Following the Paris Agreement in 2015, companies have been pressured by a wide range of stakeholders to align their business operations with a goal of limiting global warming to 2°C. Recent shareholder proposals requesting additional disclosure on how companies intend to meet this goal have received strong support, demonstrating that decision-useful climate risk disclosure and scenario analysis are top of mind for investors. However, the scope of the climate conversation has recently expanded to include indirect corporate lobbying.
It is common for companies to belong (and pay membership dues) to a range of industry associations that engage in public policy advocacy to the benefit of their members. When these groups advocate for energy- and climate-related policies that are perceived to be in opposition to the Paris Agreement, their member companies can in turn be criticized for indirectly supporting regressive climate policy. Consequently, investors that wish to keep global warming to a maximum of 2°C are beginning to more closely scrutinize how their portfolio may indirectly oppose their goals.
It should come as no surprise that climate-related advocacy has emerged as a hot topic; over the past several years, shareholder resolutions requesting additional disclosure on companies’ direct and indirect lobbying and political contributions have been among the most common proposals seen on the ballots of U.S. companies. Now, it appears that this trend may be spreading to other markets.
At its 2017 annual meeting, BHP Billiton Ltd. faced Australia’s first shareholder resolution requesting more information on its indirect advocacy activities, including those associated with carbon pricing, promotion of coal and coal subsidies, and Australia’s Paris Agreement commitments. BHP responded to shareholders by publishing a standalone industry association review, which includes a list of the material differences between the positions that BHP holds on climate and energy policy and the advocacy positions taken by industry associations to which it belongs. The proponent, nonprofit Australasian Centre for Corporate Responsibility (“ACCR”), submitted a similar proposal at Rio Tinto’s 2018 annual meeting. In response, Rio Tinto also issued its own review.
This season, another proposal requesting information on how companies indirectly lobby on climate-related issues through trade associations was submitted by ACCR at Origin Energy. Specifically, the proponent was concerned with the climate-related positions taken by the Australian Industry Greenhouse Network, Australian Petroleum Production and Exploration Association, Australian Pipelines and Gas Association, and Business Council of Australia, all of which can call Origin a member. At Origin’s meeting on October 17, 46.3% of the company’s shares were voted in favor of the proposal. The resolution was contingent on the passage of another resolution on the ballot which would amend the company’s constitution to allow for the submission of nonbinding resolutions, which only received 9.7% support. Thus, the fact that the lobbying resolution received such strong support from shareholders (the largest vote for any board-opposed shareholder proposal in Australian corporate history, according to ACCR) despite paltry support for the constitutional amendment that would have officially formalized its effectiveness, reveals a powerful symbolic message sent to Origin’s board. Although the vote result was neither formally effective nor significant enough to warrant action, Origin’s chair indicated that it would improve its disclosure related to its peak industry groups in future reporting.
Meanwhile, Australia’s banking industry is also feeling the pressure. Two of the country’s big four banks have been targeted by ACCR in its recent campaign. ACCR withdrew its resolution at Westpac after it agreed to provide the requested disclosure as part of its annual review. A few days later, National Australia Bank came to an agreement with ACCR so a resolution was not formally put forward.
More broadly, climate and energy policy have become a third rail in Australian politics, contributing to the collapse of multiple governments over the past decade. Most recently, in August 2018, then-Prime Minister Malcolm Turnbull’s Coalition government abandoned its National Energy Guarantee, which would have required energy suppliers and retailers to supply a minimum amount of energy at an average emissions level that met Australia’s carbon emissions reduction targets set under the Paris Agreement. Although the move was designed to placate conservative party members, it didn’t stop Mr. Turnbull from being deposed less than a week later. With this ongoing policy vacuum, the Australian Financial Review reports that Australia’s largest energy companies and biggest energy users, led by peak body the Business Council of Australia, have begun private discussions to adopt a self-regulatory package of measures “to reduce greenhouse gas emissions, restore energy reliability and improve investor stability” (Phillip Coorey, “Business to go it alone on energy, climate policy.” AFR. October 10, 2018).
Overseas, markets subject to seismic shifts in energy policy may also see shareholder activism on this issue gain traction.
Daniel J. Smith contributed to this report. Max is an analyst covering environmental, social and governance issues. Daniel is General Manager, CGI Glass Lewis.