There’s a new frontier in the battle to transition companies to more sustainable business models: lobbying.
Shareholders are waking up to the damaging effects that certain lobbying activity can have on the growth potential of their portfolios over the long term.
Take the case against Rio Tinto, for example. The company’s website highlights its commitment on climate change thus: “Rio Tinto supports the intent of governments to maintaining “a safe and stable climate in which temperature rise is limited to under two degrees Celsius”. The company signed the Paris Pledge for Action supporting the agreements made by 195 governments in Paris at COP21.
It seems a little contradictory, therefore, that the company spends an estimated A$2 million on membership fees to the Minerals Council of Australia (MCA). This organisation and others like it have played a significant part in slowing down the progress on climate change legislation in the country by adding to the prolonged deadlock in energy and climate policy, particularly as it relates to coal.
The action against Rio Tinto, which includes resolutions to be heard at the mining firm’s UK and Australian AGMs in April and May, is being led by the Australasian Centre for Corporate Responsibility and has attracted co-signants including AP7 and the UK’s Church of England Pension Board.
Adam Matthews, head of engagement at the Church Comissioners for England and the CofE Pensions Board, says lobbying activities of investee companies is an issue of particular importance to asset owners as “a lot of trade associations impact governments’ ability to regulate on climate change”. He points not just to the ethical considerations, but also the implications for corporate transition risk.
If companies’ failure to transition to low-carbon and sustainable business models undermines the potential to generate risk-adjusted returns over the long term, then companies’ efforts to slow down related legislation should be an area of growing concern. Especially as it is shareholders’ money these companies are spending.
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A quick cuppa with Faith Ward, Chief Responsible Investment and Risk Officer, Environment Agency Pension Fund