Managing Director’s Message
It has long been the case that access to a reliable and affordable supply of energy has been central to the economic development of nations and to the improvement in the standard of living that people naturally seek.
In more recent times, it has also become the objective of our industry that the contribution energy makes to improving living standards be achieved in an environmentally as well as economically sustainable basis.
In seeking to meet this objective, environmental and economic goals can often be competing but are not necessarily mutually exclusive – they require a balance between them to be met.
At Origin we are always seeking to find this balance, particularly in the opinion of our key stakeholders – our shareholders, customers, employees and the communities we serve. We listen to and consider the opinions of our key stakeholders and they inform the choices we create and the decisions we make.
Balancing environmental and economic outcomes
As a diversified energy company active in both domestic and export markets, we see that the global energy landscape is subject to continual change. We regularly evaluate how these global trends create opportunities and risks in our business and respond to them appropriately.
As world population grows, energy demand grows with it. We know that the carbon emissions associated with traditional forms of energy production have to be significantly curtailed. For this to occur there must be a significant transition in the way energy is produced and used and this necessary transition creates the long term risks for investors in the energy sector.
The International Energy Agency (IEA) has been charged by governments around the world to analyse and interpret data relevant to energy and climate change in order to provide guidance on how climate change can be addressed.
The IEA’s guidance is framed by global warming scenarios – two of which are the New Policies Scenario and 450 Scenario – and provides direction on the appropriate energy mix in order to minimise the impacts of climate change. In both scenarios, the world must place limits on the use of high-emission fuels such as coal, increase in appropriate quantities the use of natural gas, and grow the contribution of renewable energy.
The IEA estimates that an investment of $2 trillion a year(1) is required through to 2040 to provide sufficient energy to meet the world’s growing energy needs on an environmentally and economically sustainable basis.
Throughout the world the transition in the way we produce and use energy required to balance environmental and economic outcomes creates significant risks for businesses like Origin. Our industry has invested significantly in long life, capital intensive, energy producing assets to meet our customers’ requirements for an affordable and reliable supply of energy, yet some of these assets are more carbon intensive than many believe is appropriate to operate in a more carbon constrained future.
Origin has always managed this risk by investing in less carbon intensive forms of energy such as natural gas and renewables, and assets that are more carbon efficient than industry average – such as the Eraring coal-fired power station. Recognising the inevitable move to more renewable generation, Origin has remained underinvested in generation relative to the energy we sell to our millions of customers. This reduces the risk that Origin will have stranded generation assets and gives Origin the opportunity to invest in less carbon intensive assets such as renewables when it is economic to do so.
Governments have a critical role to play in facilitating a balanced transition to a less carbon intensive economy. They not only set the policy framework in which the industry operates but also often set targets for specific outcomes such as renewable energy targets, efficiency targets and carbon pricing schemes.
Properly designed policies, regulations and targets can play a critical role in accelerating the required transition, and conversely, poorly designed policies can have a very damaging effect on the industry.
There is much in the global experience of government intervention that has weakened the industry’s ability to fund required ongoing investment in energy production. Poor policies, poorly implemented, have had a damaging effect. In Australia in the two decades since the nation committed to reducing carbon emissions by 5 per cent on 2000 levels by 2020, there has been a multiplicity of initiatives at state and federal level that have significantly increased risks for investors in the industry.
Notwithstanding this experience, Origin has supported the reframing of the Renewable Energy Target and also supports the Australian Government’s announcement of a post 2020 emissions reduction target of a 26 to 28 per cent reduction on 2005 levels by 2030 as a target that is balanced in its aspiration and its feasibility. Origin looks forward to a successful global outcome at the COP21 meeting in Paris in December 2015, and the subsequent policy detail that brings clarity and certainty to the energy policy landscape in the years ahead.
Each year, Origin publicly reports the absolute emissions and emissions intensity of our power generation and natural gas production activities. This year’s results reconfirm that Origin’s power generation activities compare favourably to many of our peers and align with both Australia’s and global climate change objectives.
Given Origin’s integrated business – one that sees us developing, generating and selling energy – we undertake a diverse range of activities in the communities in which we operate. We give careful consideration to our environmental footprint across this range of activities, and provide transparency through this report on the environmental impact of our activities.
Balancing our commitments to stakeholders
We also seek to find a balance in our business in meeting the expectations of our key stakeholders – our customers, shareholders, employees and the communities we serve.
We recognise these expectations through the commitments we make in our Compass and know that fulfilling these commitments can often require difficult choices and decisions to be made if we are to achieve a balanced outcome, which will be sustainable over the longer term.
Our principles and values provide the guidance we need to make these choices and decisions.
We set targets and measure performance to evidence our progress in delivering on our commitments.
To measure our progress we use:
- Safety and Engagement for our people;
- Total Shareholder Returns for shareholders;
- Net Promoter Score for customers; and
- Reputation for the communities we serve.
We have high aspirations for our performance on each of these measures and set targets each year to continually improve.
This year our results are as follows:
- Total Recordable Injury Frequency Rate (TRIFR) for safety: performance improved to 3.8 compared with 5.0 in the prior year;
- Total Shareholder Returns for financial performance: -15 per cent for the year when compared with +125 per cent during the past decade;
- Net Promoter Score: a 9 point improvement on the prior year to -39, from -48;
- Engagement for our people: up 5 points to 52, from 47 last year; and
- RepTrakTM for community reputation: at 61.8 which is steady with the prior year, and the year average up on the prior year average.
With the recent fall in oil prices and the prospect that this situation may persist longer than might have previously been anticipated, our shareholder returns over the year in review have been significantly reduced. We have lost some of the balance we seek to preserve and have taken action to build resilience within Origin to operate in a lower oil price environment and restore balanced outcomes for our key stakeholders.
We believe that our performance against these measures helps us understand whether we are getting the balance right in respect of the commitments we have made to our key stakeholders.
This is our 14th annual Sustainability Report and details our performance in the Material Aspects of our business. We believe it demonstrates a year of good operational performance across our business and continued progress on building a strong and sustainable company that finds the right balance in meeting the expectations of our key stakeholders.
Global reporting initiative
Detail on our performance using the GRI G4 Guidelines is now available for download using the links below.
- International Energy Agency, Energy and Climate Change, World Energy Outlook Special Report 2015
As Australia’s leading integrated energy company, we are constantly working to deliver today’s energy needs and searching and innovating to create tomorrow’s energy solutions.