ACCR Shareholder Resolutions to BHP Group Ltd on climate advocacy, accounting and audit

The Australasian Centre for Corporate Responsibility (ACCR) has filed shareholder resolutions to BHP Group Ltd (ASX: BHP) seeking consistency on climate policy advocacy and the inclusion of climate sensitivity analysis in financial statements.

This page contains the resolutions and supporting statements.

Resolution 1 - Special resolution to amend our company’s constitution

Member resolutions at general meeting

The shareholders in a general meeting may by ordinary resolution express an opinion, ask for information, or make a request, about the way in which a power of the company partially or exclusively vested in the directors has been or should be exercised. However, such a resolution must relate to an issue of material relevance to the company or the company's business as identified by the company, and cannot either advocate action which would violate any law or relate to any personal claim or grievance. Such a resolution is advisory only and does not bind the directors or the company.

Resolution 2 - Ordinary resolution on company consistency with limiting warming to 1.5°C

Shareholders request that our company proactively advocate for Australian policy settings that are consistent with the Paris Agreement’s objective of limiting global warming to 1.5°C.

Nothing in this resolution should be read as limiting the Board’s discretion to take decisions in the best interests of our company.

Supporting statement to Resolution 2 (983 words including footnotes)

This resolution addresses our company’s potential to exert climate-positive policy influence in Australia. Australia is a long-time laggard on climate policy, but a recent change in government means that there is an immediate opportunity to accelerate the decarbonisation of its economy. The fossil fuel lobby remains the biggest impediment to Australia’s transition.

Our company is the largest in Australia with significant influence and reach across the economy, politics and society. Our company states that it understands the “urgent global challenge”^[1] of climate change and the IPCC’s warning that warming of 2°C will have significantly worse consequences than limiting warming to 1.5°C.^[2] Given this understanding, and the major opportunity our company sees for its commodities from rapid decarbonisation,^[3] it is reasonable for shareholders to expect that our company uses its significant influence to call for policy that will enhance the probability of limiting warming to 1.5°C. Such efforts will protect and indeed enhance long term shareholder value.

2021 shareholder resolution

In 2021, our company supported a shareholder resolution which sought that it review its industry associations, identify areas of inconsistency with the Paris Agreement, and suspend membership if inconsistency was identified. We look forward to seeing our company’s 2022 industry association review and expect an exit from the Queensland Resources Council at a minimum, due to its ongoing advocacy for thermal coal.^[4]

Whilst constraining the negative advocacy of industry associations is crucially important, this resolution seeks that our company also independently advocates for climate policy that is 1.5°C aligned. We would expect such advocacy to be in the public domain and also with government policy makers.

Miners of future-facing metals must counter the fossil lobby

The 2022 IPCC Working Group III report on Mitigation of Climate Change identified that a major threat to limiting warming to 1.5°C is the “power of incumbent fossil fuel interests to block initiatives towards decarbonisation.”^[5] Australia received a special mention, with the IPCC stating that “campaigns by oil and coal companies against climate action in the US and Australia are perhaps the most well-known and largely successful.”^[6] The coal lobby, including our company’s industry associations such as the Minerals Council of Australia (MCA), continues to play a damaging role in Australia.^[7] Whilst the recent federal election in Australia set the stage for increased national climate ambition, there are signs that the MCA^[8] and the oil and gas industry^[9] will be seeking to water down the effectiveness of evolving climate policy.

Unsurprisingly, campaigns that are oppositional to rapid decarbonisation are wielded by industries that have the most to lose as the world transitions away from fossil fuels. The share of our company’s revenue that is driven by fossil fuels has further declined as a result of the BHP Petroleum spinoff. Diversified mining companies have a significant amount to gain from ambitious climate policy,^[10] yet these companies are insufficiently supportive of such policies. It is not in our company’s interests to be silent or ambiguous about its preferred policy positions, particularly since the fossil fuel lobby is so vocal and obstructive.

