ACCR Shareholder Resolutions to Origin Energy Ltd on climate-related lobbying and Paris-aligned capital expenditure.

The Australasian Centre for Corporate Responsibility (ACCR) has filed Shareholder Resolutions to Origin Energy Limited (ASX: ORG) on two important issues for shareholders: climate related lobbying and Paris-aligned capital expenditure.

This page contains the resolutions and supporting statements, and will be updated with links to news and additional briefings about this engagement.

Resolution 1 - Ordinary resolution on climate-related lobbying

Shareholders request that our company strengthen its review of industry associations to ensure that it identifies areas of inconsistency with the Paris Agreement.

Where an industry association’s record of advocacy is, on balance, inconsistent with the Paris Agreement’s goals, shareholders recommend that our company suspend membership, for a period deemed suitable by the Board.

Nothing in this resolution should be read as limiting the Board’s discretion to take decisions in the best interests of our company.

Supporting statement to Resolution 1 (992 words including footnotes)

ACCR supports our company’s commitment to the goals of the Paris Agreement and its intention to develop “more ambitious emissions reduction targets consistent with a 1.5-degree pathway”.^[1]

The International Energy Agency’s recently published report, ‘Net zero by 2050’^[2] concluded that no new coal, gas or oil developments could proceed beyond this year, in order to limit global warming to 1.5°C.

Many of our company’s industry associations have repeatedly sought to exploit the COVID-19 pandemic to further entrench fossil fuels in Australia’s economy and further delay the energy transition.

This resolution seeks to ensure that the advocacy of our company’s industry associations is consistent with its commitment to limit warming to 1.5°C and the long-term interests of shareholders.

2021 industry association review

In August 2021, our company published its third industry association review.^[3] The review is fundamentally flawed, as it assessed “formal written policies” and public statements “in relation to climate change and alignment to the goals of the Paris Agreement”.^[4] Advocacy relating to new or expanded coal and gas projects, climate, energy and transport policy was not assessed. In short, if an industry association states that it supports the Paris Agreement, then it was considered “aligned”.

Transparency of industry associations alone is not enough. If it is genuinely committed to limiting warming to 1.5°C, our company must curtail advocacy that promotes fossil fuel expansion.

According to Fiona Reynolds, the CEO of Principles for Responsible Investment (PRI):
“It’s time to confront negative climate lobbying from every link in the chain, from the funding by corporates to the lobbying organisation and ultimately to the closed-door undermining of climate action.”^[5]

In March 2021, the Climate Action 100+ initiative published its first Net-Zero Company Benchmark. Our company only partially met its assessment of climate policy engagement, as it has not made an explicit commitment that it (and its industry associations) “lobby in line with the goals of the Paris Agreement”.^[6]

Australia’s lack of climate policy

In February 2021, Bloomberg ranked Australia’s climate policies as the weakest of the largest developed economies.^[7] In June 2021, Australia received the lowest score awarded to any of the 193 UN member states for climate action.^[8] Australia’s commitment to reduce emissions by 26-28% by 2030 (from 2005 levels) has been deemed inadequate by a range of experts.^[9] Australian government forecasts suggest that emissions will decline by just 22% by 2030.^[10]

ACCR has engaged our company on the issue of climate-related lobbying for more than three years. Despite improved transparency of our company’s governance of industry associations, UK think tank InfluenceMap rates our company’s climate policy footprint ‘C’, (scale A-F), suggesting it has a very mixed record on climate and energy policy in Australia.^[11]

Our company remains a member of at least four industry associations with climate lobbying practices that are misaligned with the Paris Agreement (ranked D or below) and one with strongly misaligned climate lobbying practices (ranked F):^[12]

The impact of these industry associations’ recent advocacy on Australia’s climate and energy policy has been overwhelmingly negative.

