ESG Focus: The Little Big Things – 30-11-2023

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FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future: 
https://www.fnarena.com/index.php/financial-news/daily-financial-news/category/esg-focus/

ESG Focus: The Little Big Things

Parliament passes amended Closing Loopholes Bill 2023; corporate Australia objects to the bill; Jarden identifies most vulnerable big ASX-listers to the bill’s passage; Macquarie checks out modern slavery in solar; and green laggards are likely to suffer cuts to credit scores.

-House of Representatives Passes Closing Loopholes Bill
-Amendments to the Bill Included
-Companies object
-Jarden identifies most vulnerable companies
-Macquarie checks out modern slavery in solar
-Australia among countries tipped for sovereign credit-rating cut

Compiled by Sarah Mills

Industrial Relations reforms: Closing Loopholes Bill

The Labor Government’s Closing Loopholes Bill 2023 was passed in the House of Representatives this week and it is now winging its way to the Senate.

The most contentious element of the original bill was the Same Job Same Pay provision.

The bill was introduced specifically for this purpose – to limit instances in which labour hire firms are used to undercut bargained wages and conditions in employee agreements. 

Under the bill, employees, unions and host employers can apply to the Fair Work Commission to ensure labour hire employees receive at least the wages in a host’s enterprise agreement with exemption.

The government estimates 67,000 labour hire workers primarily in mining and aviation, will be affected.

The Same Job Same Pay provisions are ring-fenced to companies with Enterprise Agreements. 

But Labor needs to gain support of the Senate cross-bench to pass the Bill, where it doesn’t hold a majority. If government cannot gain this, the bill may have to be rejigged.

Nearly 100 Amendments Added This Week

Almost 100 amendments were added to the Closing Loopholes bill this week, prior to its adoption in the House.

The bill still retains its broader objectives, including minimum pay for gig workers, gaol time for wage theft and casual conversion rights but includes some significant additions.

A biggie was a Greens amendment to Labor’s June bargaining laws (which originally allowed unions or employers to seek arbitration after nine months of bargaining) determining that the arbitration process cannot leave workers’ conditions “less favourable” than their existing conditions.

The Labor government also locked in a Greens’ amendment to criminalise superannuation underpayments.

Other impactful amendments included: the bill was expanded to joint ventures; service contractors are exempted from labour hire laws; and firms can engage regular casuals and limit penalty rates for gig worker laws.

Teachers and lecturers on fixed-term contracts will be excluded from the bill’s definition of a casual.

Corporate Australia Objects – Surprise!

The Closing Loopholes original bill drew strong objections from Corporate Australia, and even more objections following the amendments.

An early ASX-listed objector was BHP Group ((BHP)), which warned the bill would conservatively cut -$1.3bn from its earnings (representing 5000 jobs), resulting in lower dividend. 

BHP employs 80,000 people. The company paid a final dividend for FY23 of US$4.1bn. This compares with annual net income of $12.91bn in 2023, observes Macquarie. 

The broker observes New Hope Corp ((NHC)) and South32 ((S32)) were also early objectors.

Rio Tinto ((RIO)) was quick to lob a submission into the Senate arguing the laws will undermine productivity and reduce Australia’s competitiveness. 

Jarden Reviews Closing Loopholes Bill 2023

Jarden leads the analyst-pack on the social investing theme, and its work on the Closing Loopholes Bill 2023 in an October paper titled Which ASX-listed companies could be impacted by upcoming industrial relations changes? is no exception.

Jarden reviews the impact of bill and finds the Same Job Same Pay provision and changes to casual employees as the two most material changes for ASX-listed companies.

The broker places the odds of the bill passing at 50/50 given the Senate review is ongoing (report to be handed down in February 2024); some politicians are fence sitting; and the bill is facing strong opposition from business groups.

Senators Thorpe, Pocock and Lambie are the lynch-pins to its passage.

Sectors most impacted are mining and airways, observes Jarden, with the companies most impacted by the Same Jobs Same Pay reforms likely to be BHP, South 32, Rio Tinto and Qantas ((QAN)). 

Jarden considers the changes to be marginally negative for the oil and gas sector and industrials.

The analyst calls out Santos ((STO)), Beach Enery ((BPT)) and Woodside Energy ((WDS)) among the producers, and Orica ((ORI)), Aurizon ((AZJ)), Qube ((QUB)), Cleanaway Waste Management ((CWY)), Monadelphous ((MND)), NRW Holdings ((NWH)), Macmahon Holdings ((MAH)), Adbri ((ABC)), Boral ((BLD)) and CSR ((CSR)) among the industrials.

The brokers observes retail and healthcare sectors are big recruiters of casual labour and expects they will be marginally negatively exposed.

Jarden highlights Wesfarmers ((WES)) in this respect.

Among the food and beverage sector, Woolworths ((WOW)), Coles ((COL)), Costa Group ((CGC)), and Domino Pizza Enterprises ((DMP)) are considered vulnerable.

Among retailers, Universal Store ((UNI)), Premier Investments ((PMV)), Lynch Group ((LGL)) and JB Hi-Fi ((JBH)) are considered exposed.

