Rio Tinto climate resolution marks shift in investor culture

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A breakthrough resolution on Rio Tinto’s climate stance has won strong backing at the company’s AGM. Is this the start of something?

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The Conversation

What does the advocacy group the Australian Centre for Corporate Responsibility (ACCR) have in common with the Local Government Super fund, the Church of England Pensions Board, and the Seventh Swedish National Pension Fund?

Quite a lot, it seems. These three institutional investors joined with the ACCR to co-file a shareholder resolution on climate change at mining giant Rio Tinto’s Australian annual general meeting in Melbourne yesterday.

While Rio’s board advised shareholders to vote against the resolution, there was a very healthy showing of 18.3% shareholders voting in support (over 20% including abstentions).

The resolution called on Rio to review and comprehensively report on its membership of industry associations such as the Minerals Council of Australia (MCA).

The MCA’s pro-coal political lobbying has been distinctly at odds with the position of companies such as Rio, which publicly support measures to reduce carbon emissions in line with the Paris climate agreement.

This alliance between civil society and institutional investors is significant for several reasons.

Institutional investors (large investors such as superannuation funds which pool money to buy shares and other assets) are increasingly concerned about the long-term resilience of their investments to the business risks posed by climate change.

For an energy-hungry miner such as Rio, these risks include changing energy prices and markets, as well as operational disruptions caused by climate impacts such as storms, floods, and droughts.

Investors want companies to disclose these risks fully and to outline how they will manage them to maintain company value over the long term. As the Rio resolution suggests, they also want companies to be transparent and consistent in their approach to climate change.

Paying multimillion-dollar memberships for industry associations that lobby against climate action is inconsistent with the long-term investment goals of such shareholders.

New phenomenon

Shareholder resolutions on climate change are a relatively new phenomenon in Australia. In the United States, however, there is a long history of using resolutions to pressure companies to address human rights abuses and change their approach to issues like climate change.

In Australia, advocacy groups such as ACCR (and its counterpart Market Forces) have taken up this tool more recently and lodged resolutions to Australian banks, utilities, oil and gas companies, insurers, and now the big miners, asking for improved disclosure and better management of climate risks.

What’s more, institutional investors are increasingly backing these requests. This latest resolution to Rio Tinto is also reportedly supported by key voting advisors ACSI and Regnan, as well as other major Australian super funds.

As a result, it marks a significant shift in investor culture in Australia, signalling an increased willingness to engage proactively and publicly on environmental, social and governance issues.

Compared with the US and UK, shareholders in Australia have more limited rights to bring resolutions to an AGM expressing their views or requesting that certain actions be undertaken by company management. Australian court decisions have upheld a strict division of powers between company management and shareholders.

Nonbinding advisory resolutions on matters that interfere with company management are not permitted.

This means shareholders must lodge a special resolution to change the company constitution to allow them to put forward an advisory resolution on a substantive matter such as climate change.

This is not only clunky and inefficient, but also acts as a significant deterrent for investors to support a substantive resolution with which they would otherwise concur.

There are renewed calls for law reform, widely supported by institutional investors and also, increasingly, by some of the companies facing these resolutions, to change the law to allow for a more consistent and orderly approach in Australia.

Do these resolutions actually change behaviour?

From their brief history in Australia so far, it appears that shareholder resolutions on climate change, together with a range of other influences, do have the potential to drive change.

Many Australian companies that have faced these resolutions so far have responded with significant improvements in climate risk disclosure and management.

Santos recently released its first Climate Change Report; AGL has developed a long term energy transition strategy; and BHP Billiton (which faced a similar resolution to Rio Tinto on its membership of industry associations in 2017) has announced its withdrawal from the World Coal Association and reviewed its other industry association memberships, including the MCA.

While these developments are undoubtedly the result of many factors – including technology and market developments, behind-the-scenes engagement with investors on climate risks, and increased pressure from financial institutions and regulators – it seems that shareholder resolutions can help to focus a company’s attention on ensuring its climate stance is defensible to shareholders.

