12 May 2022
Global investment management firm Vanguard recently released its 2021 Investment Stewardship Report, where it discusses the supposed impact of its engagement with the companies in which it invests.
Vanguard provides case studies on the Adani Group (p 36) and Australian thermal coal miners Whitehaven Coal and New Hope Group (p 26). All three of these companies are involved in massive new coal mining projects, with business plans that rely on the failure of the Paris Agreement goals and failing to reach net zero emissions by 2050.
The case studies are a depressing admission by Vanguard that its engagement efforts with these coal mining companies is entirely pointless and farcical. The Adani case study is nothing more than a parroting of Adani’s own public relations spin, with not even the most basic verification. The Whitehaven and New Hope case study could be best summarised as ‘we didn’t vote in favour of the shareholder resolution calling for Paris alignment, but we had a chat and sent them a letter’.
Looking at these case studies, the only logical conclusion is that Vanguard’s engagement approach is either totally ineffective or, worse, utterly insincere. As one of the world’s biggest investors, it should be embarrassed to be providing such low-quality excuses for continuing to invest in the companies fueling the climate crisis.
See below for a rebuttal of some of the most inaccurate and ridiculous statements.
Adani
The two controversies Vanguard talks about in its Adani Group case study are the Carmichael thermal coal project in Australia, and Adani’s construction of a shipping container terminal in Yangon, Myanmar. The Myanmar work is being done for a corporation fully-owned by the Myanmar military, which launched a military coup and overthrew a democratically elected government in February 2021.
| Vanguard’s spin | Why it’s wrong or ridiculous |
| Carmichael coal project and climate | |
| “Company [Adani] leaders outlined how its strategy, investments, and business portfolio were being transitioned from fossil fuel assets to alternative energy sources.” | Adani Group’s fossil fuel expansion plans include: Doubling its coal-fired power capacity by 12 gigawatts (GW) to 24 GW, giving it more coal power capacity than all of Australia.Owning, developing or operating 132 million tonnes per annum (mtpa) of new thermal coal mining capacity, including the massive 60 mtpa Carmichael project in Australia, which would pave the way for more massive coal mines in the untapped Galilee Basin.New coal and LNG terminals at Adani Ports and Special Economic Zone’s ports.An obscure and highly polluting facility that would convert coal, including imported thermal coal, into plastics. According to a 2021 report by Carbon Tracker, Adani (Power) is the second-most exposed company in the world to coal plant stranded asset risk, as measured by both gross value and percentage of market cap. The Adani Group is pouring billions of dollars into new fossil fuel projects. It is not a company in transition, but a company expanding in all directions. To say that a company looking to double its coal fired power capacity and build several new thermal coal mines is transitioning to “alternative energy sources” is ridiculous. A ten minute session with a google search would have shown Vanguard this reality. |
| “They [Adani] also said they expected to reduce the company’s exposure to thermal coal.” | See above – Adani is in the process of greatly increasing its exposure to thermal coal. Also, note the language of Vanguard’s statement; Adani “expects”. This is designed to give the appearance of action, without actually committing to any. And in any case – the statement is pointless without describing over what timeframe and to what extent the reduction is to be. |
| “(Our analysis included the company’s disclosures on its interactions with indigenous communities that surround the mine.) “ | The Traditional Owners of the land where Adani’s Carmichael mine is being developed, the Wangan and Jagalingou (W&J) people, have not given their free, prior and informed consent to the project, and continue to fiercely resist it. As this is being published, W&J have been conducting cultural ceremony at the Adani Carmichael mine site continuously for over eight months, in protest at the project. Vanguard must urgently meet with the W&J and hear their side of the story. |
| “Company [Adani] leaders said they had capped the size of the mine” | There is no point in telling us that Adani is capping the size of the mine but not telling us what that cap is. The head of Adani’s Australian operations, in a secret recording, admitted that it intended to go to the full 60 million tonnes per annum, which would make Carmichael by far the biggest coal mine in Australia. |
| “[Adani said they] intended to set an end date for operations to fit within the parameters of a 1.5°C warming scenario.” | The existence of the Carmichael coal mine is incompatible with a 1.5°C warming scenario. In 2021, the International Energy Agency (IEA) provided its landmark roadmap to achieving net zero by 2050, stating that under this scenario, “No new coal mines or extensions of existing ones are needed in the [scenario] as coal demand declines precipitously”. Under the IEA’s scenario, unabated coal supply falls 55% by 2030, and 90% by 2050 (total world energy supply compared to 2019 levels). This year, the latest Intergovernmental Panel on Climate Change report again highlighted the need for coal supply to urgently and dramatically decline. Under its low or no overshoot 1.5ºC aligned models, coal use falls 75% by 2030 and 95% by 2050 (on 2019 levels). This is consistent with other important studies, which have concluded limiting global warming to 1.5ºC means 95% of Australia’s coal reserves must remain unburned, and coal supply must decline 11% every year between 2020 and 2030 [7]. Additionally, the Carmichael mine is the first coal mine in the Galilee Basin, opening up this new area to further coal mining. It has been estimated that burning all the coal from six proposed Galilee Basin mines would produce 24 gigatonnes of CO2 emissions (GtCO2), equivalent to 5.7% of the entire remaining carbon budget for the Paris Agreement’s 1.5°C goal (420 GtCO2). |
