Directors to face climate scrutiny from big investors
A major investor group is questioning if stacking boards with oil and gas veterans is appropriate given escalating climate pressures.
A powerful investor group has started probing the credentials of non-executive directors serving on Australian energy companies, questioning whether stacking boards with oil and gas veterans was appropriate given escalating climate pressures.
The $US54 trillion ($70 trillion) Climate Action 100+ group – which includes Australia’s biggest top superannuation AusSuper, Cbus and UniSuper – said shareholders were concerned that the boards of energy producers may be ill-equipped to drastically cut emissions and move into new areas beyond hydrocarbons.
“With oil and gas companies traditionally you will have a board that is predominantly comprised of people from oil and gas backgrounds which makes perfect sense if the company is going to continue to be an oil and gas company. But with most of the companies we‘re engaging with they’re telling us they want to transform into a different type of company,’’ Climate Action 100+ Australia director Laura Hillis told the APPEA conference on Wednesday.
“So the questions for investors then becomes is this company’s current crop of directors capable of transitioning this company and steering it in a new direction. And it’s something we’re going to see shareholders engage with companies a lot more - do you need more climate expertise, do you need more innovation and R&D expertise and what is the skill set to take this company into the future.’’
A furious debate over climate pressures has dominated the industry’s annual talkfest with the sector’s big companies grappling with the local repercussions from a number of recent climate decisions.
Directors are among those in the firing line after a tiny activist hedge fund won two ExxonMobil board seats with shareholders backing its call for management to accelerate efforts cutting greenhouse gas emissions.
Australian oil and gas producer Santos warned the industry on Tuesday that it could suffer the same funding strike that has hobbled coal companies unless they rapidly step up action on climate change.
Shell, owner of major Queensland and West Australian LNG projects, has also been targeted after being found by a Dutch court partially responsible for climate change and ordered to sharply cut carbon emissions. Its Australian chairman, Tony Nunan, said elements of the legal ruling were frustrating even as it agrees producers must step up their response to climate concerns.
“The Dutch court decision is an example of society really asking us are we going fast enough and can we push faster. There are parts of that decision that are disappointing and the bits that are disappointing are that it is very difficult for one company alone to be able to change the outcome,’’ Mr Nunan told the APPEA conference.
The court found that Shell must curb its carbon emissions by 45 per cent by 2030 compared with 2019 levels.
“We need to be in this together and I think a great example is if we looked very simplistically at a service station and one was required to immediately cut it by 45 per cent. Someone is just going to drive past and go to the next one.’’
“A debate which at times can be defined by the extremes can sometimes be really unhelpful,’’ Mr Nunan added.
The Australian Conservation Foundation told the conference that producers including Shell could not justify opening up new oil and gas fields and said companies needed to target net zero emissions by 2035 rather than an industry standard of 2050.
“I think opening up new gas fields knowing the impacts they have on climate change is irresponsible. It is certainly morally irresponsible,’’ Australian Conservation Foundation chief executive Kelly O’Shanassy said.
“Net zero by 2050 is not aligned with the Paris temperature goals and we will well exceed them if we target net zero by 2050 and we need to be aiming for net zero much closer to 2035. We need to be slashing emissions in this decade.’’
The industry had been ripped by a “perfect storm’’ following Covid hitting oil demand and a clamour among investors for companies to boost their environmental ambitions, consultant McKinsey said.
“What you have here is a perfect storm. The fundamentals which have been breeding this under-performance of the industry, you have Covid which was a huge shock to the system and then you have the investor sentiment which has only accelerated over the last 15 months in terms of the role oil and gas should play in the energy transition,’’ McKinsey partner Kassia Yanosek said.
Shell’s Australia chief also stressed the importance of ensuring low or zero carbon investments stacked up and delivered profits as the energy industry transitioned to cleaner supplies.
“We can’t lose sight of the fact that the massive amount of investment is only going to come if people can see the opportunity to drive profits that return. It has to be financially viable and the only way we’re going to make it a success is if we can see those returns and that’s what will lead to the investment,’’ Mr Nunan said.
“One of the big challenges for a company like us is that as we transition our portfolio and as we start to buy into more companies or organically develop more companies that have got a zero or low carbon footprint, they also need to be successful.’’
Shell is one of the dominant players in Australia’s booming energy sector, operating the QCLNG export plant in Queensland, the Prelude floating LNG project off northern Australia along with stakes in Western Australia’s North West Shelf, Gorgon, and Browse LNG ventures and gas business Arrow.
The reporter travelled to Perth as a guest of APPEA
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