Australia’s first climate change shareholder resolutions

Our Climate Advocacy Fund’s team of researchers have identified four Australian companies that they believe might improve their response to the climate conundrum, with a little pressure…

Nearly every country in the world is a signatory to the Kyoto Protocol to the United Nations Framework Convention on Climate Change. The Kyoto Protocol introduced individual country targets for reducing greenhouse gas emissions and established arrangements for international emissions trading in 2005. A number of countries including the European Union countries have introduced emission trading schemes as a result.

It appears probable over the next decade that many more countries will introduce some form of carbon emissions regulation or pricing. However, there is a lot of uncertainty about:

  • which countries will participate
  • the pace of introduction of such schemes
  • their design and the extent to which they will aim to and successfully achieve significant carbon emission reductions.

From an economic perspective an agreement to implement multinational carbon emission reductions is much like a free trade agreement to eliminate industry protection. On balance, the economic gains from carbon emission reductions are expected to outweigh the economic losses, just as the gains from free trade outweigh the losses. There will be significant economic and financial benefit to most countries, industries and companies. However, some carbon intensive industries and companies may suffer significant losses.

Engaging companies on climate change

Australian Ethical Investment, the responsible entity of the Climate Advocacy Fund, believes companies will be better placed to transition to a lower carbon economy if they:

  1. describe their carbon emissions footprint
  2. have a plan to reduce their overall emissions to a publicly stated, targeted level (or at least to target a reduced level of emissions intensity)
  3. ensure investment decisions and balance sheet valuations are based on publicly stated, reasonable assumptions about future carbon emission pricing and regulation.

In particular, Australian Ethical Investment is of the view that companies cannot expect to be compensated by taxpayers for changes in public policy which have been in prospect for two decades.

Over the past few months, the Climate Advocacy Fund’s team of researchers identified a number of Australian companies that they believed might improve their response on one or more of the three points above. Australian Ethical Investment wrote to nine of these companies to seek clarification on these points.

For the 2010-11 Australian corporate reporting season, the Climate Advocacy Fund has lodged resolutions for consideration at the AGMs of four companies:

  • to Aquila Resources Ltd AND Paladin Energy Ltd on point one above
  • to Oil Search Ltd on point two above
  • to Woodside Petroleum Ltd on point three above.
Shareholder statements

In accordance with the Corporations Act we have asked these corporations to distribute the shareholder statements to all their shareholders:

Background to the resolutions

The following material provides more detail on the background to the resolutions.

Trucost Plc is a UK based provider of information about the carbon footprint of organisations. Trucost estimates the average carbon intensity of ASX 200 companies is 370 tCO2-e/AUD million turnover.1

We believe the ability of a company to manage risk, including carbon emissions related risks, begins firmly with the disclosure of that risk.

Proposed resolutions to Paladin Energy and Aquila Resources

Paladin Energy Ltd and Aquila Resources Ltd are estimated by Trucost to have been in the top 15 of all ASX 200 companies by carbon intensity between 2006 and 2008.2 The report used actual emissions data from companies where they were available.3 Where data was unavailable, Trucost calculated the likely emissions.4

Paladin is ranked third by Trucost with intensity in excess of 2,500 tonnes of carbon dioxide equivalent (CO2–e) for every AUD 1 million of turnover. Aquila is ranked 13th in this report with its emissions exceeding 1,500 tonnes CO2–e for every AUD 1 million of turnover. To our knowledge, neither Paladin nor Aquila has publicly disclosed their actual emissions.

In these circumstances Australian Ethical Investment is of the view that were Paladin and Aquila to disclose details of their actual carbon emissions footprint, it would enable shareholders and potential investors to make a better informed assessment of each company’s strategies and prospects. This disclosure would best be done using a standardised disclosure framework like that provided by the Carbon Disclosure Project. Indeed, Paladin and Aquila are amongst the largest companies within the Australian energy and utilities sector that do not currently participate in the Carbon Disclosure Project.

Proposed resolutions to Oil Search and Woodside Petroleum

The other two companies that the Climate Advocacy Fund has “lead filed” resolutions with are Oil Search Ltd and Woodside Petroleum Ltd. Both operate in the oil and gas exploration and production industry.

On 18 March 2010 a coalition of European, Australasian and US institutional investors released climate disclosure guidelines for the oil and gas sector, which states:

More than many sectors heavily exposed to carbon intensive products, the oil and gas industry faces a difficult transition to a low carbon economy through a progressive and irreversible shift away from fossil fuels towards less carbon intensive sources of energy. … Approximately half of the value of companies in the industry lies in the assets they have yet to exploit – their reserves – the value of which are significantly greater than the value of currently productive assets. As a consequence, analysis of the prospective carbon liabilities associated with those future productive reserves is vital to understanding the extent of value at risk through climate and policy related change in coming years.5

As at June 2010 Woodside was the largest company in the Australian listed oil and gas sector, while Oil Search was the third largest.

Oil Search is listed on the CDP website as ‘declined to participate’ in regards to 2006 and 2007 and ‘no response’ in regards to 2008 and 2009. For 2010 its response is listed as ‘details not publicly available.’6 As an owner of Oil Search shares, our view is that were Oil Search to have a target and plan to reduce its total greenhouse emissions from the company’s products and operations, it would be better placed for the transition to a low carbon economy.

By contrast, Woodside has participated in the CDP since 2006. However for the years 2007 to 2009 its response is listed on the CDP website with the status ‘details not publicly available.’ Its 2010 response is public.7 Woodside has made public comment that the attractiveness of some of its projects could be adversely affected by the introduction of an ETS in Australia.8 In light of these circumstances and as a Woodside shareholder, we are of the view that shareholders would be in a position to make a better informed assessment of the prospects and strategies of Woodside if it were to disclose its assumptions in assessing current and future projects, and in valuing assets, about future carbon pricing and regulation.

Investor briefings

The investor briefings contain further background information on the resolutions for each company:

Notes

  1. VicSuper, The VicSuper Carbon Count 2009 (2009) Melbourne, at 18, www.vicsuper.com.au.
  2. Ibid, at 21.
  3. Ibid, at 18.
  4. Ibid. at 26.
  5. Investor Group on Climate Change (AU/NZ), Ceres (US), Institutional Investors Group on Climate Change (EU), Global climate disclosure framework for oil and gas companies (2010), at 1 and 4, www.igcc.org.au.
  6. Carbon Disclosure Project, https://www.cdproject.net/en-US/Results/Pages/Company-Responses.aspx?company=13838 (21 September 2010).
  7. Carbon Disclosure Project, https://www.cdproject.net/en-US/Results/Pages/Company-Responses.aspx?company=20771 (21 September 2010).
  8. See investor briefing for Woodside Petroleum Ltd.

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