Why and how to assess and engage with companies on exposure to risks associated with climate change. Australian focus.

1. Assessing & engaging with
companies on exposure to
risks associated with
climate change
presentation by
Gillian King
Sustainable Jill
to
Australian Shareholders Association
Canberra Northside Group
8 August 2019

2. About me
• Sustainability facilitator bringing together:
– people & ideas
– faith leadership
– investment
– urban design
for a habitable climate & common home (Earth)
• 20 years Aust Gov’t policy, management
– environ't (esp. climate change), industry, ageing
• +10 years advocacy & community organising

3. About me
• Long-term interest in global warming &
sustainability
– scientist, policy-maker, community member,
investor, activist & community organiser
– systemic change, game-changers, narratives &
‘hidden’ messages

4. About you
• Who reads their Annual Reports?
• Who is aware of the risks to their companies from
climate change?
• Who has actually engaged with their companies?
• Who has been to an AGM of at least one of their
companies?

5. Damaging our climate

6. Damaged climate -
consequences

7. Damaged climate -
consequences

8. Damaged climate -
consequences

9. Risks relating to climate change
• Contributing to damage to our climate –
activities, investments – affects everyone
• Direct damage – assets, supply chains,
income, staff availability during/after/longterm
• Consequences of policy changes –
government, customers, suppliers,
shareholders
• Stranded ‘assets’

10. Policy & behavioural changes
• Government
– eg carbon price/trading, planning changes
• Customers
– eg petitions, boycotts, social media comments
• Suppliers
• Shareholders
– Increased scrutiny & engagement, divestment

11. Direct damage

12. Direct damage

13. Stranded ‘assets’

14. Lots of risk!

15. No ostriches!
• Strong guidance on need to assess,
disclose & manage risk:
Council of Financial Regulators:
ASIC, APRA, RBA, Treasury
Governance institutes etc: AICD, GIA
ASX

16. QC, APRA & AICD
• Barrister Noel Hutley SC:
– company directors who fail to properly
consider and disclose foreseeable climate-
related risks to their business could be held
personally liable for breaching their statutory
duty of due care and diligence under the
Corporations Act.
• Endorsed:
– APRA - Feb 2018 speech
– AICD - 2018 Directors Update

17. ASIC
Hutley opinion ‘relatively unremarkable’
but
‘highlights & reinforces the need for
directors to adopt a probative & proactive
approach in assembling the information
reasonably required to inform their
decision-making in this area’.

18. ASIC
Directors and senior managers of listed
companies need to understand and
continually reassess existing and
emerging risks that may be applicable to
the company’s business, including climate
risk. This should extend to both short-term
and long-term risks.

19. ASIC
We encourage companies and directors to
consider the TCFD’s report, not just in the
disclosure context but as a key resource in
assisting the understanding, identifying
and managing climate risk and
opportunity.
TCFD = Financial Stability Board’s Task Force on Climate-related
Financial Disclosures
- Price speech, June 2018

20. ASIC
Companies that have a strong culture &
effective corporate governance practices
are better equipped to develop &
implement effective strategies to manage
risks & opportunities. This applies to
climate risk just as it does to other risks
such as compliance risks, cyber security
or digital disruption.
- Price speech, June 2018

21. ASX

22. ASX
2018:
Entities that believe they do not have any
material exposure to environmental or
social risks should consider carefully their
basis for that belief and benchmark their
disclosures in this regard against those
made by their peers.

23. AICD
• Implications of Hayne Royal Commission
& APRA report on CBA:
Boards & Committees must engage in
greater detail on risk issues
• Shareholder activism increasing

24. AICD

25. GIA

26. Engagement on issues
It’s your company – get to know it:
• Operations – business, corporate
• Key personnel
• Culture

27. Leadership: Chair, CEO, CRO

28. Leadership: Directors’
expertise, conflicts of interest

29. Assessment –
Annual Reports
1. Electronic is easiest (Adobe Acrobat pdf)
2. Search for key words eg:
– Climate
– Weather / Storm / Flood / Wind / Sea / Coast
– Risk
– ESG / CSR – may be in separate reports
3. Read text, highlight key issues of concern
4. Save annotated document
5. Use as basis for questions

