14 October 2020
Catastrophic climate change Aurizon’s ‘base case’
Aurizon generates around 80% of its revenue from hauling coal. Aside from coal miners themselves, there are few businesses in the country as exposed to the financial risks posed by the rapid transition away from coal required to meet the climate goals of the Paris Agreement.
Despite Aurizon’s 2020 Sustainability Report modelling one scenario in which Australian coal exports decline by over 60% by 2040, the company confirmed its ‘base case’ sees Australian coal exports growing by 1-2% per annum over the next decade. This base case is the scenario Aurizon believes to be most likely to occur, informing the company’s business strategy.
What Aurizon fails to articulate is that the levels of coal demand in this base case are consistent with the International Energy Agency’s Stated Policies Scenario, which is expected to usher in catastrophic global warming of around 4°C.
Aurizon Chair Tim Poole claimed the company’s coal demand expectations were based on rational economic analysis, but any rational economist can tell you that a 4°C warmer world spells environmental, social and economic disaster.
Major climate risks going unmanaged?
Aurizon’s Sustainability Report notes access to funding and insurance is a significant risk facing the company. This should come as no surprise, with over 100 major banks and insurers now restricting finance to the coal sector.
To manage this risk, Aurizon says it will continue to advocate for the use of Australian thermal and metallurgical coal. Of course, the continued use of coal will necessarily delay the transition to low and zero carbon alternative energy sources required to avoid the worst impacts of climate change.
When asked how this advocacy would be conducted and how much it will cost the company, Mr Poole said Aurizon couldn’t influence demand in the coal markets it is exposed to. So if the company doesn’t believe its stated strategy to mitigate this risk will actually have an impact, will the risk just continue to go unmanaged?
Aurizon’s refusal to recalibrate its strategy in the face of the massive declines in coal export volumes expected under a scenario in which global warming is limited to 1.5°C was laid bare in the company’s new Climate Strategy, which was released on the morning of today’s AGM.
When questioned on this strategy Mr Poole pointed out that there are two separate issues with respect to climate strategy: the company’s operations, and the future demand for products it hauls.
Mr Poole is spot on here. But shareholders’ concern is that Aurizon is only addressing one element of climate risk, and not the other, far more significant one.
The company’s Climate Strategy focused entirely on addressing Aurizon’s operational emissions, which is important. But the climate-related financial risks posed by Aurizon’s operational emissions profile pale in comparison to the existential threat facing the company’s major revenue source: Australia’s coal export industry.
Again, Mr Poole stated Aurizon’s belief that coal demand will remain at levels entirely incompatible with limiting global warming in line with the Paris climate goals.
Aurizon remains tight-lipped on rail upgrades for Adani
Despite a majority of shareholder questions calling for transparency around Aurizon’s potential role in the Adani Carmichael coal project, Aurizon would not comment on its exposure to the controversial mine.
With news that Adani has been forced to set up its own coal haulage company, Aurizon shareholders asked the board to finally come clean on the status of rail access negotiations regarding Adani’s need to transport Carmichael coal. While Aurizon is no longer at risk of hauling Adani’s coal, the company may still play a role in upgrading its rail line to accommodate Adani’s additional coal load. Aurizon shareholders also called on the board to commit to not funding any of the upgrades that would be required to accommodate Carmichael coal.
The Chair side-stepped questions, opting to downplay the company’s potential involvement in helping Adani’s coal project to get off the ground.
Mr Poole also shrugged off previous investor concerns around Aurizon’s exposure to Adani’s coal project, which in 2019 prompted Perpetual to become the third Aurizon shareholder to sell down its holding after Aurizon failed to rule out support for the Carmichael mine.
While Aurizon may have hoped it could avoid being questioned on its potential involvement with Adani, it’s clear that shareholders and the public will continue to keep a close eye on the company’s willingness to facilitate the opening up of the Carmichael mine and the Galilee Basin.
Read more about how Adani has been forced to set up its own haulage company here and take action below by telling the newly exposed bankers they are now at risk of funding Adani toxic coal mine.