How responsible shareholders can change the world, and why they must

BRYNN O’BRIEN

Brynn O’Brien, Executive Director, Australasian Centre for Corporate Responsibility, has 15 years’ experience as a lawyer and strategist and is the Executive Director of the Australasian Centre for Corporate Responsibility (ACCR), which promotes better performance of Australian companies on climate, energy transition, human rights and corporate governance issues. As an ‘activist shareholder’ organisation, ACCR engages companies, including through filing shareholder resolutions. In the last 12 months, ACCR has filed resolutions to mining, oil and gas, and utilities giants.

Just a few short months ago, Australia endured the devastating ‘Black Summer’. More than 18 million hectares of land —particularly in New South Wales, Victoria and the ACT — burned across the country. Wildlife experts consider koalas to now be in severe risk of extinction; the Great Barrier Reef is very likely in a state of terminal decline. Scientific (1) and expert (2) reports have been warning for years of what is now immediately observable: we are losing the fight to limit global warming to safe or even manageable levels.

Data published by the World Meteorological Organization confirms that in 2019 we arrived at 407.8 parts per million of carbon dioxide in the Earth’s atmosphere. The ‘safe’ limit is 350 ppm, a threshold we crossed in the late 1980s. The continued build-up of carbon dioxide due to human activity, primarily the extraction and burning of fossil fuels for energy, is driving global temperatures up, with harmful impacts worldwide. We are already over one degree of warming, and our current trajectory places us well above three degrees by the end of the century.

The human consequences of unmitigated heating are visceral and they are here. There is no delicate way of saying this: climate change will render some places uninhabitable. When food cannot be grown because it is either much wetter or much drier than before; where human settlements are subject to increased flooding or fire activity; where water becomes less available: people will need to move. The movement of people due to climate change is predicted to be on a scale we have never seen before. Millions of people on the move at the same time is a recipe for human rights disaster.

Research by the Carbon Disclosure Project has shown that roughly 70% of the world’s greenhouse gas emissions since 1988 can be linked to just 100 fossil fuels producers (3). Many of these companies are traded on global stock markets. Some of them, like BHP and Rio Tinto, are household names in Australia. Most are part-owned in some way by institutional investors that label themselves ‘responsible’ or ‘ethical,’ including the $3 trillion Australian superannuation sector. Superannuation capital is invested over the term of a working life, so it is not difficult to make the argument that addressing climate change is in the interests of members.

Investors have a range of tools available to them, from informal, private measures like writing to companies and meeting with boards, through to filing shareholder resolutions, voting, nominating and removing directors, and using legal strategies. Used assertively, strategically and in combination, investors have some powerful levers at their disposal.

But to date, engagement by Australian investment institutions with the companies in their portfolios has been sorely lacking in terms of achieving tangible emissions reductions. The Australian-listed oil and gas sector, for example, is still planning significant exploration and expansion despite project delays due to Covid-related demand shocks, and investors have not challenged these plans directly and in public. In September, upon releasing an updated company climate statement to much investor acclaim, BHP’s CEO Mike Henry nevertheless confirmed the company’s intention to continue to invest in petroleum assets, despite calls from investors to decarbonise the business (4).

At the Australasian Centre for Corporate Responsibility (ACCR) we deploy strategies to facilitate collaborative action between civil society and ethical investors, in the interests of a safe planet and just society, which align strongly with the protection of shareholder value over the long term.

ACCR is a not-for-profit research and shareholder advocacy organisation. We track the environmental, social and governance (ESG) practices of Australian-listed companies, including on climate change, human rights, and labour rights issues. We undertake research and highlight emerging areas of business risk through private and public engagement with companies and investors.

We also hold shares in major companies, with the specific intention of influencing them using shareholder rights. We unlock advocacy methods and levers under corporations law that are underutilised or not used at all by investment institutions. We also consider the intersecting issues of climate justice and human rights (including First Nations rights and labour rights) in our company engagements.

In addition to undertaking research and meeting with company boards and executives, ACCR works with our partners in civil society and investment institutions to file shareholder proposals. While these proposals do not bind the company board, they compel a vote of shareholders, which can have a powerful persuasive and normative effect, and generate unwelcome publicity for companies doing the wrong thing.

For example, our engagement with Australian oil and gas companies has been underway for a few years. Petroleum exploration, as a business model, is fundamentally incompatible with the responsibility to respect human rights yet no major fossil fuels company currently meets the criteria for a transition that would credibly seek to prevent or mitigate human rights harms. In 2020, we achieved breakthrough results at the Annual General Meetings (AGMs) of Woodside and Santos with 50% of Woodside and 43% of Santos shareholders supporting our call for each company to set emissions reductions targets in line with the Paris Agreement. It is now up to these companies to present a credible response to their shareholders’ demands for greater clarity. If not, it will be up to shareholders to hold directors accountable.

We have also used shareholder votes to prompt companies such as BHP and Rio Tinto to deal with their industry associations’ negative influence on Australian climate policy. While this job is far from complete, shareholders have begun to spell out their expectations with regards to lobbyists.

In addition, in many cases we work behind the scenes to mobilise institutional investors to exert their influence in the direction of more responsible and ethical outcomes. From late May 2020, ACCR briefed institutional investors accounting for well over $20 trillion of assets under management on Rio Tinto’s detonation of immeasurably significant Indigenous cultural heritage sites at Juukan Gorge in the Pilbara. Ultimately, increased investor understanding of Rio’s systemic failings led to the resignation of the company’s CEO, J-S Jacques, and two other senior executives.

Working with a new, powerful coalition of Aboriginal and Torres Strait Islander organisations known as the First Nations Heritage Protection Alliance, ACCR has filed shareholder resolutions with Australia’s other major listed iron ore miners, BHP and Fortescue Metals Group, calling on them to commit not to undertake further destruction of cultural heritage until laws are strengthened to protect First Nations rights. Aboriginal power and decision-making authority need to be at the heart of law reform efforts, in order to protect cultural heritage sites and the long-term interests of investors and society at large. First Nations peoples’ right to self-determination is essential to climate justice, and these intersections are an increasing focus for our work.

ACCR cannot do its work alone. Each time we engage with a company, we need 100 fellow shareholders in the company to work with us to unlock the rights under the Corporations Act to propose resolutions. If you hold shares in Australian listed companies and would like to use those shares to influence them, we would love to hear from you (5).

In a world that is changing more rapidly than any of us can truly comprehend, shareholder activism can be a catalyst in the contested ground between competing forms of contemporary capitalism. Institutional investors such as superannuation funds need to be responsive to the concerns of a large number of stakeholders. Mobilising and influencing institutional investors is a valuable tool to achieve better outcomes in the long-term interests of society, justice and a safe planet.

1. IPCC, Special Report: Global Warming of 1.5ºC https://www.ipcc.ch/sr15/

2. UN Environment Programme, Production Gap Report 2019 https://www.unenvironment.org/resources/report/ production-gap-report-2019

3. https://www.cdp.net/en/articles/media/new-report-showsjust-100-companies-are-source-of-over-70-of-emissions

4. Financial Times, ‘BHP targets 30% cut in carbon emissions by 2030’ (10 September 2020) https://www.ft.com/ content/9cffdac1-aba9-407d-a236-7560ab2e0554

5. Get in touch at https://www.accr.org.au/shareholders/