Our company’s influence

Our company is very willing to wield its political influence on issues that it sees as a threat to its business. In 2010, it helped to bring down Australian prime minister Kevin Rudd due to his proposed super profits tax for the mining industry.^[11] In 2017, our company lobbied against a proposed mining tax in Western Australia that saw a party leader lose his seat.^[12] In 2022, it has thrown its weight behind an emerging campaign against the Queensland government’s coal royalty rate rise.^[13]

History shows that our company can get what it wants by way of policy in this country. Whilst such aggressive lobbying against taxation is not condoned, shareholders should question why our company is not applying a similar assertive approach to advocacy for the policy settings required to limit warming to 1.5°C. On numerous occasions, such as when our company^[14] and its industry associations were successful in campaigning for the repeal of Australia’s carbon pricing mechanism,^[15] our company has used its influence to undercut climate action.

Whilst there are some promising early signs our company may start to advocate for the opportunities and new sources of national prosperity from decarbonisation,^[16] it is not yet using its extensive political influence to enhance the ambition of climate policies in Australia in support of 1.5°C.

Policy opportunities

As a major winner from rapid decarbonisation, our company should consistently and positively advocate in line with the 1.5°C goal. Specific advocacy opportunities include:

• Publicly supporting significantly enhanced ambition in Australia’s Nationally Determined Contribution for 2030 and 2035.
• Advocating for the Australian government’s Safeguard Mechanism^[17] to incentivise real reductions in industrial emissions over land based offsets, for scheme settings to allow for ambition to be ratcheted up, and to prevent carve outs or loopholes.
• Proactively engaging with policy ideas to decarbonise Australia’s mining industry, such as proposals to phase out the fuel tax rebate for the mining sector to incentivise the electrification of mine haulage.^[18] Just last year the MCA, our company’s industry association, aggressively resisted such a proposal.^[19]
• Openly supporting proposals to insert a climate trigger for state and federal government project approvals.
• Actively supporting enhanced renewable energy rollout and electrification policies.
• Advocating for the adoption of best practice technologies to accurately measure methane fugitives from coal mining, including the use of local ground based monitors, satellites and aerial surveys.
• Lobbying governments to establish enabling policy for a global green iron and steel industry.
• Working to ensure none of its industry associations are lobbying against a 1.5°C trajectory.

It is expected that our company considers the climate implications of all of its direct and indirect policy advocacy and aligns its approach to 1.5°C.

ACCR urges shareholders to vote for this proposal.

Resolution 3 - Ordinary resolution on climate accounting and audit

Shareholders request that from the 2023 financial year, the notes to our company’s audited financial statements include a climate sensitivity analysis that:

• includes a scenario aligned with limiting warming to 1.5°C,
• presents the quantitative estimates and judgements for all scenarios used, and
• covers all commodities.

Nothing in this resolution should be read as limiting the Board’s discretion to take decisions in the best interests of our company.

Supporting statement to resolution 3 (941 words including footnotes)

Our company ‘believe[s] the world must pursue the aims of the Paris Agreement’ and it aims to ensure its ‘capital expenditure plans are not misaligned with the Paris Agreement’s aim to pursue efforts to limit global warming to 1.5°C’.^[20] Despite this, and against investor expectations, our company does not adequately consider climate change in its audited financial statements.

In the 2022 CA100+ Net Zero Company Benchmark, our company’s 2021 financial statements and audit report were reviewed for the provisional Climate Accounting and Audit assessment.^[21] Our company met one of the seven assessment criteria. The audit report^[22] in our company’s 2022 financial statements discloses qualitative information regarding climate change, which may meet one further criteria, leaving five criteria unmet. This exclusion of climate risks from our company’s financial reporting and audit “reduces an investor’s ability to make investment, engagement and voting decisions”.^[23]

Implementation of this resolution

By adhering to the ask of this resolution, our company is expected to include the following in the notes to its financial statements:

• Scenarios and assumptions: Explain which scenarios have been used and the quantitative assumptions they include. Explain and justify any deviations from commonly used scenarios, such as the IEA or the Network for Greening the Financial System Net Zero by 2050 scenarios. This includes detail on 1.5°C overshoot and key variances in commodity price assumptions.
• Results: Disclose how the transition and physical risks affect asset valuation and impairments, provisions and credit losses in the different climate scenarios. Provide results by commodity.