The impact of these resolutions in Australia may also be a function of their relative novelty compared with other jurisdictions such as the United States.

This week’s resolution at Rio Tinto signals a coming of age for investor engagement on climate change in Australia. Shareholder resolutions have clearly become an important part of the toolbox for civil society in Australia seeking to influence corporate decision making on climate change.

As mainstream investors come on board with these resolutions, their potential impact is heightened considerably.

For their part, Australian institutional investors seem to be increasingly willing to stand behind calls for better disclosure and management of climate risks by the companies in which they invest, including by forming new alliances and supporting the use of these more activist tools.

In a country with a relatively conservative approach to investor engagement, these are important cultural shifts.

They offer promising signs that Australian businesses and investors are taking a more considered and proactive approach on climate risks.

Source: The Conversation. Reproduced with permission.

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4 Comments
  1. Grpfast 2 years ago

    Too many managements of large corporations sitting on their hands. Focused on maintaining the status quo. Don’t rock the boat or look to the future.
    But then so do there shareholders!

  2. Edgar 2 years ago

    The one interesting scenario I can hardly wait for (and hope I live long enough to see) is what will happen to the directors of coal companies when they finally go bust.

    As ASIC have reminded them (in an understated fashion) Directors are responsible to act “in the interests of shareholders”. This is a PERSONAL liability, so can’t be shunted to the Company’s books.

    How is destroying a company going to stack up for Directors?
    What is the bill going to look like?
    and that’s before the class actions start…

  3. David Rossiter 2 years ago

    Dear Giles et al
    As someone who was demonstrating with Bill McKibben and many others outside the Minerals Council of Australia yesterday I whole heartedly support the issues that were simultaneous being discussed at Rio Tinto’s AGM. Bill reiterated that 80% of the coal resources we already have need to stay in the ground if we are to reach keep to the below 2 degrees the Australian Government has signed up to at Paris.
    I am surprised at Rio’s stance on this matter as they overtly and proudly provide most of the sponsorship for the wonderful Natural History museum at Salt Lake City which proudly identifies we are in an new epoch. The Holocene has ended and the Anthropocene has commenced so the museum tells us with great clarity beside its proudly displayed sponsors Rio Tinto! By acknowledging climate change so clearly and publicly in this way Rio Tinto surely should need no reminding of this at its AGM.
    And to add to this theme how is it that we as an Australian Government are also supporting the development of not only new coal mines but new coal basins too through the Coalition’s Minister for Resources Matt Canavan, or should I say Minister for Coal most appropriately for a coalition. But there is more our Government is also supporting new coal fired power stations and the resurrection of existing coal fired power stations too (Liddell).
    Further and almost simultaneously too, I am amazed that President Macron could remain so cool yesterday as he eviscerated Turnbull over his lack of action on climate change and Turnbull then attempted to take the credit for new solar power plants driven by Victorian RET.
    But the best news of the day and I think this was not reported anywhere was from Bill McKibben’s speech on Wednesday evening in Canberra. Quiet and self effacing Bill told his audience how he was invited in January at short notice to go to New York to join the Mayor Bill de Blasio as he publicly divested the NY super fund from coal investment in the home of Wall Street and Trump. He remarked to the Mayor as he left to drive home to Vermont wouldn’t it be great if they lit up the Empire State building in green to show the world what they had done. Later that evening as he drove home he stopped for a break as one does and checked his phone and someone had texted him an image of the green Empire State building. Bill McKibben told this story when he was in Sydney earlier this week to amongst others the deputy mayor in Sydney and by the time he left the Town Hall it too was green. Bill hopes to see the Australian Parliament House follow suit one day.
    And what does all this mean it means business and Governments have lost control of this climate change agenda and economics and markets have taken over. Twenty five years ago climate change was a scientific concept for which there seemed to be no solutions. But over time because of small(2%) and successful Government policies (1997) such as John Howard’s world’s first national RET’s tradable RECs became mainstreamed and copied by the UK as ROCs and then copied by many other countries renewable markets created demand and prices tumbled far faster than anyone predicted. Now renewables are cheaper than ever.
    But in 2017 Turnbull will be remembered for his misguided work/wrong side of history commentary on renewables to South Australia’s Jay Weatherly causing Elton Musk to offer to build the world’s biggest battery in 100 days. This rapid deployment and mainstreaming of major batteries “has worked like a charm” (quote from Bill McKibben).
    So coal is now so last century for power generation – all in twenty five years and with two Australian firsts pushing it out of the way.
    Pity Rio Tinto is still stunned by this change in its assets but it does propagate the Anthropocene too.

