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AGL shareholders spar with board over climate

Lewis Jackson  |  23 Sep 2021Text size  Decrease  Increase  |  
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Angry shareholders have taken AGL’s board to task, demanding the energy generator and retailer align itself to the Paris Climate Accords at the annual general meeting Wednesday.

More than half of AGL's shareholders (55%) voted for a three-part motion, proposed by the Australasian Centre for Corporate Responsibility (ACCR), asking the company to set Paris-aligned targets for emissions reductions and detail how capital expenditure and remuneration will align with the targets.

The Paris Agreement is an international treaty on climate change signed in 2015 to limit global warming to below 2 degrees. AGL (ASX: AGL) emits roughly 8% of Australia’s greenhouse gas emissions, according to data compiled by ACCR.

Shareholders defied the board's call to reject the motion. It said the company was “not currently in a position to make Paris aligned targets”, with chairman Peter Botten adding that it was not in AGL’s best interest to act unilaterally.

But Dan Gocher, director at the Australasian Centre for Corporate Responsibility (ACCR), which moved the motion, rubbished the company’s claim, calling it nonsense:

“Botten claimed the board is trying ‘to create a glide path rather than a crash landing’, which ignores the crash that AGL shareholders have already experienced,” he said in a statement.

AGL’s share price has fallen 57% since last September. Profits have suffered double digit declines as wholesale electricity prices are squeezed by the introduction of cheaper renewables into the grid.

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It closed Wednesday at $5.98, a 57% discount to the fair value estimate of $14.

The battle comes as AGL continues with plans to demerge its coal-fired assets into a separate business, Accel Energy. The firm’s retail business and renewable energy assets will remain under the AGL banner.

Botten says the demerger will allow each business to play "an equally important, but different, role in Australia’s energy transition".

The demerger will be put to shareholder approval in the first half of 2022.

Pressure for action on climate change is growing in the runup to the UN’s annual climate conference in November. In a speech to the UN General Assembly Wednesday, Premier Xi Jinping announced China would stop financing international coal-fired plants. Almost three-quarters of coal plants being built outside of China are bankrolled by Chinese banks, according to research by Quartz.

In a separate speech, President Biden doubled the US’ international climate finance fund to US$11 billion.

Alignment to the Paris targets as per the motion would mean a significant acceleration of AGL’s current decarbonisation timetable. The firm currently operates three coal fired plants: Liddell and Bayswater in NSW, Loy Yang in Victoria.

Those plants would need to close by the mid-2030s to be consistent with 1.5 degrees of warming, according to the firm’s own analysis. Liddell is currently scheduled to close in 2022-23, Bayswater by 2035 and Loy Yang A in 2048.

Morningstar senior equity analyst Adrian Atkins says an accelerated transition is wishful thinking. He says AGL needs cash from coal to fund investment in renewables and remediation of old power plants.

“I think the firm and its investors are best off maximising the value of the coal power stations and gradually shifting to renewables over the long term.”

While Wednesday’s motion is non-binding because a separate motion to change the company’s constitution was rejected, it reflects a clear shift in shareholder sentiment.

A similar motion by ACCR in 2020 to align closure dates for AGL’s coal plants with scenarios for 1.5 degrees of warming only won over 20% of shareholders.

The intervening collapse in AGL’s share price may have focused shareholder minds on climate risk, says Tim King, chief investment officer at impact investor Melior Investment Management.

“The share price is telling us a lot. This company doesn’t have Paris aligned target and there’s enormous risk in the system,” he says.

“Who wants to be an AGL owner if you perceive they’re killing the planet?”

On Wednesday, the board also announced it was seeking to appoint a new director with expertise in climate risk in the first half of FY22.

A Greenpeace backed motion to elect Ashjayeen Sharif, an 18-year-old running for the board on a proposal to convert the company to 100% renewable energy by 2030, did not pass.

is a reporter and data journalist with Morningstar. Tweet him @lewjackk or get in touch via email

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