ESG Focus: The Little Big Things – 08-10-2024

This story features JAMES HARDIE INDUSTRIES PLC, and other companies. For more info SHARE ANALYSIS: JHX

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/

The European Union gets tough on PFAS and deforestation; Australian companies updating ESG goals, plus: green hydrogen, not so fast folks.

-James Hardie & BHP up the ESG credentials
-Hydrogen more bust than boom
-EU targets PFAS & deforestation exposure
-Data centres: risks & opportunities 

By Danielle Ecuyer

James Hardie in ESG focus

Jarden took a deep dive into James Hardie Industries’ ((JHX)) ESG framework which was recently released. Management focused on “four pillars”, notably, zero harm, planet, innovation and communities including employees, and supply chains.

The company also announced a step up in ambition for its goals. These were highlighted by the broker as follows:

-A reduction of -42% in absolute emissions by 2030 from a 2021 base line, with all testing and monitoring to align with the Paris Accord
-Zero manufacturing waste to landfill by 2035 (including recycled water and materials waste)
-Recycle an additional 30m cubic feet of water by 2030 versus 2019 baseline
-Women in management targeted to reach around 25% from 23% currently and 19% last year

James Hardie also provided an update on the company’s ESG profile, highlighting a decline of -10% in scope1 & 2 emissions versus the 2023 baseline;  completion of risk mapping for tier 1 suppliers; zero harm month commenced last October with a focus on mental health and an improved percentage of women in management.

“Over time, James Hardie believes sustained building practices should prove advantageous to its value proposition, particularly amid increasing climate events (e.g. hurricanes, bush fires, etc.). “

Jarden has a Buy rating with a $54 target price. 

BHP Group in ESG focus

Macquarie outlined BHP Group’s ((BHP)) 2024 Climate Transition Action Plan with a vote to be held on Oct 30 at the AGM.

The broker pointed to several targets:

–Scope1 & 2 emissions: Target to reach net zero by 2050. Management expects 85% of the target to be achieved and the balance will be accounted for by carbon offsets. A reduction in greenhouse gas emissions of  -30% by FY30 versus FY20 baseline. The targets are expected to require up to US$4bn in capital to achieve the 2030 commitments with the majority weighted to diesel replacement in the latter years of the 2020’s

–Scope 3 emissions: Target to support an emissions intensity reduction of -40% of BHP’s chartered shipping of products, as well as support the industry to develop steel production technology allowing a reduction of -30% in greenhouse gas emission intensity relative to conventional blast furnace steel making

Macquarie highlights the net present valuation for BHP Group under a 1.5-degrees Celsius warming scenario is approximately the same as the current base case of its planning range.

The company’s strategic move to copper, potash and nickel assets relative to the base case is viewed as positive and offsetting downside risks from steel making coal.  The broker notes there are no impairments from the 1.5-degree scenario to the iron ore business.

Hydrogen fuel, it’s not easy being green

The Australian government released the 2024 National Hydrogen Strategy on September 13 to assist in the acceleration of the domestic hydrogen industry using existing renewable energy resources.

Macquarie notes global demand for hydrogen stands at around 70m tonnes p.a. and the broker estimates the range for global demand between 2m and 9m tonnes in 2030 and between 20m to 230m tonnes in 2050.

Australia has a target to achieved 15m tonnes of production of renewable energy hydrogen annually with possibility 30m tonnes by 2050.

The broker considers Australian hydrogen could avoid emissions of between -92m and -186m tonnes of CO2 p.a. by 2050.

Current production costs stand at $5-$10kg and need to be lowered to between $2kg and $3.25kg, particularly for transport and industrial uses.

Since 2015, the government has committed over $146m to hydrogen projects along the supply chain, around $68m in R&D, around $5m in feasibility studies, $5m in demonstration and $69m in pilots.

Currently, the country represents around 20% of all hydrogen export orientated projects globally with a pipeline valued at $225bn-plus.

Since the government’s announcement, Origin Energy ((ORG)) reported it was ceasing its hydrogen development plans in the Hunter Valley Hydrogen Hub in NSW. The company pointed to a slower pace of development in the market, ongoing cost risks and technology issues. Overall, the project had become too capital intensive and risky.

Origin had received $70m from the Australian Government Regional Hydrogen Hubs program, $45m from the NSW Hydrogen Hubs initiative and was shortlisted for possible funding from the Commonwealth government’s $4bn Hydrogen Headstart Program.

