The decarbonisation of the global economy is going to create the greatest investment opportunity of our lifetime, according to KPMG’s Global Oil and Gas Lead, Jonathan Parker. But how do companies prepare, and what role does government have in making it happen?

Growing seedlings in the Markham Valley for carbon capture. Credit: Santos

According to International Energy Authority estimates, Jonathan Peacock says, ‘by 2030, we need to have US$4 trillion invested in renewables, of which a trillion needs to be in developing economies. I see this as a huge opportunity for PNG to pursue.

‘The decarbonisation of the economy will be accompanied by enormous job creation for those that engage in the necessary long term planning.’

Big questions

For investors who want to take part in this bonanza, he says, it means asking ‘how does your investment aligned with the net zero commitments in PNG and what PNG legislation exists?’

‘Capital markets are now increasingly moving towards pricing climate and they are taking “nature risk” into the investment and credit decision-making.’

KPMG’s Global Oil and Gas Lead also notes that government has a key role to play:

‘If there’s one thing that’s common to both sets of stakeholders – companies and investors – it’s what they need from government: a stable and predictable environment for foreign investment.’

‘The opportunity for PNG is to develop a fit-for-purpose policy framework and I would argue leveraging off the lessons of others.’

For example, he considers the Inflation Reduction Act in the US, which has boosted in-bound investments especially in renewables, as ‘probably the most significant piece of legislation with the greatest impact.’

In addition, he thinks, governments need to look at how they incentivise investment from a community perspective, and set out how companies should be measuring and reporting on their progress towards net zero.

Doing nothing a risk

KPMG’s Jonathan Peacock

He also warns that companies that don’t adapt – regardless of the industry that they’re in – could be left behind.

‘Capital markets are now increasingly moving towards pricing climate and they are taking “nature risk” into the investment and credit decision-making.

‘I think you’re going to see a number of central banks and regulators outlining a more supervisory approach to institutions, to the financial risks towards climate.’

This is already starting to have an impact of exporters to the European Union, for example, where the EU regulation on deforestation-free products, introduced in May this year, will place environmental obligations on exporters of commodities such as cattle, soy, wood, cocoa and coffee in order to access the EU market.

‘This will have real life implications,’ Peacock says. ‘We’re already seeing accounting for nature on balance sheets.’

Get smart

Peacock notes that major players in PNG’s hydrocarbons sector, Santos (net zero emissions by 2040) and ExxonMobil (net zero by 2050), have already made public commitments to decarbonise.

‘The procurement functions of some of the partners you want to work with will preclude you when they start to do ‘know your customer’ checks.’

In PNG, Santos’ carbon solutions team, for example, is currently about a quarter of the way towards planting 15-to-18 million trees in PNG’s Markham Valley with the aim of sequestering eight million tonnes of carbon over 40 years.

Financiers are making similar commitments. Westpac and ANZ, for instance, are both members of the United Nations-convened Net-Zero Banking Alliance, which commits financial institutions to align their lending portfolios with net-zero emissions by 2050.

The issue isn’t just for the big companies, however, but also for smaller companies seeking to do business with them. For those, Parker has some advice:

‘You need to make sure that you’ve got the right things in place to participate. For instance, the procurement functions of some of the partners you want to work with will preclude you when they start to do ‘know your customer’ checks.

‘I would argue that suppliers would be pretty smart if they were across all of that before they start engaging with the major players.’