Cue Energy’s empty words on climate change is not enough.

10 December 2019

Cue Energy, an Australian ASX-listed oil and gas company that operates in Australia, New Zealand and south-east Asia, had to fend off numerous climate-related questions at its annual general meeting yesterday in Melbourne.

In its annual report, the company states: “(Cue) recognizes that the management of the risks associated with climate change is a priority for our generation and will be for those to come“.
After a statement of such magnitude, one would expect further analysis but, disappointingly, the company doesn’t discuss climate change or its risks anywhere else in its 2019 annual report. As a matter of fact, that is the only sentence that mentions anything related to climate change in the entire annual report.

A shareholder pointed out that such careless approach to climate risk disclosure could be in contravention of section 299A(1)(c) of the Corporations Act which, as highlighted in ASIC’s 2018 report on climate risk disclosures, requires companies to disclose material business risks (including climate change) affecting future prospects in the Operating and Financial Review (OFR). Cue’s chairman Alastair McGregor replied: “We take into account climate change and its related risk into our risk management process. […] when we look at the risk associated with climate change, it all sits with our environmental framework, but they are not operational risks at his stage that’s why they were not included in the financial report.”

This appears to contradict guidance from the Australian Accounting Board, which clearly states that if investors could reasonably expect climate risks would have a significant impact on the entity but have not affected any of the amounts disclosed in the financial statements, the company should disclose why those risks had no impact. 

When asked about this, the CFO Melanie Leydin replied: “We have assessed it […] and I believe we have complied with that materiality threshold”

This response makes it clear that Cue’s approach to climate risk disclosure is based on the company and its directors’ own views about climate risk materiality. This disregards the AASB’s conclusion that investors’ reasonable expectations should determine whether and how climate risks are disclosed.

Mr McGregor also confirmed the company had not stress-tested its operations against a scenario in which the goals of the Paris Agreement are met: “No we have not released any of that [scenario analysis]. What we look at as part of our strategy is global demand. And based on that, our focus is going towards gas. With regards to looking at the specific Paris accord that you refer to, no we have not done that in particular.” 

This failure to conduct and disclose scenario analysis falls well short of investor expectations and regulatory guidance on climate risk disclosure. 

Another question was about carbon pricing. Given that Cue’s operations in New Zealand have been impacted by the country’s emissions trading regulations, shareholders were keen to know what shadow carbon prices, over what timeframes Cue applies to its investment decisions. In particular, had the company’s expansion spending plans been tested against the IEA’s Sustainable Development Scenario (SDS) carbon prices of US$100 per tonne of CO2 by 2030 and $140 by 2040?

The board said Cue does not factor in any potential carbon pricing, other than that which is already in place in New Zealand. It will only do so if and when carbon prices are implemented in other regions the company operates in. This approach means Cue will remain reactive to carbon pricing, leaving its investments and shareholder exposed to the risks of rapid shifts in climate policy that will be required to meet the Paris climate goals.

The chairman was asked by another shareholder about the possibility of decreased access to, and increasing costs of fossil fuel finance. He acknowledged that is was a concern for the fossil fuel industry, but stated that “Cue has no financial debt. We are 100% equity-financed so we do not rely on debt. It is fair to say that financial institutions around the world are limiting access to capital for the (fossil fuel) industry and this will lead the industry to become more equity-financed based.

However, there is also movement among the global equity market to exit fossil fuels. Just a day before the Cue AGM, European insurer Storebrand announced it had sold all investments in fossil fuel companies from a $24 billion fund. This joins a growing list of divestments from fossil fuels, which could restrict the availability of equity finance for the sector.

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