Gas-fired recovery

In September 2020, the Australian Government announced it would pursue a “gas-fired recovery” from the pandemic, by incentivising the development of multiple new gas basins.^[13] The Australian Government has subsequently announced substantial subsidies for the gas industry in the last 12 months. Many of those subsidies will directly benefit our company, particularly its Beetaloo Basin exploration project.^[14]

Throughout 2020-21, APPEA actively lobbied for a “gas-fired recovery”, through a series of reports^[15] and media engagements that encouraged fast-tracking the development of multiple new gas basins.

In its 2020 annual report, APPEA listed the following achievements:^[16]

• “Advocated successfully for natural gas to be recognised as a critical fuel for many decades to come... including by the Australian Government as a part of its post-COVID-19 pandemic economic recovery plan.”
• “Advocated on the role of natural gas in reducing global greenhouse gas emissions and for this to be recognised as part of Australia’s efforts to address climate change… This is now a core part of the Australian Government’s narrative on the role of the industry.”

APPEA’s exploitation of the pandemic to expand gas extraction can only be described as predatory, and is completely at odds with the emissions reductions required in a 1.5°C pathway.

Other misaligned advocacy

Like APPEA, APGA^[17] and Gas Energy Australia^[18] have consistently promoted the long-term use of fossil gas in Australia’s energy mix. In a jointly published report in late 2020, APGA, APPEA and Gas Energy Australia argued for fossil hydrogen to be introduced into gas networks, and opposed electrification of domestic cooking and heating.^[19] The Australian Government subsequently announced significant subsidies for fossil hydrogen development.^[20]

APPEA also lobbied for changes to the Australian Renewable Energy Agency (ARENA) to allow it to invest in carbon capture and storage (CCS) in order to enable fossil hydrogen.^[21]

Despite our company suspending its membership of the QRC in October 2020,^[22] it appears to have rejoined following minor policy changes. Prior to^[23] and following^[24] the Queensland state election in October 2020, the QRC lobbied for further coal and gas exploration and the fast-tracking of new and expanded coal and gas projects. This advocacy was framed in terms of recovery from the pandemic. In April 2021, the Queensland Government launched its ‘Resources Industry Development Plan’,^[25] delivering many of the QRC’s demands.

Our company has had several years to affect change within its industry associations with limited success. It can and must do more to ensure that its industry associations advocate positively for climate action.

ACCR urges shareholders to vote for this proposal.

Resolution 2 - Ordinary resolution on Paris-aligned capital expenditure

Shareholders request that our company commit to align all material future capital expenditure with the Paris Agreement’s objective of limiting global warming to 1.5°C.

Nothing in this resolution should be read as limiting the Board’s discretion to take decisions in the best interests of our company.

Supporting statement to resolution 2 (982 words including footnotes)

ACCR supports our company’s commitment to the goals of the Paris Agreement and its intention to develop emissions reduction targets consistent with a 1.5°C pathway.^[26] To date, our company has failed to effectively manage the energy transition, resulting in its share price substantially underperforming the benchmark S&P/ASX200 index over the past decade, and declining by more than 67% since its peak in mid-2014.

Capital allocation

In March 2021, the Climate Action 100+ initiative published its first Net-Zero Company Benchmark^[27]. Our company failed to pass its assessment of decarbonisation strategy and capital allocation alignment, as it has not committed to aligning its capital expenditure with its long-term emissions reduction target or with the Paris Agreement’s objective of limiting global warming to 1.5°C.^[28]

Capital allocation provides direct insight to how our company prioritises decarbonisation. While capital expenditure has increased in recent years, it is largely spent on sustaining fossil fuel generation and petroleum exploration and appraisal:^[29]

Just 22% of capital expenditure between FY18 and FY20 was allocated to productivity/growth, and only a fraction of that was spent on low or zero carbon technologies.^[30] Our company’s investments in Octopus Energy ($128 million) and OC Energy ($14 million) were accounted for separately.^[31]

