'Lip service': Call for investors to step up action on climate risk

SMH 4/9/18 - Ruth Williams.

Read the article and answer the questions that follow it, using the article

to illustrate relevant issues where appropriate:

Investors have been urged to "step up the pressure" on companies to act on climate

change as annual meeting season approaches, with a report arguing corporate

Australia is paying lip-service to the issue.

Environmental non-profit Market Forces says many of Australia's 100 biggest listed

companies are continuing to take a "superficial" approach to disclosure and action

on climate change and emissions, despite warnings by regulators and lawyers of

potential business and legal risks.

Market Forces research, to be released on Tuesday, suggests that of 74 ASX100

companies in sectors dubbed "high risk" for climate change impacts - as defined last

year by a G20-led task force on climate risk disclosure - only 55 per cent identified

climate change as a material business risk, and more than 80 per cent did not have

a plan to reduce their own emissions

Almost 40 per cent of ASX100 companies studied had increased their emissions over

the past year, the Market Forces research said.

The NGO - which is affiliated with Friends of the Earth - has urged investors to

"escalate" climate change as an issue in their discussions with companies, and

divest shares in companies that are "unable or unwilling" to align with the goals of

the 2015 Paris climate agreement. "There is a growing recognition of climate risk,

but few companies are actually undertaking the hard yards to fully address the

issue," Market Forces analyst Will van de Pol said.

The Market Forces research comes as the new Morrison government grapples with

internal divisions on its approach to climate change, emissions and the Paris

agreement. New Defence Minister Marise Payne is attending the Pacific Islands

Forum this week where climate change is expected to be a major topic of discussion.

It also comes as regulators consider how climate change may impact the financial

system, with the Australian Securities and Investments Commission (ASIC) assessing

how ASX300 companies disclose climate change risks, and the Council of Financial

Regulators - which includes ASIC, the Australian Prudential Regulation Authority

(APRA), the Reserve Bank and federal Treasury - creating a working group on the

issue. ASIC has said company directors should take seriously warnings that they risk

future legal action if they fail to consider risks related to climate change.

Risky business

A third of companies studied "explicitly encourage" emissions reductions through

their executive or director bonus schemes, Market Forces said, a number that had

doubled since Market Forces' last examined the issue in March. But just three

companies - South32, AGL and Stockland - had started reporting climate risks in line

with the so-called "TCFD" rules nailed down by the G20's task force last year, which

have been endorsed by major companies and investors. Another four companies -

Commonwealth Bank, BHP, Westpac and ANZ - "came close" to fully adopting the

TCFD recommendations, Market Forces said, while others had promised to do so for

their 2019 reporting.

The TCFD recommendations are anchored on the Paris agreement's pledge to keep

global warming to well below 2 degrees. In July, the Australian Securities Exchange's

corporate governance council - in proposed new guidelines - said companies should

boost their disclosure of climate change risk, including reporting with the TCFD rules

if they had "material exposure". The Market Forces research found that while 65 per

cent of companies studied unequivocally accepted climate science, 27 per cent were

unclear in their language and 8 per cent had not formally acknowledged the science

of climate change. In June, research from the Australian Council of Superannuation

Investors found that 22 ASX200 companies had adopted or promised to adopt the

TCFD rules while 10 more were "reviewing" them.

AGM focus

Mr van de Pol pointed to South32 as a company that was "getting it right, coupling

detailed climate risk disclosures with action to reduce exposure". But he questioned

why ASX Ltd was not following the suggestions of its own corporate governance

council in not disclosing detailed climate risk information, saying the listed company

was exposed to climate risk because "high risk-exposed mining, materials and big

financial companies dominate the ASX".

ASX Ltd said it was "difficult to conclude" the company had a material exposure to

listed companies directly at risk to climate change, given ASX Ltd was a "diverse,

service-based organisation". The technology sector was its fastest growing sector, it

said. It would comply with the corporate governance council's recommendations on

an "if not why not" basis once they were finalised, ASX Ltd said.

Whitehaven Coal was among the lowest-scoring companies in the Market Forces

research, which found that the coal miner - a vocal proponent of "High Energy Low

Emission" (HELE) coal fired-power stations - had not disclosed any risks it may face

from climate change or listed it as a material business risk. Market Forces has

launched shareholder resolutions against Whitehaven Coal ahead of its AGM in

October, calling on the company to ensure its strategy was "consistent" with the

Paris agreement. The vote would be a "litmus test" on investors' willingness to push

companies on climate, Market Forces said.

Whitehaven has said it will recommend shareholders vote against the resolutions.

"We are not going to pre-empt the proceedings of the AGM," a Whitehaven

spokesman said when asked for comment. "We will recommend shareholders not

support resolutions requisitioned by shareholders representing 0.0016 per cent of

the company's shares on issue for the sole purpose of supporting Market Forces'

ongoing anti fossil fuels campaign." It did not comment on Market Forces' research.

In the past two years, Market Forces has coordinated a series of shareholder

resolutions pushing companies including QBE, Santos and Oil Search to disclose

more about climate risks. None of the resolutions have been successful, but they

have won the backing of some major investors, with the QBE resolution in May

attracting more than 18 per cent support. The step up in the number of such agenda

items, from Market Forces and others, has met with frustration from some boards

and the body representing investor relations professionals, partly due to the time

and resources they say it takes for companies to deal with them. Companies

targeted have urged shareholders not to vote for them.

i) Is climate change relevant to how directors carry out their

role?

ii)How can shareholders make a difference to how a company is

run?