How natural gas producers and BHP divide investors
Investing ethically likely means forming an opinion about BHP – one of Australia’s largest companies – and on natural gas, of which the country is a major exporter.
Climate lobby group Market Forces has used new regulations that compel superannuation funds to disclose most of their investment holdings to measure their exposure to fossil fuels.
Liquefied natural gas divides ethical investors into those who see it as part of the solution to help arrest rising temperatures and those who do not.
The campaigner labels 180 companies listed on the Australian Securities Exchange and on global sharemarkets as “climate wreckers”. They include BHP and big gas producers Woodside Energy and Santos.
Following earlier analysis of large super fund default investment options, Market Forces extended its investigations to the funds’ specialist “sustainable” investment options.
In both exercises, Market Forces found the funds with the highest exposures to fossil fuels tended to be those that invest in BHP and natural gas producers.
However, super funds with holdings in BHP see the diversified miner as part of the solution to climate change.
Most of BHP’s revenue now comes from copper and iron ore. It sold its oil and gas operations to Woodside and has committed to close its thermal coal mine at Mount Arthur, in the NSW Hunter Valley, by 2030.
However, BHP still mines metallurgical coal, which, together with iron ore, are essential ingredients in steel production – an industry that is a significant greenhouse gas emitter.
Some super funds regard gas as an essential transition fossil fuel in a world that will eventually be largely powered by renewable energy that is more friendly to the planet.
However, there is a question mark over how less polluting gas is than coal – particularly given another greenhouse gas, methane, leaks into the atmosphere during natural gas production.
I asked Stuart Palmer, head of ethics research at green investment manager Australian Ethical Investments, to see what he makes of these arguments.
He says Australian Ethical does not invest in BHP, primarily because the miner has not set targets to reduce or eliminate the emissions produced when its customers make steel using its iron ore. Instead, the miner has said it would support industry to develop technologies and pathways capable of 30 per cent emissions intensity reduction in steelmaking, with widespread adoption expected after 2030.
Australian Ethical views gas as an unsustainable energy source.
Palmer says the International Energy Agency sees no room for gas sector expansion if the world is to achieve net-zero emissions by 2050 and limit global warming to 1.5 degrees. He says there are plenty of renewable energy and energy storage alternatives to invest in.
One of the arguments of super funds that invest in fossil-fuel companies is that they can vote on resolutions and influence company decision-making. However, Palmer says engagement with these companies is often ineffective, as they face no sanctions for inaction.
To be effective, institutional investors need to make public criticisms of companies’ lack of climate action, vote against directors, and sell shares if the engagement objectives are not met, he says.
Apart from BHP and gas, the major banks and their funding of fossil-fuel projects also play a role in limiting climate change.
The big-four banks are a mixed bag in terms of their funding of fossil-fuel extraction, and their financing of renewables, Palmer says.
Australian Ethical invests in some banks but not others, depending on their climate change-related lending policies, together with various conduct issues relating to investigations by regulators, such as AUSTRAC and the Banking Royal Commission.
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