Introduction

The report examines the role of sector transition pathways in addressing climate change risks and ensuring a just and orderly decarbonisation of the Australian economy. It underscores the necessity of aligning these pathways with the Paris Agreement’s target of limiting global temperature increases to 1.5°C. Pathways allocate Australia’s emissions budget across sectors, considering cost efficiency, technology deployment, and the socio-economic implications of decarbonisation. Investors play a critical role in this process, driven by fiduciary responsibilities to manage climate-related risks and opportunities effectively.

The role of Sector Transition Pathways

Sector pathways are essential for achieving Australia’s emission reduction targets by 2050. They distribute the national emissions budget across sectors based on cost-efficiency and technology readiness. Pathways also guide government, companies, and investors in their collective decarbonisation efforts. The report highlights the importance of integrating sector-specific characteristics and aligning policies with economic, social, and environmental goals to minimise stranded asset risks and ensure effective capital allocation.

What Sector Transition Pathways are not

Sector pathways are not static or rigid prescriptions but dynamic frameworks that must evolve with new scientific and economic insights. They differ from scenarios as they aim to guide actions rather than test resilience. Additionally, they do not replace the Safeguard Mechanism but complement it by providing a roadmap for businesses to align with national climate goals.

Investor use of Sector Transition Pathways

Investors rely on sector pathways to understand macroeconomic trends, assess risks, and guide investment decisions. They use pathways to forecast changes in imports, exports, labour demand, and infrastructure needs. Pathways also assist in identifying opportunities in renewable energy, hydrogen, and electric vehicle infrastructure. Additionally, they help investors meet regulatory disclosure requirements and support company-level climate transitions.

Investor expectations of Sector Decarbonisation Pathways

Investors expect pathways to be credible, transparent, and aligned with the Paris Agreement. They should cover all greenhouse gases, provide granular sub-sector data, and be regularly updated to reflect evolving conditions. Pathways should also highlight non-market mechanisms, such as energy efficiency and behavioural changes, while prioritising emission reductions within sectors over reliance on offsets. Investors emphasise the importance of comprehensive and dynamic approaches to ensure pathways remain actionable and relevant.

How investors see companies and governments using Sector Transition Pathways

Investors expect companies to align their emission reduction targets and capital expenditure with sector pathways. Clear government policies are crucial to enable investment and support companies in developing transition plans. Governments are also expected to address market failures, invest in infrastructure, and ensure just transitions for communities affected by decarbonisation efforts.

Conclusions

Sector transition pathways are vital for aligning stakeholders and reducing policy uncertainty in Australia’s climate response. They help guide technology development, investment strategies, and workforce planning. By providing clarity and stability, pathways facilitate an orderly and efficient transition, ensuring Australia contributes effectively to global decarbonisation efforts while supporting economic growth and competitiveness.

This collaborative approach requires coherent policies, transparent data, and regular updates to remain effective amidst dynamic global conditions.