The disparity between the public hostility of resource companies to the Government’s emissions trading scheme and what they are telling investors has been highlighted by a request to the ACCC by the Australian Conservation Foundation and the Australian Climate Justice Program, a campaign by lawyers to use legal means to pursue climate change action.
As the AFR reported this morning, the groups have asked the ACCC to investigate their claim of misleading conduct by resource companies who have publicly made apocalyptic claims about the impact of emissions trading, but either downplayed the impact to investors or failed to make any disclosure. The companies are Boral, Bluescope Steel, Caltex, Rio Tinto, Woodside and Xstrata.
This is no half-baked campaign by wild-eyed greenies. The ACJP first wrote to more than 200 Australian companies in 2003 warning them of the risks of climate change and the need to assess and respond to those risks appropriately. The enormous supporting documentation for the ACCC referral has chapter and verse for every claim made by the resource companies studied, and whether they matched disclosures to investors.
The study contrasts alumina giant Alcoa of Australia’s repeated advice to investors via annual reports, ASX advices and prospecta about the uncertainty arising from the impact of the ETS and its specific concerns about each iteration of the Government’s ETS, with the failure of other companies to do the same.
For example, Bluescope Steel told the media and a Senate Inquiry in April that “tens of millions of dollars would be wiped from the company’s books in the first years”, which would be “disastrous” for the company, but made no disclosure to investors of any kind. CEO Noel Cornish also said the Port Kembla Steelworks would be threatened, with a similar lack of advice to investors.
Boral claimed in a submission to the Government that modelling by a subsidiary showed that the impact of the Green Paper version of the ETS “could be profound” due to “the decline of financial returns to an unacceptable level.” However, Boral’s only advice to investors was from CEO Rod Pearse in June last year when he told investors and analysts “we have been undertaking scenario planning to understand potential financial impacts … and we are well prepared for such changes.”
Caltex told a Senate committee that while it could pass on the cost of carbon permits to motorists, there was a “risk of under-recovery of costs” which “could be significant relative to Caltex’s profitability”, but told analysts and its AGM in February that “the additional cost imposed on these emissions under CPRS will be incorporated into the price of the fuel and therefore passed on to consumers.”
Rio Tinto produced a range of figures about the impact of the ETS, from $130m in the first year to $430m, $1b or $1.5b over the first decade of the scheme, and warned it would close half its open-cut coal mines by 2020. The single disclosure by the company has been a comment in its annual report that “Rio Tinto’s costs could increase and its results materially affected.”
Woodside, one of the loudest whingers in the entire debate, was one of the worst offenders. Its Green Paper submission warned that it would scale back its LNG projects; Don Voelte told the media he would move the Sunrise project to East Timor, and that the ETS would double the company’s operating costs. Woodside made no disclosure to investors of any kind except to note in its profit announcement that “it remains too early to determine the impact of the proposed CPRS on current and future projects”, which entirely contradicted Voelte’s threats.
Xstrata also threatened to axe 1000 jobs if the ETS went ahead and close four coal mines, but said nothing to investors.
Independent research suggests the truth is much closer to the companies’ advice to investors, or lack thereof, than to their hysterical public comments. A research report by Goldman Sachs JBWere in early May suggested the financial materiality of the CPRS (and “materiality” is the requirement for ASX disclosures) is likely to be insignificant for ASX100 companies, with five of the six companies referred to the ACCC facing carbon costs as a proportion of EBIT of 5% (Boral), 11% (Bluescope), 2% (Caltex), 4% (Rio) and 3% (Woodside).
Except, those figures are BEFORE you factor in the free permits to be handed out to EITEs. Most of those companies therefore face costs of 5.5% of those numbers, which is a negligible amount even for Boral.
Given the non-materiality of the impact of the ETS, clearly the companies have not breached ASX or Corporations Law requirements, but the ACJP and the ACF have suggested the ACCC try to ping them for “misleading and deceptive conduct”, which relies on taking lobbying and PR as forming part of the companies’ normal trade and commerce. The day-to-day reality is that that is indeed the case, but whether the law stretches that far remains to be seen.
Either way, the hypocrisy — or, more accurately, blatant dishonesty — of some of our biggest polluters is on the public record. They have been damned by their own words, or the lack of them.