OPINION | Most local fossil fuel companies, facing pressure from neither government nor investors, aren’t taking steps to avoid negative effects of potential legislation designed to reduce carbon emissions.
The multinational Task Force on Climate-related Financial Disclosures (TCFD) released its much-anticipated guidelines on December 14, 2016, which could be adopted via regulation or corporate practice throughout G20 countries.
The task force, chaired by New York politician and media baron Michael Bloomberg, has recommended that companies perform scenario analyses for various climate policy pathways, allowing investors to determine which companies are the most vulnerable to related losses and which are taking genuine action on climate change.
In Australia, AGL Energy and BHP Billiton are the only companies with fossil fuel interests to have disclosed scenario analyses to investors. New Market Forces research found that AGL is the only Australian energy or utility company to address the Oxford Martin Principles positively, providing a case for investors to remain engaged and “provide capital to support their transition”.
The Oxford Martin Net Zero Carbon Investment Initiative has worked closely with the TCFD to embed “sound climate science within such international frameworks”. In order to stabilise global temperatures, “net global emissions of carbon dioxide must reach zero” by the second half of the century, the initiative asserts.
Professor Cameron Hepburn, of the Oxford Martin School at the University of Oxford, suggests the net zero initiative’s Working Principles for Investment in Fossil Fuels “provides high-level principles for investors to determine how or whether they should make or retain fossil-fuel-intensive investments”:
- Science: Does the company accept the science that climate stabilisation (at any temperature increase) requires net zero carbon dioxide emissions?
- Strategy: During the transition to net zero, does the company have a strategy to limit future committed cumulative carbon dioxide emissions?
- Milestones and Metrics: Has the company provided milestones and metrics to allow investors to monitor their progress in implementing their transition plan?
Alarmingly, of the 25 ASX300 companies with fossil fuel interests, only AGL addresses each of these principles. BHP Billiton, Rio Tinto and South32 partially address them, but fail to provide the strategy or metrics by which their progress towards net zero emissions can be measured. In effect, 21 of the 25 companies are not even doing the minimum to warrant engagement, thereby providing grounds for divestment.
Ten of the 25 companies – including Seven Group and WorleyParsons – fail to acknowledge the science of climate change at all, despite the fact that changes in climate policy are most likely to affect the energy sector.
The annual general meeting season in Australia has been punctuated by companies’ lack of progress on climate issues since the Paris Agreement was reached a year ago. Apart from responding to a handful of individuals, the nation’s fossil fuel companies have largely ignored the Paris Agreement, instead focusing on business as usual and long-term growth.
For the upcoming US AGM season, in contrast, activist shareholders have filed a record number of resolutions focused on climate change. Australian investors have not shown anywhere near as much interest in forcing change at ASX-listed companies. Despite their distinct lack of progress in addressing climate risk, local fossil fuel companies don’t seem to be coming under any pressure at all.
The lack of policy certainty from the federal government is often cited as a reason for corporations’ lack of progress. Australian regulators have provided little or no guidance to companies on climate-related disclosure. However, given that our fossil fuel companies export the bulk of their production, they are more vulnerable to climate policies in Asia than Australia.
Primarily, institutional investors here have not been as active on this issue as we’ve seen in Europe and the US. Australian investors are either indifferent to climate risks – too far ahead they say – or unwilling to exert their sizeable influence over strategy and executive appointments. If companies are unwilling to change, then investors must begin to undertake more effective engagement or, ultimately, divest.
Daniel Gocher is an analyst at Market Forces, an activist group that lobbies superannuation funds, banks, insurers, and other institutional investors to divest from fossil fuel intensive companies.