30. Engagement on issues
• Annual General Meetings
– Questions on notice
– Questions from floor
– Resolutions
– Informal discussions afterward – key
personnel, other shareholders
• Letters & emails
• Social media, esp. Twitter

31. Ask really specific questions
• Do your homework!
• Look in Annual Report for:
– What’s missing
– Inconsistencies
– Spin & greenwash
• Prioritise the issues

32. Ask really specific questions
• Frame the question. Cite eg:
– Context – physical, social, political, historic
– Evidence
– Regulatory & governance requirements
• Be challenging and constructive
– Be specific
– Praise & encouragement can help

33. What happened at prior AGMs?
• Company website
(maybe)
• Activist websites
– ASA
– Market Forces
– Australian Centre for
Corporate
Responsibility
• Media

34. What happened at prior AGMs?

35. How to ask questions
• On notice for AGM
– Hope it gets picked up in presentation by
Chair &/or CEO
– No guarantees
• From the AGM floor
– Guaranteed – as long as put hand up!
– Whole board + other shareholders hear
– Can modify in light of presentations

36. How to ask questions
• Write it down
– So it’s clear and carefully framed
– Ask what you want – we all get nervous!
– Large, clear writing – so it’s easy to read
• Take notes from response
– Space on printed sheet
– Large (A4) notepad + pen

37. Go ahead & ask!

38. Case study: Auswide Bank

39. Case study: Auswide Bank
‘We continue
to focus on our culture of risk
management…’
‘The Board is satisfied that the
provisions set aside
cover the risks arising from
current and future doubtful
debts..’

40. Case study: Auswide Bank
‘Regulatory activity has been a
prominent feature of the
financial services market during
the reporting period, and we
anticipate that industry changes
will continue in the current
financial year.’
‘backed by sound governance
and risk management’
‘Our business continues to
grow and create value for
shareholders because we put
our customers first.’

41. Case study: Auswide Bank
‘…mitigate risk’
‘Continued sophistication
of risk management
capabilities’
‘Ongoing vigilance and
attention to
positive organisational
culture, governance and
risk management
will continue to be central
among our strategic
priorities.’

42. Case study: Auswide Bank
STRENGTHENING
the Bank through
management capabilities,
risk and audit processes,
and capital strength

43. Case study: Auswide Bank
‘The Bank has a strong
commitment to provide
regulatory compliance and
risk training,…’

44. Case study: Auswide Bank
‘Auswide Bank has a
comprehensive risk and
compliance management
program to actively identify and
eliminate risk where possible,
and mitigate and minimise the
impact of those risks that cannot
be eliminated.’

45. Case study: Auswide Bank
‘Strengthening the bank through
management capabilities, risk and
audit processes…’

46. Case study: Auswide Bank
Risk
‘Auswide Bank takes a
proactive approach to
risk management…
‘The Board Risk
Committee provides
strong oversight of the
risk framework across
the organisation….’

47. Case study: Auswide Bank

48. Any CC risks?

49. Questions –
Auswide Bank 2017

50. Don’t be fooled
by spin & greenwash

51. Don’t take fob-offs, spin or
greenwash

52. Don’t take fob-offs - persist

53. Persist, Escalate

54. Questions –
Auswide Bank 2018

55. Questions –
Auswide Bank 2018

56. Shareholder Resolutions
• Shareholder resolutions: healthy part of
corporate democracy – but not in Australia.
• Directors are stewards for shareholders.
• Accountability for discharging that stewardship is
essential to long-term corporate prosperity.
• Some company constitutions are not conducive
to the right of shareholders to place resolutions
on the agenda of a shareholder meeting

57. Making it easy

58. Making it easy

59. Making it easy

60. Making it easy

61. Making it easy

62. Making it easy

63. Making it easy

64. Making it easy

65. Shareholder resolutions –
constitution amendment

66. IAG resolution 2019

67. Shareholder resolutions –
from disclosure
to transition plans
for reducing exposure
to risks

68. Insurers resolution 2019 –
IAG, Suncorp

69. BHP resolution 2019

70. AGL Energy resolution 2019

71. Origin Energy resolution 2019

72. ‘Big 4’ banks resolution 2019

73. Does it work?

75. Other options & issues

76. Other options & issues

77. Other options & issues

78. Questions?