leading to States developing their own.  This leads to fragmentation in policy which makes investment in the sector difficult and can also create particular challenges for the overall market regulator who needs to manage network security.
  • The increase in renewables to 40% in Victoria will lead to further closures of brown coal-fired generation – most likely Yallourn.  It will create some challenges to maintain systems stability in Victoria unless more peaking gas-fired generation are built.  This may also require Victoria to relax their current moratorium on Coal Seam Gas. 
 

Supply Chain: Bangladesh court jails Rana Plaza owner for three years for graft

  • A Bangladesh court on Tuesday jailed the Rana Plaza owner, Sohel Rana, for three years for graft, the first of many charges laid against him after the garment factory complex collapsed in 2013 and killed more than 1,130 people.
  • Rana also faces four other charges, including murder, for his role in one of the world's worst industrial tragedies.  He and 37 others could be sentenced to death if found guilty of murder over the factory complex's collapse. 
  • Rana and 17 others have also been charged with violating building codes when extending the six-storey structure by a further three floors. The illegal construction was blamed by investigators for the tragedy.
  • So What?  The Rana Plaza disaster prompted sweeping reforms in the garment sector, including new safety inspections and higher wages in an industry that employs around four million workers, mostly women.  The disaster highlighted appalling safety problems in Bangladesh's nearly US$30 billion (Dh110.2bn) garment industry, the world's second largest exporter after China.
  • Making the owner of the Rana Plaza responsible for the accident, with jail time, may be a watershed for the way garment workers are treated in Bangladesh.  Due to its importance to the overall Bangladeshi economy and close links to government, the garment industry in Bangladesh has not faced the scrutiny for its workplace practices as it should.