The company’s CEO is instead concentrating on renewables and storage, believed to be more advantageous for decarbonisation and energy security.

Fortescue ((FMG)) and Woodside Energy Group ((WDS)) are also reported as scaling back or ceasing hydrogen projects.

Hands off my personal information

Macquarie also reports on the introduction of the first stage of the of the Privacy Act to parliament. The broker observes, if passed the new legislation will address 23 out of the 25 proposals that government agreed to in response to the Privacy Act Review Report.

Improved transparency of privacy and the consent mechanism may limit the collection of personal information. The analyst points to several stocks which may be impacted, including ARN Media ((A1N)), Nine Entertainment ((NEC)), News Corp ((NWS)), oOh!Media ((OML)), Seven West Media ((SWM)) and Southern Cross Media Group ((SXL)).

EU says goodbye to PFAS 

Macquarie states on September 19 the EU gave the final approval to restrict the sale and use of PFHzA, a sub-class of PFAS in consumer textiles, food packaging, personal, household care products and firefighting foam products.

The new rule mandates a maximum concentration of 25 parts-per-billion for sum of PFHxA and its salts or 1000 parts-per-billion for the sum of PFHxA in several uses.

From October 2026, the restriction will apply to textiles, leather, furs and hides in clothing and related accessories for the public, including footwear, paper and cupboard used as food contact materials, and cosmetic products.

From Oct 2027, the list will be extended to include other forms of textiles.

In the US, if the No PFAS in Cosmetics Act is enacted it would require the FDA to ban the use of “intentionally added PFAS” in cosmetics and enforce this. It is currently in the introductory stage and has been since November 2023.

I don’t know about you, but the thought that PFAS is knocking around in so many products is hardly making my day!

Taking on the challenges of deforestation

Morgan Stanley reported the European Commission’s further guidance for EU deforestation regulations have been deferred for a further 12-months to allow companies to prepare.

The regulations are subject to approval by the European Parliament and Council, and if instated, the deadline for compliance is slated for December 30, 2025. For small and micro-sized businesses the deadline will be June 30, 2026.

The new regulations are designed to implement a no deforestation policy and will oblige companies importing/trading cocoa, soy, palm oil, cattle, natural rubber and wood  to prove their operations have not contributed to deforestation from 2020 onwards.

The consumer staples, paper/packaging and tyre makers have the highest exposure to these agricultural commodities.

The aim, the broker highlights, is “a balanced solution to support operators around the world in securing a smooth implementation from the start.”

Growth in data centres challenges sustainability targets

With all the interest in growth in data centre demand, Morgan Stanley highlights where investors interests lay when it comes to “Dynamics Surrounding Gen.Ai “

The broker points to the cumulative carbon footprint at an estimated 2.5 giga-tons (or billion tonnes) through to 2030, with 60% relating to the buildings’ power needs (operational carbon) and 40% to embodied carbon (emitted in manufacturing construction materials and equipment for the facility).

These estimates are generated from the expected US data centre build out and the broker believes the carbon footprint is much bigger than appreciated which presents considerable adjacent opportunities for the likes of renewable energy exposed companies.

Interestingly, for the fan boys and girls of chip makers, the estimated shortage of US data centre capacity infers a mismatch between new data centre builds in 2025 versus the ability to absorb the volume of generative AI chips been sold, at over 10GWs versus data centre under construction demand of under 6GWs.

Morgan Stanley believes there are sustainability benefits of re-purposing bitcoin mining sites to AI data centres, highlighting two positive factors. 

AI is viewed as more of a net positive to society versus bitcoin mining, when considering the ability to improve healthcare services, education, drug development, and advanced climate change efforts.

Secondly, the asset for a bitcoin mining facility is the connected power through the existing interconnection rather than the mining itself.

Morgan Stanley stresses the market is under-appreciating the growth in large scale renewables as it relates to generative AI and the potential for new natural gas generation and what it means for hyperscalers to achieve sustainability goals.

Last week, the CEO of Google Sundar Pichai outlined the company’s conflicts of meeting the 2030 emissions targets against the goal to develop hyperscale capacity for Gen.AI. Morgan Stanley argues it is debatable whether hyperscalers will be able to reach their sustainability 2030 net carbon goals by 2030. 

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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