The Australasian Centre for Corporate Responsibility (ACCR) has filed Shareholder Resolutions to Origin Energy Limited (ASX:ORG), seeking that the company include a climate sensitivity analysis in its audited 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 Members in general meeting may by ordinary resolution express an opinion or request information 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 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 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 business segments, including exploration assets in Integrated Gas
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 (978 words including footnotes)
Our company states that its support of the Paris Agreement, including the target of limiting warming to 1.5°C, is 'unequivocal'. Despite this, and against investor expectations, our company does not adequately consider climate change in its financial statements. For example, it is unclear how a 1.5°C scenario, which our company calls for, could impact our company's financial position.
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. Our company failed to meet any of the seven assessment criteria. 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”.
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, including the IEA’s Net Zero by 2050 scenario.
- 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 segment, including exploration assets in Integrated Gas.
It is also expected that the audit report demonstrates the auditor has assessed the impacts of climate-related matters and identified inconsistencies between the financial statements and other information, such as climate change disclosures.
Our company’s value is sensitive to climate change
As an owner of fossil fuel assets our company acknowledges it is exposed to reputational, legal and market risks associated with the ongoing decarbonisation of energy markets, including: decreased fossil fuel demand; increased demand for low-carbon energy; shortened lifespan of carbon-intensive assets; changing energy market dynamics; regulatory intervention and policy; litigation; and the introduction of new low-carbon technologies. Changing weather patterns and more extreme weather events, driven by climate change, also directly confront our company's business operations.
Climate transition risks have played out for the Eraring Power Station, as seen in the FY21 financial statement, when our company’s Generation Cash Generating Unit (CGU) was impaired by $998 million, due to “lower outlook for wholesale electricity prices driven by new supply expected to come online, including both renewable and dispatchable capacity”. Subsequently, the closure date of the Eraring Power Station was brought forward from 2032 to 2025.
Such risks also apply to our company’s Integrated Gas segment. LNG demand and pricing varies under different scenarios, therefore revenue and asset value will also vary.
In FY21, our company was carrying $245 million of exploration and evaluation assets. Research shows that already producing fossil fuel reserves will exceed the remaining 1.5°C carbon budget, suggesting that there is no room for new gas resources to be developed without breaching this climate outcome. It is therefore likely that under a 1.5°C scenario, these exploration assets would have no value. This however cannot be confirmed without a diligent assessment by our company and assurance by our company’s auditor.
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.
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'. 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+ —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.
Some investors are already expressing their expectations around reflection of climate in company financial statements and audits in their voting decisions.
Consistent with accounting standards
Existing Australian and global accounting standards set an expectation that climate-related risks be integrated into financial statements.
The 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'. 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.
Our company’s shareholders made it clear that climate change is material to their decision-making when, at the 2021 AGM, 44% supported a resolution for our company to align its capital allocation with 1.5°C.
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.
Finally, if Australia develops sustainability-related reporting requirements that are aligned with the ISSB [Draft] IFRS S2 Climate-related Disclosure standard, the AASB has stated these will ‘supplement and complement’ information provided in financial statements. Consequently this shareholder resolution is a complementary extension of the anticipated sustainability standards.
ACCR urges shareholders to vote for this proposal.
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Australasian Centre for Corporate Responsibility