Oil and gas expansion

Our company has significant oil and gas interests: 37.5% of Australia Pacific LNG (APLNG), the Beetaloo Basin, the Cooper and Eromanga Basin, the Canning Basin and Poseidon (Browse Basin). CarbonTracker found that 94% of our company’s potential future oil and gas capital expenditure is inconsistent with keeping warming well below 2°C.^[32] This analysis excluded the Beetaloo Basin and Poseidon, due to their high capital expenditure costs being deemed beyond the scope of any scenario.^[33]

In FY2021, our company is expected to have spent $60-70 million on exploration and appraisal (E&A), primarily on the Beetaloo Basin (exclusive of APLNG).^[34] This is slightly lower than the $85 million spent on E&A in FY2020.^[35] This allocation of capital to finding and proving new resources is simply not consistent with the decline in oil and gas production required in a 1.5°C pathway.

As stated in the recent World Benchmarking Alliance oil and gas benchmark, to be deemed credible on climate change our company “needs to clarify how it will transition away from gas operations through a detailed low-carbon transition plan”.^[36] Any suggestion that fossil fuel expansion is compatible with the Paris Agreement is misleading shareholders and exposing our company to growing climate litigation risks.^[37]

Material issues with existing emissions reduction targets

Our company has committed to the following emission reduction targets:^[38]

• 10% reduction in Scope 1 equity emissions between FY21 and FY23
• 50% reduction in Scope 1 and 2 equity emissions by 2032 (FY17 baseline, equity share)
• 25% reduction in domestic Scope 3 emissions by 2032 (FY17 baseline, equity share)

The 2032 targets were accredited by the Science Based Targets initiative (SBTi) to be consistent with a 2°C pathway. However, SBTi standards and investor expectations have evolved, particularly since the release of the Intergovernmental Panel on Climate Change (IPCC) Special Report on Global Warming of 1.5°C.^[39] Today the SBTi will only accredit companies with targets aligned to either 1.5°C or well below 2°C.^[40]

The primary issue with our company’s 2032 Scope 1 and 2 target is that the Eraring power station currently produces >70% of its emissions.^[41] Eraring’s planned closure in 2030-32 allows our company to increase its emissions in the critical decade ahead.

In addition, our company’s Scope 3 target excludes its share of exports from APLNG, only covering electricity purchased from the grid and domestic gas sales.^[42] Our company does not disclose the scope 3 emissions from its share of APLNG exports, meaning that Scope 3 emissions can appear to decline by shifting gas from domestic use to exports.^[43]

Planned update to climate commitments

Our company has stated that it plans to update its “existing science-based target to a 1.5°C pathway when the guidance is available from the SBTi.”^[44] As previously stated, this is necessary due to evolving investor expectations and because our company’s existing target no longer meets SBTi standards.\

According to the SBTi, all sectors “apart from oil and gas can set science-based targets”^[45]. The SBTi is yet to publish its oil and gas industry guidance, though it is expected in 2021. A key challenge for SBTi is the incompatibility of fossil fuel expansion with limiting warming to 1.5°C, as concluded by the International Energy Agency’s Net zero by 2050 report.^[46]

SBTi only recognises emission reductions through direct actions, which rules out the use of offsets to meet science-based targets^[47]. Our company’s Integrated Gas business has stated that it intends to rely on offsets,^[48] so it is unlikely to be eligible for updated SBTi accreditation.

Conclusion

It is critical that any updated emissions reduction targets address the major issues with the existing targets by incentivising genuine decarbonisation across all business units and capturing all Scope 1, 2 and 3 emissions, with no arbitrary boundaries. Alignment of capital allocation and linkage of remuneration to targets across all emissions scopes is also essential.

The IPCC’s recently published Sixth Assessment Report^[49] demonstrates the urgency with which we must act on climate, and that material decarbonisation by 2030 is critical. Ahead of the advisory vote on its climate change reporting in 2022, it is imperative that our company develop a strategy that is consistent with the Paris Agreement and to align its capital expenditure accordingly.

ACCR urges shareholders to vote for this proposal.