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Will Santos investors put their money where their mouths are?

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Today will be a major test of whether the fossil fuel industry is prepared to disclose the risks that climate change, including action to reduce emissions, poses to its business.

More importantly, it will be the first test of whether investors, who have been lauding the importance of climate risk disclosure, are prepared to put their money where their mouths are.

Santos made an eleventh-hour attempt to placate investors, producing a four page statement on climate change disclosure ... Santos made an eleventh-hour attempt to placate investors, producing a four page statement on climate change disclosure where it commits to “review”, rather than implement, the TCFD recommendations.¬†Photo: Brendan Esposito

Of course, as many of those investors are superannuation funds, invested on behalf of their members, we’ll see whether they’re prepared to put our money where their mouths are.

A resolution on the agenda of Santos’ AGM¬†proposes that the company implement the recommendations of the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TCFD).

The TCFD, initiated by Bank of England Governor Mark Carney and Chaired by Michael Bloomberg, is supported by companies like BHP Billiton and Unilever, and financial institutions responsible for assets of US$20 trillion ($26.6 trillion). In December it released a draft set of recommendations for how companies and investors should disclose a whole manner of climate risks to their business.

Risks fall into two main categories. ‘Physical risks’ include the impacts of climate change like extreme weather, altered rainfall patterns and sea-level rise, and ‘transition risks’ which include policy and market changes that are inevitable if we are to maintain a habitable climate.

The principle is compelling. If we’re going to meet the goals of the Paris climate change agreement and hold global warming well below two degrees, a rapid decarbonisation of the economy will be required. Asking coal, oil and gas companies to explain just how they plan to be compatible with that future economy is a fair enough question.

The trouble is moving beyond the obvious need for greater disclosure, to investors actually insisting that the TCFD recommendations be implemented. Despite institutional investors and many superannuation funds telling us that engagement is a far better form of action than divesting from a company, their efforts to convince companies to improve disclosure of climate-related risks have been largely unsuccessful. At this point in time, just two ASX companies disclose analyses of their performance under a scenario where climate change is kept below two degrees – AGL Energy and BHP Billiton. And we can critique the robustness of those analyses on another day.

Why Santos? They’re one of Australia’s largest pure-play fossil fuel companies and in many ways going backwards on disclosure after deciding to not even produce a sustainability report this year. Santos don’t disclose climate change mitigation scenario analysis, they don’t have targets to reduce their own emissions, and their discussion of climate-related risks is severely limited. Late last year, investors specifically asked Santos to improve its disclosure, yet six months have passed, and they’ve delivered nothing.

Well, I say “nothing”. With the resolution looming, Santos made an eleventh-hour attempt to placate investors, producing a four page statement on climate change disclosure where it commits to “review”, rather than implement, the TCFD recommendations. It will also produce a climate change report, even though no terms of reference for the report are offered, let alone a commitment to test the company’s resilience to a scenario where the global economy decarbonises to meet the Paris agreement’s goals.

Whether or not Santos have been successful in convincing investors to lay off remains to be seen, but it would say a lot about investors who talk a good game on climate risk disclosure if they backed down in the face of such a feeble, last-minute response.

Whatever the result of tomorrow’s AGM, we will at least have some answers. We will see whether, when it comes to the crunch, investors are genuinely prepared to back action that mandates climate change risk disclosure.

Investors, like the superannuation funds that manage our retirement savings, have a large influence on the economy. They determine which companies are worthy of investment, who gets to direct those companies and, when necessary, how those companies are managed.

Financial institutions enjoy a great deal of wealth and the power without a requisite level of accountability and responsibility. That needs to change. Like it or not, investors are in a position of influence over whether our economy remains stable and well-managed.

On issues like climate change, we need everyone pulling together, doing what they can to steer us away from passing a point of no return for global warming. Today we’ll see if investors are prepared to clear the lowest of bars to action.

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