Ken Mackenzie, the new chair of mining giant BHP Biliton told shareholders assembled at the London AGM in October that the company would listen and be responsive to stakeholders, “but ultimately, it is up to the board to choose the course it believes will best benefit shareholders.”
So it’s the responsibilty of shareholders to speak clearly and there’s no better way than to vote on resolutions. The issue at hand is BHP’s financial support for an anti climate lobby group, the Minerals Council of Australia (MCA) with the risk of looking two faced – the Janus challenge – given BHP’s desire to be seen as climate aware. The resolution is sponsored by a small Australian NGO, the Australasian Centre for Corporate Responsibility (ACCR), a real David vs Goliath battle.
ACCR argues that the MCA takes misleading public policy positions on climate change and energy. Certainly, the MCA is proud of its role in the death of the carbon price in Australia and there’s little doubt that Australia’s climate and energy policy has been in chaos for years. Do investors prefer this volatility and uncertainty or do they think it works against the long-term viability of a large energy user and carbon emitter such as BHP? Since only a minority of the public is opposed to action on climate change, as and when democracy finally prevails, investors can expect a shift in the policy and regulatory context with the risk of stranding of assets. More generally, are investors happy – given their duty to consider the portfolio as a whole – with the capture of climate politics for the benefit of a very few sectors and to the detriment of many other sectors eg real estate, agriculture, insurance and water utilities to name just four? And linked, are investors happy to see popular support for democracy slide because of this kind of crony capitalism?
Investors may be tempted to avoid these substantial questions and instead make use of excuses for voting with management. These excuses include: this resolution asks investors to micro-manage the company; it creates the potential for competitive disadvantage since peers would not be affected; and BHP is pretty much best in class on climate issue (see CDP’s assessment, for example) so it deserves support, not public criticism, from investors.
Certainly, all BHP’s major proxy agencies have advised voting “against”. Even the investor groups that support governance and climate aware investing are staying silent. Only the specialist Australian ESG advisory and engagement firm Regnan has recommended voting for the climate resolution. CalPERS have also made clear their decision to vote this way.Each of the excuses have some grain of truth, but this is to miss the wood for the trees. Given very serious climate related systemic risk, it is no longer acceptable for investors to stick to their incrementalist, best in class approach. The bottom line is that “constructively engaging” with companies behind closed doors is not a fit for purpose strategy for managing systemic risk and no amount of PR about what the positive things that investors are doing on climate changes this.
Indeed, the idea that the crisis we face can still be solved gradually—with an orderly, incremental transition—is actually a core part of the crisis. The way forward? The whole mining sector should publish transition plans consistent with the Paris climate agreement. And these plans should cover all material issues, including public policy strategy.
Long term diversified investors need to work with regulators to lead on the cleaning up the corporate capture of climate politics. If private shareholder engagement results in an unequivocal corporate commitment to do the minimum that’s needed – in this case disclose what’s being paid – then great. But if any major company does not make a clear commitment, investors should act and do so in public. Voting at AGMs is the best way to do this as it puts pressure on those investors who might want to sit on the fence.
Investors are getting better at managing climate risk but this is at a glacial speed whilst in the real world, glaciers are disappearing fast, heat waves are the new normal, and deadly flood waters are rising quickly. With the fires in California and the hurricanes in the Caribbean, we really don’t need more evidence. Only denialists can’t see reality now.
When companies seek to profile as good climate citizens but also fund groups that seek to hold back government action on climate, clearly this is corporate hypocrisy run amok. It can be dressed up in many ways but the fundamental contradiction is clear. And the important thing about ACCR’s shareholder resolution is that it gives us all an opportunity to think about what we really could be doing differently.
Dr. Raj Thamotheram is the founder of Preventable Surprises.