Macquarie’s slow progress leaves room for gas expansion

25 July 2019

Macquarie Group’s annual general meeting today saw the company face community and shareholder backlash over its advisory role on the huge Rio Grande liquefied natural gas (LNG) project in the United States.

While Macquarie has made some good progress on climate risk disclosure this year, the company’s continued support for gas projects like Rio Grande, and failure to provide targets to phase out fossil fuel exposure fails to live up to the company’s commitment to support the low-carbon transition required to meet the Paris climate goals.

The Rio Grande project is one of three giant LNG terminals proposed to be built in the Rio Grande Valley in South Texas. According to the Rainforest Action Network, Sierra Club & Friends of the Earth in the USA, these three projects would do the same damage to the climate as approximately 61 coal power plants, contribute to the expansion of fracking in two major gas basins, and significantly and negatively affect Indigenous rights, community health, endangered species, and the global climate.

Shareholders attending today’s AGM in Sydney were met with members of Extinction Rebellion handing out flyers to raise awareness of the impacts of Rio Grande LNG and Macquarie’s role in the project. This action coincided with a protest on the other side of the world in Brownsville, Texas, where the Rio Grande LNG terminal is proposed to be built. 

“Climate change is an unprecedented global emergency. This fracked-gas export terminal is a carbon bomb we cannot afford. Extinction Rebellion is calling on Macquarie Group to drop this climate destructive project,” organisers said.

These concerns were also raised inside the meeting, where a shareholder asked “How do you square Macquarie’s explicit commitment to support the fight against climate change with the support of the Rio Grande LNG project?”

Chairman Peter Warne was at pains to downplay Macquarie’s role as a “junior advisor” on the project. However, Macquaire is helping the project receive the finance it needs to get off the ground, and is therefore playing a key role in facilitating the expansion of fracking and LNG production. We know that any expansion of fossil fuel reserves and infrastructure is out of line with the urgent need to limit global warming to 1.5°C.

A message from Juan Mancias, chairman of the Estok Cna, the Carrizo Comecrude Tribe who are the traditional owners of the Rio Grande lands, was played at the meeting but curtly brushed aside by the board. Watch below:

Climate risk

Macquarie stepped up its climate risk disclosures in the 2019 Annual Report and latest update to its Climate Change Approach document. Most importantly, the company disclosed analysis that found default rates for its loans to the coal, oil and gas sectors were expected to increase under a scenario in which global warming is held to 2°C.

This is an important step, but must be followed up with action to restrict lending to those sectors if Macquarie alignment with the goals of the Paris Agreement. 

Shareholders pushed the company for more detail on how it plans to manage the financial risks posed by the transition to an economy that supports the climate goals of the Paris Agreement, and wanted to know what shareholders can expect from future climate-related disclosures.

The company has committed to conduct and disclose 1.5°C scenario analysis in 2020 reporting, but does not expect the risks a 1.5°C transition poses to its fossil fuel lending to be material. Warne was unable to provide commitments that the company would actively manage down its exposures to fossil fuel sectors or set targets to reduce these exposures in line with a 1.5°C warming trajectory.

Peter Warne was unable to provide commitments that the company would actively manage down its exposures to fossil fuel sectors or set targets to reduce these exposures in line with a 1.5°C warming trajectory.

Of particular concern was Macquarie’s repeated view of gas as a major part of the global energy mix for many years to come. Latest climate science shows gas use must decline by 43-94% from 2020 to 2050, and that 6% of gas in fields that are already in production or development cannot be burned if we are to hold warming to 1.5°C. Put simply: gas has a role, but it is a declining role, and there is no room for new gas fields or related infrastructure.

Climate risk-concerned shareholders would expect Macquarie’s 1.5°C scenario analysis next year to reflect this trajectory, and that the company will set commensurate targets to reduce its exposure to the gas sector.