Managing climate corporate activism and disruption in the mining sector

By Mark Smyth, Heidi Asten, Tim Stutt, Maxine Byrne and Jane Wang

As the commercial landscape responds to growing societal interest in ESG issues, resource companies must adapt to changing expectations on how to manage and disclose their climate strategies and risks.

Globally, we have seen climate disclosure and broader ESG issues evolve to become unavoidable considerations for resource companies. In Australia, similar trends have emerged with a focus on environmental disclosure and investment. External stakeholders – ranging from regulators and shareholders to community groups and investors – are finding and deploying new and varied ways of seeking greater transparency on these issues to ultimately bring about change. In this article, we outline key trends and pressure points arising in this context for companies to consider – and steps they can take in response.

"Greenwashing" claims and broader climate disclosure criticism

“Greenwashing” style claims and criticism of climate action plans at all stages, whether it be pre or post publication of plans, are increasingly being seen. Examples of concerns raised by activists include claims or statements made by companies about their plans to achieve net zero carbon emissions, a perceived lack of disclosure around the likely volume of greenhouse gas emissions to be generated from the development of new fossil fuel projects, and increasingly a broader focus on biodiversity impacts and management.

Shareholder resolutions / say on climate

Shareholder resolutions to mining companies covering a range of requests are being lodged, including for:

• increased disclosure around how the company’s capex and opex will be managed consistent with a net zero by 2050 scenario;
• inclusion of climate sensitivity analysis in audited financial statements;
• companies to take an active role in promoting stronger climate policy beyond their own business activities; and
• scrutiny of industry organisations companies are members of and calls for greater advocacy from mining companies on enhanced climate change legislative reforms.

Closely related to activist lodged shareholder resolutions is the global Say on Climate initiative active in Australia. This initiative petitions boards to voluntarily propose resolutions seeking further transparency on climate reporting and annual non-binding shareholder votes on a company’s climate plans. Several Australian listed resource companies have endorsed this initiative and are now moving to hold such shareholder votes.

AGM disruptions

Globally, we have seen activist groups disrupt AGMs through non-violent protest and civil disobedience. Such actions involve placards, chanting and demonstrations during AGMs. In some cases, AGMs have been paused to deal with these actions with some even resulting in the arrest of protestors. In addition to the interruption, companies should be aware of the substantial media coverage that could follow these events.

Complaints to regulators regarding climate strategy

Questioning by activists in relation to climate strategy and decision-making is becoming increasingly prevalent at the AGMs of resource companies. In some cases, this has led to “greenwashing” style complaints being made to regulators such as ASIC alleging that the responses provided were misleading. Complaints have also been made to other regulators in relation to ‘environmentally friendly’ products using carbon offsets as activists argue such products to be misleading or deceptive.

Project approvals disruptions

There’s an ever-increasing focus on scrutinising and challenging adequacy of approvals under environmental and planning processes at both state and Commonwealth levels from a climate perspective. A number of these challenges draw on novel application of existing legislation or on arguments that have been successfully deployed in litigation in overseas jurisdictions. Areas of focus include Scope 1, 2 and 3 emissions and approach to offsets, as well as broader environmental issues and their potential interaction with, or exacerbation by, climate change impacts. Coupled with this, significant legislative reform at both Commonwealth and state level may put further pressure on project approvals.

M&A disruptions

Over the last few years, we have seen market activity increasingly being driven by ESG considerations, including divestment from fossil fuels and mergers in support of long term ESG goals. These transactions have been subject to criticism by activist groups. Although companies seek to move away from fossil fuels, criticisms against divestment concentrate on a lack of emissions reduction as the asset has not been decommissioned but merely “moved elsewhere”. Mergers conducted with an ESG motivation have been met with scepticism over whether such motivators are merely greenwashing.

Assertions against institutional investors

Activist groups have also targeted institutional investors, putting pressure on those with oil and gas investments to divest from fossil fuels. Recent assertions include:

• potential breaches of the targeted company’s internal policies relating to climate change;
• breaches of trustee or directors’ duties arising from the management of climate risks; and
• misleading and deceptive conduct on the basis that fossil fuel investments are contrary to representations companies have made on their climate credentials.

Applications to inspect the books of a company

Section 247A of the Corporations Act enables shareholders to seek orders authorising them to inspect the books of a company. Shareholder activists have invoked this provision to seek documents from financial institutions containing information relating to their investments, including whether such investments align with their climate action plans and internal policies. Recent cases have indicated that the courts are amenable to the use of s 247A for this purpose. Companies should be cautious that legal action may follow successful applications.

Pressure on company auditors

The use of s 250PA of the Corporations Act illustrates the novel ways in which activists are applying pressure to companies on climate change issues. For example, shareholders have raised written questions of company auditors under this provision regarding alignment of financial statements with a 1.5ºC climate scenario.

Recommendations

In light of this changing commercial landscape, companies can consider taking the following steps to mitigate these risks:

• ensure publicly disclosed ESG commitments are underpinned by ‘reasonable grounds’ and disclose contingencies in forward looking statements (e.g., emergence of new technologies, regulatory changes and market developments);
• test management has appropriate systems and processes to achieve their climate strategy and that these are appropriately documented, and that there are action plans in place to implement the strategies and that implementation is monitored;
• closely involve internal and external legal advisors in public disclosures and policy development;
• ensure the market is kept informed of material information relating to climate strategy and risk and that disclosures are accurate and complete;
• make investment decisions that align with climate strategy as disclosed or provide a reasonable basis for decisions made contrary to the climate strategy;
• actively engage with external stakeholders, such as institutional investors, on ESG policies to bring them on your company’s ESG ‘journey’;
• engage with activist groups in advance of events such as AGMs to provide an opportunity to resolve any concerns or queries privately;
• ensure industry organisations are aligned or explain why their position has been adopted despite any potential misalignment;
• update your Chair’s powers papers ahead of the AGM to provide granular prompts on how to respond to activist disruptions during AGMs. The Chair should also be well versed on the basis of the company’s climate strategy. It is key the Chair is well prepared to ensure they can calmly and confidently respond to questioning and interruptions; and
• given the increasing focus on project approvals, implement steps to ensure that impact assessment for proposed new or expansion projects addresses lifecycle emissions, anticipate potential challenge areas and seek to proactively address them at an early stage, allow time in program for challenges to approvals where appropriate, and keep the market informed as appropriate.