| Doing business with Myanmar’s military | |
| “After the coup in Myanmar, Adani hired a law firm to ensure that operating the terminal would not lead to financial ties with the military.” | Wow, Adani hired a law firm! Now that’s serious action! Sarcasm aside, the company Adani is still working for in Myanmar is called the Myanmar Economic Corporation (MEC), a company owned and run by the Myanmar military, which was placed on the US Treasury Department’s sanctions list in March of 2021. It is impossible for Adani to avoid financial ties to the Myanmar military, when the company Adani is working for is directly linked to the Myanmar military, no matter how many lawyers you hire. |
| “Adani leaders said that they would not tolerate human rights breaches and that the company was prepared to pull out of the project and, if necessary, sustain an economic loss.” | In the twelve months since the 1 February 2021 military coup, the United Nations human rights office estimates more than 1500 protestors have been killed and almost 12,000 unlawfully detained in Myanmar. At the time of publication Adani is still involved with the MEC in Myanmar. |
| “They also discussed the challenges of abandoning the terminal, which could allow the military to seize and benefit from the asset.” | The company Adani is working for is owned by the Myanmar military! Since the very beginning of Adani’s work in Myanmar, it has known that the work it was doing was for the benefit of the Myanmar military. Evidence shows that in 2019 Adani executives met with Myanmar military representatives and payments have been made by Adani to the MEC. |
| “In October [2021], the company decided to exit the business in 2022.” | Not everyone trusts Adani’s commitment to cut ties with the Myanmar military. In March, Norges BIM added Adani Ports to its “watch” list due to doubts Adani will in fact divest from the container terminal project. |
Vanguard concludes that it plans to engage with Adani executives on the company’s progress on its (non-existent) transition plans in the future, but it is hard to see what good Vanguard’s engagement will do if it just takes Adani at its word.
Customers entrusting Vanguard with their money have a right to be extremely disappointed with Vanguard’s non-examination of Adani Group.
Whitehaven Coal and New Hope Group
Vanguard’s engagement case study on Australian pure play coal miners Whitehaven Coal and New Hope Group specifically highlights “climate risk governance” as an area of concern to the investor. On its engagement with Whitehaven, Vanguard writes that they were encouraged by the chairman Mark Vaile’s “acknowledgement of the need to adapt business practices”, and that the investor expected Whitehaven to improve its disclosures and modelling around its alignment to the goals of the Paris agreement and net-zero emissions by 2050.
This expectation seems particularly pointless as Whitehaven’s business plans are obviously completely at odds with Paris and net zero. Experts have repeatedly confirmed that to meet the goals of the Paris Agreement or net-zero emissions by 2050, there can be no new or expanded coal mines (see IEA, IPCC). Given Whitehaven derives 100% of its profits from the sale of its coal, and according to its CEO Paul Flynn at the 2021 AGM, the company could double its coal production by 2030 with three new coal projects (Narrabri Stage 3, Vickery and Winchester South), it is unclear how Vanguard understands Whitehaven to be able to align its business practices or strategy with net-zero by 2050 or Paris-aligned scenarios.
Vanguard seemed particularly unimpressed by New Hope’s lack of response to its request for a meeting. The investor’s written feedback to the coal miner noted:
“… given the materiality of climate risks to New Hope’s business, it was concerning that its reporting had significant gaps, fell short of addressing some important elements, and was not updated and released in a timely manner. We stated that we expected substantial improvements to disclosure practices.”
On top of that, at the 2021 AGM the New Hope board cut question time short, shutting down an important opportunity for shareholders to discuss their concerns with the company. Given this track record, it is hard to imagine Vanguard believes its engagement with New Hope is of any interest to the company, let alone effective. How many chances does New Hope Group get before Vanguard realises this is a company with its head in the sand when it comes to climate change?
Shareholders coordinated by Market Forces submitted resolutions to both Whitehaven and New Hope Group in 2021, an opportunity for investors serious about their climate commitments to prompt these two laggard companies into action. Vanguard did not vote for either. Instead, the company voted against the remuneration report for both coal miners and voted against the re-election of New Hope Group executives.
While voting down the remuneration reports and against the re-election of board members is a good first step, it does not go nearly far enough. The Paris Agreement was signed almost seven years ago and both Whitehaven and New Hope have since then consistently ignored the risks this treaty poses to their businesses, and failed to plan accordingly. Instead, both companies are pushing ahead with new and expanded coal mines and referring to energy scenarios that are consistent with almost 3ºC of global warming.
Vanguard acknowledges climate change is a serious material risk to its investments and has joined investment groups pledging to reach net zero emissions by 2050. But if Vanguard is serious about its commitments, then it simply cannot invest in companies planning new coal projects like Adani, Whitehaven and New Hope. We have seen investors act with urgency to divest from Russian companies in light of its invasion of Ukraine. When will they act with the same urgency towards the climate crisis?