Climate change risks and opportunities, in particular, warrant specific attention by the telecommunications sector. Australia’s climate has warmed on average by 1.44 ± 0.24 °C since national records began in 1910, leading to an increase in the frequency and magnitude of extreme weather events. These increased physical risks are increasingly causing disruption and damage to digital infrastructure and equipment both during these extreme events and during business as usual periods.

Shareholders are seeking transparency on ESG risks

The risks posed by ESG matters has led to pressures from both regulators and investors, who are now requiring organisations to be transparent about how they are responding to, and managing, ESG risks. A 2017 survey by the Responsible Investment Association of Australasia (RIAA) shows 9 out of 10 Australians expect their superannuation to be invested ethically and managed to balance their personal values and financial interests.

Shareholders are seeking investments that are ESG-aligned

ESG-aware investors are seeking sustainable or 'green' investments. Australian Securities & Investments Commission (ASIC) Deputy Chair Karen Chester said in a media release: "In our region alone, sustainability-labelled investments have more than doubled between 2019 and 2021. While globally, ESG assets are projected to exceed US$53 trillion by 2025 and represent more than a third of total assets under management."

Contracting is a tool which can assist telecommunications participants to address ESG risks and capture opportunities

As managing ESG risks and opportunities becomes a key value driver, carriers and digital infrastructure owners can seek to strengthen their ESG practices through contract drafting. We discuss below specific examples in the telecommunications industry of how contract clauses can be used to address the ESG-related risks and opportunities in practice.

The Carriers

Climate change and ESG practices have been front of mind for the Australian telco carriers for some time now. TPG Telecom recognises the threat of global climate change and is working towards aligning its business with the aims of the Paris Agreement. Telstra have also said that their emissions reduction target is based on their commitment to achieve net zero greenhouse gas emissions by 2050 in alignment with the Paris Agreement.

In April 2022, Optus Finance Pty Limited signed a A$1.4 billion sustainability-linked revolving credit facility. Green finance is investment activity designed to deliver improved environmental activities and this is the first green finance revolving credit facility by an Australian telco.

Optus is incentivised to reduce its carbon footprint as the interest rate discounts are linked to Optus’ achievement of reducing its absolute greenhouse gas emissions by 25% by 2025, compared to a 2015 baseline.

Optus has also completed its first assessment of scope 3 emissions to identify ways it can work with suppliers to improve sustainability. The review found that purchased goods and services and purchased capital goods make up around 86% of scope 3 emissions, so Optus will concentrate on these areas.

Digital Infrastructure Owners and Investors

Both Omers and AustralianSuper have invested heavily in the Australian digital infrastructure market.

In June 2022, Omers Infrastructure announced that Omers had signed an agreement to acquire Stilmark, an independent Australian developer, owner and operator of mobile tower assets. The transaction is Omers’ second tower investment in Australia in two months, following the announcement on 9 May 2022 that it signed an agreement to acquire 100% of TPG Telecom Limited’s mobile tower and rooftop portfolio.

Omers believes that well-run organisations with sound ESG practices will perform better, particularly over the long-term and these are the companies Omers will invest in.

In November 2021, AustralianSuper acquired a 70% stake in ATN from Singtel. In April 2022, AustralianSuper and Singtel owned ATN announced it had acquired Axicom, one of Australia’s leading providers of telecommunications tower infrastructure.

Similar to Omers, AustralianSuper also believes that companies that best manage ESG factors are likely to out-perform over the long term.

How can lawyers assist with this ESG transition and support companies with their responsible investment goals?

An emerging way lawyers can assist companies and their boards with their responsible investment goals is to incorporate climate and net zero aligned clauses in commercial contracts.

One telco carrier who has successfully done this is Vodafone UK, who has signed up to the United Nations Framework Convention on Climate Change (UNFCCC) Race to Zero campaign and aims to achieve net zero carbon emissions across its entire value chain by 2040. To help achieve this and decarbonise its supply chain, Vodafone UK has tailored The Chancery Lane Project’s (TCLP) climate clauses and blended them with its existing environmental compliance provisions in its supplier agreements.

Our Telco ESG Alignment Matrix below shows some examples of how carriers and digital infrastructure owners with a presence in Australia can potentially align their ESG practices by using mutually beneficial climate clauses in contracts.

Assisting with ESG Disclosure and Reporting

ESG-aligned clauses can be used by organisations to gather data to help them report on their reporting requirements, such as those under the Global Real Estate Sustainability Benchmark (GRESB) or to report on progress on ESG targets. Organisations can use their contractual frameworks to ensure they are collecting data that is consistent and useful for ongoing management of ESG risks.

For example, organisations would need to consider the relevant TCLP clauses and their reporting criteria (such as greenhouse gas energy performance under GRESB), then update the TCLP clauses to ensure that the information being gathered by the clauses is consistent and useful for the organisation's ESG reporting system. TCLP clauses provide mechanisms to allow organisations to report, manage and improve their climate performance.

Greenwashing

It is important to note that companies must be careful to ensure their disclosed ESG policies and practices are accurate and are not “greenwashed” or misleading, as they may face potential regulatory action, shareholder activism and reputation loss. ASIC considers “greenwashing” as the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical.

Climate action remains at the top of the business agenda

As climate action remains at the top of the business agenda, it is encouraging to see that commercial contracts are being used to deliver on climate ambition.

Parties wishing to use climate and net zero aligned contract clauses need to understand the value, challenges and feasibility of using such clauses in contracts. It will be important to get buy-in from senior colleagues, consult specialist departments across the organisation and consider advice from external stakeholders. When Vodafone UK did this, they ran a robust consultation process with internal specialists and external legal stakeholders.

How we can help

Both carriers and digital infrastructure owners have acknowledged that climate change and environmental sustainability are the defining challenges of the decade and there is a significant opportunity ahead for their ESG practices to be aligned by the use of climate and net zero aligned contract clauses.

We can help both carriers and digital infrastructure owners implement drafting to manage and report on ESG goals while also recommending practical steps to meet customer and stakeholder expectations.

We are in a unique position to support our clients in navigating ESG challenges through our extensive telecommunications expertise in conjunction with our market leading climate risk governance specialists. Contact us to discover how we can assist you in this evolving landscape.