Energy Giants BHP, AGL Go Green: Lobby Groups Lose Major Support

Broken Hill, Australia. January 2018. Following a pledge to pull out of its shale fracking business in the US in April last year, one of the biggest miners in the world and the fourth largest Australian corporation, BHP, has said it will “review its membership” of the Minerals Council of Australia (MCA), the US Chamber of Commerce (USCC) and the World Coal Association (WCA).

Citing differences of key policy, especially with respect to climate issues, BHP released a 20+ page report on its approach to business associations linked to its extractive industry subsidiaries. In the report, it said that it accepts “that the warming of the climate is unequivocal, the human influence is clear and physical impacts are unavoidable.”

 "Shale is a non-core activity"                           - BHP CEO Andrew Mackenzie                                     Image courtesy BHP

"Shale is a non-core activity"                           - BHP CEO Andrew Mackenzie                                    Image courtesy BHP

The MCA’s stance apparently also irritated power generation major AGL (originally Australian Gas & Light), which withdrew from the MCA in 2016.

AGL, which notes that “our future success and reputational standing is shaped and measured by more than just our economic performance - it is also influenced by the social and environmental consequences of our decisions and actions, for all our stakeholders,” withdrew from the MCA in 2016.

“AGL's positions on climate change and renewable energy differ from those held by the MCA,” it noted, going on to announce that “AGL has elected not to renew its membership of the organisation."

Drill out

The other major move by BHP was an announcement mid-2017 that it was to pull out of its

US-based fracking operations to extract shale oil. At the time, BHP CEO Andrew Mackenzie described its shale subsidiary as “non-core” and said the company was “actively pursuing options to exit these (shale) assets.”

One of the reasons listed for its review of membership of the USCC was its backing of the decision by the Trump administration to withdraw from the Paris Climate Change talks last year. It did however say it would “seek a response” from the USCC before officially withdrawing. The company said it would make a final decision on whether to quit the WCA by end March 2018, and would make a decision on its membership of the MCA by the end of 2018.

“We will continue to call out material differences (with associations we are members of) where they exist and we will take action where necessary, as we have done,” said BHP Chief External Affairs Officer Geoff Healy, in a statement.

Power down

 Coal is a major power source in Australia.     Image courtesy mining.com

Coal is a major power source in Australia.    Image courtesy mining.com

One of BHP’s ongoing issues with the MCA is its continued push to retain coal-fired power generation – something BHP is as much against for practical reasons as for environmental. Last year the company’s Olympic Dam copper mining operation in South Australia lost an estimated US$100 million because of recent power supply interruptions. Unlike the MCA, BHP has said climate and energy policy are "inextricably linked" and "should be considered on an integrated basis" – not simply rely on existing methods of power generation.

Irrespective of the reason, the loss of BHP’s US$1million-plus membership fee would be a considerable hit for the MCA, which currently takes over 15% of its income from the mining giant.

The WCA was also unimpressed by BHP’s new stance, with WCA chairman Mick Buffier noting that the organisation was “naturally … disappointed at the outcome of the review," adding that the report underlining the miner’s membership review did not “accurately reflect the views of the WCA."

As for its review of the USCC membership, BHP has also undertaken to review the situation as it unfolds up to end Q1 2018, but says it is likely to quit unless significant changes are made to the body’s climate change policy.

“BHP will formally communicate the identified material differences to the board of the USCC, seek additional information about the nature of the differences and consider (our) future membership of the Chamber prior to making a final determination ,” the company said in a statement.

Bottom Line

The very public – and for such a major company, very painful in cash terms to the lobby groups - way that BHP has flagged its reluctance to fund anti-environmental lobby groups comes as part of a growing environmental feeling amongst major companies. Whether driven by core beliefs or pragmatic share-value reasons, the fact that many boards are seeking to distance themselves from climate disbelievers is significant. Further, being publicly seen to be at least partially aware of such issues could be vital to their long term commercial viability.

 Macarthur Wind Farm – the largest in the Southern Hemisphere, cost AGL and other investors $1 billion and will power 220,000 Victorian homes.   Image courtesy AGL

Macarthur Wind Farm – the largest in the Southern Hemisphere, cost AGL and other investors $1 billion and will power 220,000 Victorian homes.  Image courtesy AGL

Indeed, it seems the fact the MCA had moved from being a straight industry lobby group into a more overtly political arena apparently did not help its industry reputation - the MCA had previously lobbied the Australian government for a removal of tax-deductible status from environmental organisations. It argued this was fair on the grounds that many were not true environmental organisations and claimed instead they were “professional activist groups whose objective was to disrupt and hamper the resources sector.” Now, both BHP and AGL have registered their disapproval of this stance.

Good news for the environment, and possibly for shareholders too as both BHP and AGL invest in research for new avenues of renewable energy.