In healthcare services, Ramsay Health Care ((RHC)), Regis Healthcare ((REG)), Sonic Healthcare ((SHL)), Healius ((HLS)), Integral Diagnostics ((IDX)), and Capitol Health ((CAJ)) are all flagged.

Meanwhile, Jarden says mining companies are expected to spend up to $24m to oppose the new industrial relations laws, with Rio Tinto, BHP and Glencore all reaching deep to fund the Minerals Council of Australia’s campaign.

The government’s Workplace Relations Minister Tony Burke questioned the validity of BHP’s estimates and has referred to the labour-hire system used by miners as a “loophole” that undercuts what casual employees receive in comparison to full-time employees, and added that this constituted a tax loophole.

A Tad Disingenuous

While the usual partisan brouhaha continues there is a certain disingenuousness to it all.

The Conversation observes that workers have been squeezed hard during covid, with the share of GDP being directed to workers falling to a record low of 44.1% (despite low unemployment and rising nominal wages) as at December 31, 2022.

The share of GDP going to corporate profits rose to a record (ex-Jobkeeper) 29.9%, with real wages plummeting, wiping out a decade of workers gains in real wages. 

One sees a similar trend occurring with other ESG themes.

Take single-use plastics as an example. Every man and his dog would have noticed the proliferation in plastics in supermarkets over the past few years. One has to be a reverse Houdini to get into almost any food item one purchases these days.

So the amount of single-use plastic appears to have been inflated prior to the introduction of plastics legislation (supposedly due in 2025), which should enable companies to easily meet their circularity metrics in the first few years of that theme’s introduction.

In other words, for corporations, all’s well on social’s IR Western Front – the main near-term challenge continuing to be tight labour markets.

Macquarie Reports Back From BHP Roundtable

BHP’s FY23 round table exemplifies the growing profile of social reporting among Australia’s corporates.

Decarbonisation naturally took centre stage but the company also provided a fairly comprehensive social update.

Macquarie lists the highlights:

Regular readers will remember BHP reported two fatalities in FY23 and an elevated injury rate, but so far FY24 has represented a considerable improvement. 

BHP advised it was doubling-down on existing tools and processes and said its High Potential Injury Frequency (HPIF) rate improved in the September quarter to its lowest quarterly rate in four years.

On the sexual harassment and psychosocial safety front, management said it was implementing programs across employees and contractors and observed sexual harassment reporting remained high; under-reporting remained and issue in the mining industry; and the company was extending its reach to remote mining villages.

Female representation workforce has doubled since 2016 to 35.2% in 2023.

Management advised it spent $33bn on remediation and compensation programs with 45% of the spend between January 2022 and October 2023.

It reports 80% of resettlement cases have been completed across the region and expects community resettlement to be finalised in 2024, and continues to fight what it perceives to be a duplicate claim in the United Kingdom.

Macquarie Zeroes In On Modern Slavery In Solar Supply Chains

Macquarie manages to combine both social and green themes in a recent research item outlining China’s actions on Modern Slavery in its solar supply chains.

China boasts a near monopoly position in solar panel manufacturing, much of which is built on alleged forced Uyghur labour in Xinjiang.

Macquarie says August research from Sheffield Hallam University explored this problem. The university found that in 2021, the US had restricted panel material imports from Xinjiang, which resulted in the redirecting of polysilicon production to other regions in China. 

However, sub-suppliers are still supplying the new regions, often with related product lines, from Xinjiang.

The research estimates that the Xinjiang region still supplies about 35% of the world’s polysilicon and 32% of metallurgical-grade silicon.

Even with rerouting, the research’s conclusion is that human rights breaches are pretty much impossible to avoid given China’s dominant position and, despite calls for increased transparency, opacity is growing. 

The world is moving to diversify its sourcing of solar panel components, as exemplified by Quinbrook’s recent $8bn commitment to create the world’s largest and greenest polysilicon manufacturing project at the Lansdown Industrial Precinct in Townsville, Queensland.

The upshot is that the cost of solar panels will rise over time, but this is occurring hand in hand with improvements in cost-cutting technologies, so time will tell how this plays out for China and the world.

Sovereign And Corporate Green Laggards To Pay The Price

Off the social theme, but interesting nonetheless, Management Science issued research a while back showing global laggards in decarbonisation are likely to be slogged with rising debt-servicing costs.

The research estimates 59 nations are likely to be impacted over the next decade.

The analysts advised that Australia, China, India, the US and Canada should expect heftier sovereign borrowing costs due to credit scores downgrades.

This is nothing new in itself, with FNArena observing this was likely to occur several years ago, but the research does take a punt on figures.

In one scenario, Management Science estimates the credit score of China and India could fall by two notches, Australia by one notch, and US and Canada by about half a notch under a climate-adjusted rating system.

This in turn is likely to translate into higher costs of corporate debt.

FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future: 
https://www.fnarena.com/index.php/financial-news/daily-financial-news/category/esg-focus/

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