Investor briefing: Shareholder Resolutions to Woodside Petroleum Ltd to adopt Say on Climate reporting

Background

ACCR has engaged with Woodside Petroleum Ltd (Woodside) on its approach to climate risk management since 2017 and we last met with Woodside executives in early 2021.

At Woodside’s 2020 AGM, ACCR filed two shareholder resolutions that received an unprecedented level of support. The first—calling for Paris-aligned targets—was supported by 50.16% of shareholders. The second—calling for a review of Woodside’s direct and indirect lobbying—was supported by 42.66% of shareholders.

Woodside’s commitments

In late 2020, Woodside updated its climate commitments:^[1]

• To reduce equity share Scope 1 and 2 emissions by 15% by 2025 (baseline: average 2016-20)
• To reduce equity share Scope 1 and 2 emissions by 30% by 2030 (baseline: average 2016-20)
• Aspiration to achieve net zero emissions by 2050 or sooner

Woodside plans to achieve its short and medium term targets largely through the use of carbon offsets, in addition to operational efficiencies and avoiding emissions in design (e.g. use of batteries).

Woodside has not set targets for its Scope 3 emissions (the most material being use of product sold), preferring to work with its customers “to meet their lower-carbon goals”.^[2]

In 2020, Woodside published its first review of industry associations. Despite assessing groups on their support for the Paris Agreement and global net zero emissions by 2050, it seemed to be based on policy positions rather than advocacy.^[3] Woodside omitted any reference to the Australian government’s proposed “gas-fired recovery” from the pandemic, despite heavy lobbying for the proposal by the Australian Petroleum Production and Exploration Association (APPEA) throughout 2020.^[4]

Woodside’s expansion plans

Woodside is planning to significantly increase production over the next decade through the development of the Scarborough (targeting first cargo 2026), Sangomar (targeting first oil 2023) and Browse (targeting FID from 2023) fields.

In 2020, Woodside’s equity share Scope 1 and 2 emissions were 3.6 million tonnes CO2e, an increase of 9% from 2019, due to “fewer planned maintenance activities and increased operational hours”.^[5] Its equity Scope 3 emissions were 32.9 MtCO2e, an increase of 18% from 2019.^[6]

In late 2019, Woodside projected production growth of 6% per annum until 2028.^[7] Such growth would increase Woodside’s Scope 3 emissions to more than 47 MtCO2e by 2028 (see below).

In 2020, Woodside suffered pre-tax impairment losses of US$5.269 billion, “driven by a reduction in oil and gas price assumptions, increased longer-term demand uncertainty” and the “increased risk of higher carbon pricing”.^[8]

Woodside’s expenditure on new energy in 2020—including hydrogen pilot projects, carbon capture and storage (CCS) and carbon offsets—was approximately equivalent to its expenditure on exploration of US$100 million.^[9] Its investment expenditure guidance for 2021 is US$2.9 billion to US$3.2 billion (without targeted equity reduction),^[10] and this expenditure is exclusively allocated to existing and new oil and gas projects.

ACCR’s analysis of Woodside’s commitments and strategy against the Climate Action 100+ indicators.

Climate Action 100+ Net-Zero Company Benchmark

ACCR has assessed Woodside’s existing disclosures against the Climate Action 100+ Net-Zero Company Benchmark Indicators, as laid out below.

Say on Climate

In short, the ‘Say on Climate’ framework requires:

1. Annual disclosure of emissions
2. A plan to manage those emissions
3. An AGM vote on this plan

ACCR believes that this framework will benefit Woodside and its shareholders.

The Recommendations of the Task force for Climate-related Financial Disclosure (TCFD) provide an internationally recognised framework for climate risk disclosure. In addition, the Climate Action 100+ Net-Zero Company Benchmark provides metrics that create accountability for companies, and transparency and comparability for investors. The resolution centres around these two credible global standards, with guidance on minimum expectations and appropriate flexibility for Woodside to exceed them.

Woodside currently discloses its Scope 1 and 2 emissions for the previous five reporting periods, and its Scope 3 emissions for the last two reporting periods in its Sustainable Development Report.^[12] For the purposes of satisfying the resolution, emissions should also be reported by asset (equity and operational), with accompanying commentary explaining annual performance and long-term trends.

While Woodside has addressed each of the key pillars of the TCFD across its 2020 Annual Report and its 2020 Sustainable Development Report, its plan to decarbonise its portfolio lacks detail.

Woodside’s projected growth in emissions from the planned development of the Scarborough, Sangomar and Browse fields will come at the expense of more ambitious emissions reductions before 2030. Furthermore, Woodside will rely heavily on land-based offsets to meet its 2025 and 2030 targets.
Beyond 2030, Woodside has proposed that CCS will be required to achieve net zero emissions by 2050, without making any firm commitments beyond a feasibility assessment.

Woodside has stated that it has approximately 3.4 gigatonnes of storage potential across its operated titles.^[13] Other than disclosing a target cost for CCS of US$50 per tonne,^[14] Woodside has not made a firm commitment to invest in CCS, disclosed the estimated cost, interim milestones or the metrics it will use to measure success.

Woodside is also engaged in a number of pilot hydrogen projects, and is aiming for initial hydrogen production by the mid 2020s. Further disclosure would be required for shareholders to assess the feasibility of this strategy.

Woodside should disclose additional information about each of the planned CCS and hydrogen projects, and the progress of each of those projects on an annual basis.

Board response

The Woodside board claims that Say on Climate would “add another layer of process and formality that is not necessary”, given its ongoing engagement with investors, and that it may “reduce the time and resources that Woodside will be able to devote to existing avenues of engagement”. ^[15]

• ACCR response: the additional layer of process is outweighed by the value of an annual accountability mechanism, which will consolidate and focus engagement with shareholders.

The board also claims that shareholders have existing avenues to “express their opinions about climate-related issues”,^[16] including general meetings, the annual investor day and via its regular engagement program.

• ACCR response: not all shareholders are able to attend meetings, nor have access to Woodside executives. The board understates the importance of climate risk management by demoting it to an issue about which shareholders simply have opinions.

Conclusion

An annual Say on Climate will provide shareholders with a non-binding advisory vote on Woodside's plan to reduce emissions and its performance against that plan. Say on Climate is in the long-term interests of all shareholders.