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94% of Beach Energy investors reject capital protection

25 November 2020

25 November 2020

5.4% of shareholders today formally called on Australian-focused gas and oil company Beach Energy to wind up its fossil fuel production in line with the goals of the Paris Agreement by voting in favour of a resolution put forward by more than 100 shareholders, supported by Market Forces.

Beach plans to invest $4 billion to increase oil and gas production by around 50% over the next 5 years, with a particular focus on gas for the Australian domestic market. In response to shareholder questioning at today’s AGM, Beach Chair Glenn Davis confirmed the company intends to continue increasing production beyond that point.

These plans are inconsistent with calls being made, both internationally and domestically, to phase out gas use:

“Rather than indulging in wishful thinking or living in denial, the Federal Government and the gas industry – and its customers – should start planning now for a future without natural gas, or at least with a dramatically reduced role for natural gas.”Grattan Institute

“The time to begin planning for a wind-down of gas production is, as with other fossil fuels, already upon us” – SEI, IISD, ODI, Climate Analytics, CICERO, and UNEP

Recognising the necessary declines in gas and oil use required under a 1.5°C-aligned energy transition, today’s shareholder resolution sought to protect shareholder capital from being wasted on projects that would be left stranded by markets rapidly shifting away from fossil fuels.

Yet 94% of Beach’s shareholders rejected these calls for capital protection, including Seven Group Holdings, which owns almost a third of Beach’s shares.

Clean energy transition is underway

Shareholders attending today’s annual general meeting raised a number of forecasts of the rapid transition away from gas required to hold global warming to 1.5°C, and indicators that this transition is already underway.

Recent policy announcements in both NSW and Victoria make it clear those states are focused on replacing old coal power generation capacity with renewable energy, with gas-fired generation expected to play an even smaller role in the energy mix than it does today.

Gas use in buildings is a significant driver of current demand, and also greenhouse gas emissions, particularly in Victoria. However, ClimateWorks’ Decarbonisation Futures report models gas use for residential and commercial buildings in Australia falling to effectively zero by 2035 in a Paris-aligned scenario.

Victoria will soon announce emission reduction targets for 2025 and 2030, with the Independent Expert Panel’s report tabled in Parliament showing emissions need to fall by 60% by 2030 in order to align with the Paris Agreement’s 1.5°C warming goal.

In response to a number of shareholder questions on these issues, Mr Davis repeatedly referred to the company’s analysis of scenarios produced by the International Energy Agency and the Australian Energy Market Operator. The IEA scenarios scenarios do not provide data or forecasts specific to Australia, while AEMO’s scenarios were produced before the significant policy announcements made by the NSW and Victorian governments.

Inconsistency from institutional investors

Earlier this year, investor groups representing over US$100 trillion in assets under management wrote an open letter, calling on companies to adopt Paris-aligned assumptions in financial statements. Among these groups was IGCC, which counts many Australian super funds as members.

In its FY20 annual financial statements, Beach Energy used a long term oil price assumption of US$60 per barrel. This is around 5% higher than the 2025 oil price forecast in the IEA’s Sustainable Development Scenario, and 13% higher than that scenario’s 2040 price forecast.

SDS gives just a 50% chance of limiting warming to 1.65°C, indicating oil prices aligned with the Paris Agreement’s 1.5°C goal would be even lower.

Yet when this was put to Beach at today’s AGM, Mr David refused to accept that the company’s assumptions were not Paris-aligned.

Mr Davis also noted none of the company’s institutional investors had raised this issue with Beach directly.

In a further demonstration of inconsistency from big investors like our super funds, Mr Davis said none of these investors had made the same demands of Beach as they had of other oil and gas producers earlier this year, when 40% of Santos and 50% of Woodside’s shareholders voted in favour of shareholder resolutions calling on those companies to align their downstream (scope 3) emissions and capital expenditure plans with the Paris climate goals.

Is your super fund invested in Beach’s dirty gas expansion plans? Find out and take action!