The Australasian Centre for Corporate Responsibility (ACCR) has filed a Shareholder Resolution to AGL Energy Ltd (ASX: AGL) on the disclosure of Paris-aligned goals and targets in association with forthcoming documents for the proposed demerged companies— Accel Energy and AGL Australia.
This page contains the resolution and its supporting statement, and will be updated with links to news and additional briefings about this engagement.
Shareholders request the Board disclose, in association with forthcoming demerger scheme documents:
- Short, medium and long-term targets for reductions in the proposed demerged companies’ Scope 1, 2 and 3 emissions (Targets) that are aligned with articles 2.1 (a) and 4.1 of the Paris Agreement;
- Details of how the proposed demerged companies’ capital expenditure (sustaining and growth and transformation) will align with the Targets; and
- Details of how the proposed demerged companies’ remuneration policies will incentivise progress against the Targets.
Nothing in this resolution should be read as limiting the Board’s discretion to take decisions in the best interests of our company or the proposed demerged companies, or the Board’s ability to limit the disclosure of commercial-in-confidence information.
Failure to manage the energy transition
Our company’s share price has declined by more than 70% since its peak of more than $27 in mid-2017. This is largely due to the significant influx of renewable energy into the National Electricity Market (NEM), driving wholesale electricity prices lower. As a result, our company incurred impairments on its thermal assets of $532 million in the six months to 31 December 2020, and the forecast for future earnings remains bleak.
The flood of renewables and fast response technologies into the NEM is expected to continue. The CEO of the Australian Energy Market Operator (AEMO) recently confirmed that an additional 55GW of renewable energy projects are currently proposed across the NEM, almost as much generation capacity as exists today. Furthermore, AEMO is preparing the grid to be capable of running at 100% instantaneous penetration of renewable energy by 2025. Our company has indicated that the ongoing availability of its 12 coal units “may no longer be required by the market”, and that seasonal closures and mothballing may be required. Such measures should be supported.
In order to limit further destruction of shareholder value, the proposed demerged companies—Accel Energy and AGL Australia—must embrace the energy transition with greater urgency, and commit to an accelerated pathway to decarbonisation.
The science on coal closure
The Intergovernmental Panel on Climate Change (IPCC)’s Special Report on Global Warming of 1.5°C concluded that with only limited carbon capture and storage, the use of coal in electricity generation must fall globally by 80% below 2010 levels by 2030. Furthermore, OECD nations should end coal use entirely by 2030, and the proportion of electricity generation from renewables globally will need to increase to 58-60% by 2030, and 77-81% by 2050.
The International Energy Agency’s recently published ‘Net Zero by 2050’ report reached similar conclusions to the IPCC. It recommended that all unabated coal plants in advanced economies must be phased out by 2030 and in all economies by 2040.
In 2020, our company published its ‘Pathways to 2050’ report, which included four carbon emissions scenarios, only one of which was consistent with a trajectory consistent with the Paris Agreement—Scenario D. That scenario confirmed that in order to be consistent with a 1.5°C pathway, our company would have to close its three coal-fired power stations by the mid-2030s. Liddell is scheduled to close in 2022-23, Bayswater by 2035 and Loy Yang A by 2048.
Initial climate commitments in demerger
The Board anticipates the completion of the proposed demerger in the fourth quarter of FY22, subject to shareholder and regulatory approval.
Our company has committed to publish a “detailed climate change roadmap including specific decarbonisation targets” for Accel Energy. It also reaffirmed Accel Energy’s “baseline” emissions reduction trajectory of a 23% reduction in CO2e emissions by 2024, a 60% reduction by 2036 and 100% by 2050 (on FY20 levels). This trajectory is based on Scenario A of the Pathways to 2050 report, which equates to 3.2-4.5°C of global warming (RCP 7.0). Accel’s existing targets are simply not aligned with the Paris Agreement.
AGL Australia is expected to be listed as “carbon neutral for scope 1 and 2 emissions, with a clear pathway to carbon neutrality for all sources of electricity”. Carbon neutrality, at least in the short-term, will be delivered via carbon offsets. Our company also acknowledged the “need to reduce scope 3 emissions”, and committed to “deliver a detailed climate change roadmap including specific decarbonisation targets”. It is unclear whether the roadmap for AGL Australia will be aligned with the Paris Agreement.
Our company has proposed that AGL Australia will contract 25% and 50% of Accel Energy generation to 2023 in Victoria and NSW, respectively; then 20% and 35% of Accel’s generation to 2025 in Victoria and NSW, respectively. Contracted generation between the demerged companies will then decline further after 2025, but the projected emissions intensity of AGL Australia’s supply portfolio beyond 2025 is yet to be disclosed.
Our company’s operational greenhouse gas emissions in FY20 were 42.2 million tonnes CO2-e, or approximately 8% of Australia’s total emissions. In the six months to 31 December 2020, the carbon intensity of our company’s operated generation assets was 0.95 tCO2-e/MWh, compared to the average intensity in the NEM of 0.70 tCO2-e/MWh. Since FY2015, the average intensity in the NEM has declined by 23%, while the carbon intensity of our company’s operated assets has declined by just 2%.
In the Climate Action 100+ initiative’s recently published Net-Zero Company Benchmark, our company failed to meet any criteria in the assessment of its decarbonisation strategy or capital allocation alignment.
Three carbon transition metrics are currently included in our company’s executives’ long-term incentives: controlled emissions intensity, controlled percentage renewable and storage electricity capacity, and the percentage of total revenue derived from green and carbon neutral products and services. While the remuneration structures of Accel Energy and AGL Australia are yet to be determined, executives in both companies must be incentivised to accelerate the transition to zero emissions.
ACCR does not expect the information requested in this resolution to be included in the demerger scheme documents, but at a time appropriate to inform shareholders’ decision-making on the proposed demerger.
ACCR urges shareholders to vote for this proposal.