Article by Russell Baker for the Investment Magazine
It is hard to imagine a potentially more impactful investment than partnering with Indigenous communities to develop a clean energy project in regional or remote Australia.
For an asset owner, it is an opportunity to help decarbonise both their portfolio and the economy; to promote a just transition to net zero; and to advance Indigenous economic self-determination. As a bonus, co-ownership of a project with First Nations peoples also de-risks the project as land access and community support are likely to come as part of the deal.
Modelling by Net Zero Australia (NZA) estimates 43 per cent of all clean energy infrastructure required to get Australia to net zero emissions by 2060 will need to be sited on the Indigenous Estate. So, asset owners are likely to be considering plenty of these opportunities in coming years.
The National Native Title Council (NNTC) says such a massive undertaking “calls for a re-conceptualisation of the role of First Nations in development”. The peak body for traditional owners and their representative bodies says “the mistakes of the resource extraction industry need to be learned from” and we must “ensure the transition to net zero delivers real benefits such as co-ownership and community-controlled projects”.
Co-ownership projects
Over the last couple of months a number of large clean energy projects premised on Indigenous equity ownership and management participation have been mooted.
For example, three Indigenous organisations – MG Corporation, the Kimberley Land Council and Balanggarra Ventures – and climate advisory firm Pollination have formed the Aboriginal Clean Energy Partnership (ACEP) to own and develop the proposed East Kimberley Clean Energy Project. This will be a hydrogen and ammonia production hub, that will kick off with a 900MW solar farm and a hydrogen production facility on MG Corporation freehold land near Kununurra.
Yindjibarndi Aboriginal Corporation (YAC) and Philippines-listed renewable energy developer ACEN have formed Yindjibarndi Energy Corp (YEC) to develop renewable energy projects on Yindjibarndi country. YEC’s initial plans include 750 MW of combined wind, solar, and battery storage in the Pilbara.
There are now about a dozen clean energy projects involving some level of Indigenous co-ownership and/or meaningful economic benefit sharing and participation. But there needs to be many more. NZA says a whopping $7-9 trillion of capital needs to be attracted and invested across Australia by 2060 to achieve net zero.
This begs the big question: exactly how are Indigenous communities expected to fund and manage their equity participation in an economic transformation of this scale?
As the NNTC notes: “First Nations communities have long had poor access to finance and other critical support needed to manage country and take a pro-active role in renewable energy projects, including to obtain equity stakes in projects”.
An Indigenous Land and Sea Corp-sponsored discussion paper, Renewable energy and Indigenous people, argues most First Nations communities do not have the financial capital to ‘buy into’ equity ownership. Even for groups with sizable funds, “most of this Indigenous-owned capital is often tied up under restrictive trust deeds or government-controlled investment mandates,” the paper said.
Diverse opinions
However, before investors and financiers rush off and craft the funding solutions a more important question they need to ask is what are the aspirations of diverse First Nations communities and how do they see themselves participating in the clean energy transition. The answers should inform how Indigenous co-ownership is structured for communities that want to take that participation route.
The First Nations Clean Energy Network is helping the Federal Government develop its First Nations Clean Energy Strategy. The Network has been hosting a series of roundtables where First Nations peoples and organisations – such as land councils and prescribed bodies corporate (PBCs) – discuss what is important from their perspective.
The published summaries of the roundtables should be mandatory reading. The Pilbara region roundtable discussed, for example, a desire for community and utility scale renewable energy projects to be directly owned First Nations communities. These projects could support communities to go ‘off grid’ and be independent of centralised utilities; or they could be developed to sell electricity into the grid, providing communities with a regular income stream. Participants lamented the lack of resourcing for communities and their representative bodies “to engage with the myriad of clean energy and other companies vying for their communities’ attention”.
At the Queensland roundtable there were calls for early and meaningful engagement on clean energy projects, before pre-feasibility planning commenced. There was a need to build trust and relationships between First Nations communities and government, industry and other stakeholders.
Participants noted their deep connection to country and their commitment to managing and protecting their land, water and cultural heritage. They wanted government and industry to learn from them about the cultural and environmental impacts of clean energy projects
In the Northern Territory, the lack of access to affordable and reliable energy in remote communities and town camps was raised. It was agreed there was a need for improved education and training so that remote communities could upskill locally and be able to operate and maintain their local renewable energy systems.
The key common theme in all the roundtables to date was the need for industry and governments to engage on the basis of free, prior and informed consent (FPIC), including a community’s right to withhold consent.
Not desperately seeking alpha
Apart from listening to First Nations voices, ESG-focussed asset owners might also have a lot to learn from Indigenous entities about investing.
A recent article on “Indigenous sustainable finance as a research field”, published in academic journal Accounting & Finance, noted “long before sustainable investments and the integration of ESG criteria in investment decisions became a trend, Indigenous groups have, as a consequence of cultural imperatives, emphasised the need for sustainability and environmental guardianship in their investments and development projects”.
Many asset owners and managers need to demonstrate that sustainable investments deliver superior risk-adjusted returns and feel obliged to offer this as a key rationale for adopting sustainable investment approaches. “In contrast, Indigenous sustainability is taken as a priori; therefore, investment activity is driven by a robust eco-system of Indigenous sustainability values (rather than alpha-seeking behaviour),” the article said. For First Nations entities that invest, “sustainability is not a trend to be taken advantage of – it is their raison d’être”.
For First Nations entities that invest, sustainability is not a trend to be taken advantage of – it is their raison d’être
Unfortunately, the article is not alone in believing that to date the sustainable finance world has largely “neglected the body of knowledge which Indigenous peoples have curated through generations of sustainable and Indigenous community practices”.
Leading mainstream ESG standards created by the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-Related Financial Disclosures (TFCD) have been developed without little consideration of the rights, interests and knowledge of First Nations peoples, the article argued.
Equity solutions
Back to the equity question. Innovative funding models and mechanisms will no doubt be developed involving, say, future revenue streams from a clean energy project being ‘monetised’ to enable Indigenous organisations to fund their equity participation.
The Clean Energy Finance Corp (CEFC), might, for example, offer a long-term concessional loan to a special purpose vehicle (SPV) holding an Indigenous community’s equity stake that does not need to be repaid until the project starts distributing dividends to the SPV.
Indigenous communities might also look at ways to monetise their intellectual property as experts on land management – and how this enhances project returns – to close the equity financing gap.
Meanwhile, the First Nations Clean Energy Network is part of a concerted push for the Federal government to commit to a ten-year $100 billion Australian Renewable Industry Package. Elements of the package include supporting First Nations co-ownership and place-based precinct co-development.
Canada Can Do
Canada also has plenty of examples of Indigenous-led clean energy projects that receive federal funding or are a joint ventures with private companies that have successfully dealt with the Indigenous ownership issue.
More than 200 medium-to-large clean energy projects with Indigenous ownership or involvement are now operating or in the final stages of planning or construction in Canada. First Nations peoples in Canada currently own, co-own or derive financial benefit from almost 20 per cent of the country’s electricity-generating infrastructure.
The Australian Sustainable Finance Institute (ASFI) has established a First Nations Reference Group. Among the 30 individuals in the reference group are representatives from the Australian Council of Superannuation Investors (ACSI), REST, QIC, Industry Super Australia, IFM Investors and First Sentier.
According to ASFI’s Australian Sustainable Finance Progress Tracker 2023 launched at its annual summit last week, the Reference Group’s role includes “identifying gaps and opportunities for the finance sector to support economic self-determination”.
Given the path to net zero runs through Indigenous lands, no doubt the Reference Group is looking at how the finance sector can support Indigenous ownership.