It is also expected that the audit report demonstrates the auditor has assessed the impacts of climate-related matters, ensured the veracity of the scenario(s) selected and identified inconsistencies between the financial statements and other information, such as climate change disclosures.

Our company’s value is sensitive to climate change

Our company states it “is exposed to a range of transition risks that could affect the execution of our strategy or our operational efficiency, asset values and growth options, resulting in a material adverse impact on our financial performance, share price or reputation, including litigation. The complex and pervasive nature of climate change means transition risks are interconnected with and may amplify our other risk factors”.^[24] Changing weather patterns and more extreme weather events, driven by climate change, also directly confront our company's business operations.

Whilst the energy transition presents significant upside for a number of our company’s commodities, transition risks have been realised for the New South Wales Energy Coal Cash Generating Unit (CGU), as seen in the restated 2021 financial statement, when it was impaired by $1,057 million due to “changes in energy coal prices”.^[25]

Many credible agencies, including the Reserve Bank of Australia,^[26] have published data showing reduced demand for Australian metallurgical coal in low carbon scenarios. This suggests our company’s metallurgical coal assets may also be at risk of impairment in a below 2°C or 1.5°C pathway.

Consistent with investor expectations

In 2020, investor groups representing over US$103 trillion AUM globally issued a letter seeking that companies reflect climate-related risks in financial reporting.^[27]

Subsequently, the Institutional Investors Group on Climate Change (IIGCC) outlined its 'unequivocal' expectation that companies and auditors will deliver 'Paris-aligned accounts', defined as "accounts that properly reflect the impact of getting to net zero emissions by 2050 for assets, liabilities, profit and losses".^[28] IIGCC expects directors to: affirm that the Paris Agreement goals were considered in preparing the accounts; explain, in the Notes, how critical accounting judgements are consistent with NZE by 2050 (or if these assumptions are not used, why not); present results of sensitivity analysis around Paris-aligned assumptions; state any implications for dividend paying capacity of Paris-alignment. IIGCC also expects companies to account for any inconsistency between its narrative reporting on climate risks and the assumptions made in accounting.

CA100+'s Net Zero Benchmark assesses whether company accounting disclosures and practices adequately reflect climate change risk, and the global movement towards NZE GHG emissions by 2050 or sooner. The CA100+ initiative —representing more than 700 global investors managing AUM $68 trillion— expects that 'net zero aligned' companies and auditors will provide investors with oversight of how accelerating decarbonisation, in line with the 2050 trajectory, will affect a company's financial position and profitability.^[29]

Some investors are already expressing their expectations around reflection of climate in company financial statements and audits in their voting decisions.^[30]

Consistent with accounting standards

Existing Australian and global accounting standards set an expectation that climate-related risks are integrated into financial statements.

The Australian Accounting Standards Board (AASB) Practice Statement 2, Making Materiality Judgements, is clear that 'information is material if omitting it or misstating it could influence decisions that users make on the basis of financial information about a specific reporting entity'.^[31] Therefore, and as the AASB/AUASB noted in 2019, investor statements on the importance of climate-related risks to their decision-making will often render these risks 'material' to a company, requiring them to be reflected in financial statements.^[32]

Our company considers climate change to be ‘a material governance issue and a strategic issue’.^[33]

In 2020, the International Financial Reporting Standards (IFRS) board issued an implementation document explaining how elements of 12 separate IFRS standards may introduce requirements to make climate disclosures in financial statements.^[34]

Finally, if Australia develops sustainability-related reporting requirements that are aligned with the ISSB [Draft] IFRS S2 Climate-related Disclosure standard,^[35] the AASB has stated these will ‘supplement and complement’ information provided in financial statements.^[36] Consequently this shareholder resolution is a complementary extension of the anticipated sustainability standards.

ACCR urges shareholders to vote for this proposal.

Australasian Centre for Corporate Responsibility