  4. David Rossiter 2 years ago

    As someone who was demonstrating with Bill McKibben and many others outside the
    Minerals Council of Australia on Wednesday I whole heartedly support the issues
    that were simultaneous being discussed at Rio Tinto’s AGM. Bill
    reiterated that 80% of the coal resources we already have need to stay in the
    ground if we are to reach keep to the below 2 degrees the Australian Government
    has signed up to at Paris.

    I am surprised at Rio’s stance on this matter as they overtly and proudly provide most of the sponsorship for the wonderful Natural History museum at Salt Lake City which proudly identifies we are in an new geological epoch. The Holocene has ended and the Anthropocene has commenced so the museum tells us with great clarity beside its proudly displayed sponsors Rio Tinto! By acknowledging climate change so clearly and publicly in this way Rio Tinto surely should need no reminding of this at
    its AGM.

    And to add to this theme how
    is it that we as an Australian Government are also supporting the development
    of not only new coal mines but new coal basins too through the Coalition’s
    Minister for Resources Matt Canavan, or should I say Minister for Coal
    most appropriately for a coalition. But there is more our Government is
    also supporting new coal fired power stations and the resurrection of existing
    coal fired power stations too (Liddell).

    Further and almost
    simultaneously too, I am amazed that President Macron could remain so cool
    yesterday as he eviscerated Turnbull over his lack of action on climate change
    and Turnbull then attempted to take the credit for new solar power plants
    driven by Victorian RET.

    But the best news of the day
    and I think this was not reported anywhere was from Bill McKibben’s speech on
    Wednesday evening in Canberra. Quiet and self effacing Bill told his
    audience how he was invited in January at short notice to go to New
    York to join the Mayor Bill de Blasio as he publicly divested the NY super
    fund from coal investment in the home of Wall Street and Trump.
    He remarked to the Mayor as he left to drive home to Vermont wouldn’t it be
    great if they lit up the Empire State building in green to show the world what
    they had done. Later that evening as he drove home he stopped for a break
    as one does and checked his phone and someone had texted him an image of
    the green Empire State building. Bill McKibben told this story when he
    was in Sydney earlier this week to amongst others the deputy mayor in
    Sydney and by the time he left the Town Hall it too was green. Bill hopes
    to see the Australian Parliament House follow suit one day.

    And what does all this mean it
    means business and Governments have lost control of this climate change agenda
    and economics and markets have taken over. Twenty five years ago climate change
    was a scientific concept for which there seemed to be no solutions. But over
    time because of small (2% for RET) and successful Government policies (1997) such as
    John Howard’s world’s first national RET’s tradable RECs became mainstreamed
    and copied by the UK as ROCs and then copied by many other countries renewable
    markets created demand and prices tumbled far faster than anyone
    predicted. Now renewables are cheaper than ever and certainly cheaper
    than coal fired generation.

    But then in 2017 Turnbull made
    sure he will be remembered for his misguided work/wrong side of
    history commentary on renewables to South Australia’s Jay Weatherill causing
    Elton Musk to offer to build the world’s biggest battery in 100
    days. This rapid deployment and mainstreaming of major batteries
    “has worked like a charm” (quote from Bill McKibben). All of a sudden
    electrical energy storage has come of age – the intermittency of renewables can
    be compensated for through affordable and rapidly deployable battery storage
    systems.

    So coal is now so last century
    for power generation – all in twenty five years and with two Australian firsts
    pushing it out of the way.

    Pity Rio Tinto is still
    stunned by this change in its assets, but it does propagate the Anthropocene
    too.

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