Superannuation funds are voting in favour of large bonuses awarded to executives for expanding fossil-fuel exploration, a new report says.
According to the report by finance campaigners Market Forces, seven of Australia’s large energy companies explicitly refer to exploration targets in their executives’ bonus payments.
Analysis shows existing fossil fuel reserves are already “unburnable” if the world wants to avoid catastrophic climate change.
The chief executive of Santos would get a maximum bonus of $847,625 for meeting exploration-related targets – the largest identified by Market Forces. The next largest was a $451,475 bonus for Oil Search’s managing director.
However, a majority of the money spent on fossil fuel exploration in Australia is invested by foreign companies, which are also incentivising that exploration.
BP, for example, has invested $605m exploring for oil in a marine reserve in the Great Australian Bight, and have planned to spend $1.37bn over the next four years, according to Market Forces.
The report found BP’s CEO had a bonus related to exploration targets, which could pay more than $1.1m.
When the Market Forces team examined how Australian super funds – which hold as much as 20% of ASX-listed companies – used their voting power at annual general meetings, they found the funds almost always supported exploration-related bonuses.
Although only limited information was published about voting records, Market Forces analysed 12 super funds, including AustralianSuper, First State Super, REST, HESTA, HOSTPlus and CommBank Super.
With just one exception, at all AGMs where the records were available, the super funds voted to support the bonuses. The one exception was at a Santos AGM, where three of the 12 super funds voted against the bonus. That occurred at Satos’ 2016 AGM where there was significant investor concern about remunerations being awarded while oil prices were so low.
The report noted that in response to a global campaign calling on investors – including super funds – to divest from fossil fuels, several super funds have said they would prefer to maintain their investment and “actively engage” with the companies.
“If claims of active ownership are to be taken seriously, funds need to actively engage on fossil-fuel companies’ operational strategies and how they are achieved through executive remuneration,” the report said.
Market Forces analyst and report author Daniel Gocher said: “With the Paris agreement being ratified by the world’s biggest economies and aiming to keep the world under two degrees warming, we know that a large proportion of current fossil fuel reserves cannot be consumed.
“Executive bonuses predicated on unearthing more fossil fuels when the world needs less shows the extent to which these companies’ business model is broken. They are not just in a state of denial but actively accelerating towards a brick wall.”
Louise Davidson, the chief executive of the Australian Council of Superannuation Investors, told Guardian Australia they want companies to release more information about the criteria for bonuses, so super funds could make more informed decisions about whether to support them.
“We support clarity around targets and also greater disclosure of the metrics that are being used,” Davidson said.
“It looks in some cases as though there’s really very little clarity about what the various components that go into the bonus and what their weightings are. And that makes it very difficult for anyone to make call about whether it’s a fair cop or not.
“What is being incentivised by the bonus?”
Stuart Palmer, the head of ethics research at Australian Ethical, said his super fund did not invest in fossil fuels and, that if others did, they should take more action on exploration bonuses.
“Rewarding executives for finding new reserves is strong evidence that nothing is changing and voting to support this sort of remuneration is not responsible or effective shareholder engagement,” Palmer said. “Not only is it inconsistent with limiting warming but, in a post-Paris world, it spells destruction of shareholder value.”
In 2015, Future Super and Australian Ethical – both of which avoid investments in fossil fuels – significantly outperformed the rest of the market.
