The investor-led push on climate change

At the start of 2020, CEO of Blackrock, Larry Fink, announced that the world’s largest asset manager would be putting sustainability at the heart of its investment portfolio.

As the pandemic hit, there was concern amongst some that momentum gathered over the previous year, including through school strikes and the actions of Extinction Rebellion, would come to a halt.

But this momentum has continued to tick over. And it’s investors who are increasingly becoming a leading force in action against climate change.

Investors, including investor coalitions, large institutional investors and shareholder advocacy groups, are engaging with companies behind-the-scenes and at annual general meetings (AGMs) to drive the transition to clean energy practices.

In April 2020, support for shareholder resolutions on climate change put to Santos and Woodside’s AGMs reached new highs, with resolutions relating to the Paris goals and targets achieving 43.39 per cent and 50.16 per cent of the vote respectively.

This support is considerable, especially when in the past, vote percentages of around 10 to 15 per cent were enough for boards to sit up and listen.

Calls for action

Requests for action by investors, including in these resolutions, are sophisticated and diverse.

There are calls for business plans aligned to be with the goals of the Paris Agreement, including bringing forward the closure of coal-fired power plants.

Shareholders have raised concerns about the impacts of climate change and they’ve voiced unease about the effects of plans to drill for gas on Indigenous communities and sites of cultural significance. This in stark contrast to the Australian government’s position on a “gas-led recovery” from COVID-19.

And then there are calls for companies to end their support for business lobby groups that often take an anti-climate stance, as well as investors signalling their discontent with the management of companies by voting down executive remuneration reports.

In Australia, where investors are largely seen as having very good access to company boards and a strong culture of behind-the-scenes engagement, shareholder resolutions were previously regarded as more exceptional measures.

But, in recent years, there has been an increase in the number of resolutions filed at company AGMs specifically addressing climate change.

While shareholders’ ability to propose non-binding advisory resolutions on matters like climate change is restricted in Australia, they have managed this by bringing resolutions in two parts: one resolution requesting constitutional change to allow for non-binding resolutions and another with the substantive request on climate change.

Although not obliged to put the climate change resolution to vote, boards have generally done so and recorded the levels of support.

Closing coal-fired power plants

In advance of electricity and gas retailer AGL’s AGM in October, shareholder advocacy group, the Australasian Centre for Corporate Responsibility (ACCR), filed a resolution requesting that “our company align the closure dates of the Bayswater and Loy Yang A coal-fired power stations with a strategy to limit the increase in global temperatures to 1.5 degrees above pre-industrial levels”.

This followed company announcements earlier in the year updating climate change commitments but not including any change to the retirement timeline of its main coal-fired power stations. AGL is Australia’s largest electricity generator and largest carbon emitter.

The ACCR’s resolution was backed by heavyweight Blackrock, one of the company’s top shareholders, who stated that their support of the proposal was designed to encourage the company to “proactively and ambitiously manage the climate risk in its business model”.

At the AGM, company chairman Graeme Hunt faced repeated questioning from activists about the climate change risks to AGL and its contribution to the clean energy transition. The ACCR’s resolution ultimately amassed 19.96 per cent of the shareholder vote.

Notwithstanding this support, several big Australian superannuation funds chose not to back the resolution, instead pledging to continue engaging with AGL on climate change.

Similar resolutions calling for fossil fuel wind-up plans from Whitehaven Coal, New Hope Group, Beach Energy and Cooper Energy were also announced by activist organisation Market Forces earlier this year.

Whitehaven executives were also grilled by activists at the company AGM, only 3.97 per cent of shareholders voted in favour of the resolution.

Questioning a gas-led recovery

Energy company Origin has come under scrutiny by shareholders for its plans to drill for gas in the Northern Territory’s Beetaloo Basin and its decarbonisation strategy to limit global warming to well below two degrees in line with the Paris Agreement.

At the company’s AGM in October, Origin faced repeated questioning on the company’s plans to open up for exploration the Beetaloo Basin.

Despite these concerns, company executives repeatedly stated that gas has an important “firming” role to play in supporting renewables. And that the company has set short, medium and long-term aims to drive their decarbonisation.

The ACCR’s shareholder resolution filed ahead of the AGM also requested that the board “commission an independent review of the process undertaken by its predecessor(s) to obtain free, prior and informed consent (FPIC) from Aboriginal Native Title holders and claimants on whose lands our company intends to undertake hydraulic fracking in the Beetaloo Sub-Basin”.

The resolution secured 11.80 per cent of votes in favour, compared to 5.52 per cent for a similar resolution in 2019 and 7.73 per cent in 2018.

It dovetails with litigation launched by Beetaloo native title holders to substitute a new representative body to replace the Northern Land Council in their negotiations with energy companies over fracking for gas on their traditional lands.

Concerns around lobbying

Investors are also putting pressure on companies to ensure that their public policy advocacy, particularly through the industry associations they are members of, is aligned with the goals of the Paris Agreement.

Business lobby groups like the Minerals Council of Australia and the Business Council of Australia, have been under fire for using their influence to stymie proactive policies on climate change, which is out of line with the stated climate ambitions of member companies.

Consequently, investors have called on these companies to conduct reviews of their industry association memberships and to terminate them where a pattern of inconsistency emerges.

At Origin’s AGM in October, 25.25 per cent of shareholders voted in favour of a resolution recommending that the Board review advocacy activities undertaken by its industry associations relating to a “gas-led” recovery from COVID-19.

Some shareholders still voted in favour of the resolution, notwithstanding that Origin ended its membership to one association, the Queensland Resources Council, in early October, as did BHP.

This isn’t the sole instance of companies reviewing their industry association memberships following investor-led pressure and cutting ties where a pattern of anti-Paris Agreement advocacy becomes apparent.

In August 2020, BHP put lobby groups on notice by publishing a set of climate-related expectations for industry lobbyists including that their advocacy should be directed towards emissions reduction targets which increase in ambition over time.

Remuneration linked to carbon

Finally, investors are seeking to influence company transition to clean energy practices more indirectly by requesting company remuneration policies which incentivise progress towards emissions reduction targets.

For example, in June, AGL announced that it would link executive bonuses to climate goals – like investing in more renewable energy and selling more “carbon-neutral” power plans.

But at the company’s AGM in October, proxy advisors ISS and CGI Lewis urged their clients to vote against these carbon bonuses, criticising the pay structure as rewarding executives for merely performing their day job. 46.5 per cent voted against, a “first strike” (with only 25 per cent of the vote needed for the motion to carry).

Other companies, including BHP, have stepped up their ambitions to reach emissions reductions targets, including linking these to executive pay to keep management accountable for their commitments.

What next?

As the need for rapid reductions in greenhouse gas emissions is becoming increasingly urgent, it’s encouraging that some investors are stepping up their responsible investment in companies.

And indeed the pressure is mounting on investors themselves to further align their portfolios with the goals of the Paris agreement.

Those who fail to do so face the risk of litigation, as the REST superannuation fund learned when it was taken to court by member, Mark Veigh. The fund settled the case in early November after pledging to make climate risk a more central part of its investment strategy.

But the clock is ticking.

Fundamental shifts, including at the policy level and by companies and investors as well as governments, are needed for an orderly transition to a safe climate future.

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