Be careful what you wish for. Climate activists — including investment managers of other people’s money such as union-dominated superannuation funds — who force leading international resource companies like BHP and Shell to get rid of their financially rewarding fossil fuel assets, risk doing even greater damage to the environment.
The successful campaign to pressure BHP, an environmentally ‘responsible’ company, to sell two Bowen Basin coking coal mines to Indonesian-controlled thermal coal miner Stanmore Resources looks a case in point.
Already the activists are up in arms because the Indonesians are only buying the mines to sell the coal and make a profit. And not just in the short term. In describing the deal to buy BHP’s Queensland mines for $1.68 billion as a ‘transformational acquisition’, Stanmore CEO Marcelo Matos said, ‘This transaction will see the company become one of the leading metallurgical coal producers globally and provide Stanmore with a portfolio of tier-one assets with significantly increased reserves and a resources base and assets with an expected mine life exceeding 25 years’ production.’
Angry activists rightly note that Stanmore, part of a heavily polluting Indonesian family empire, is most unlikely to wind down the assets on the desired ‘pathway, consistent with limiting global warming to 1.5 degrees’. So after campaigning for BHP’s coal divestment, they are now castigating BHP for doing so: ‘Rather than make the hard decisions to wind these assets down, BHP is running for the door,’ said Dan Gocher of the Australasian Centre for Corporate Responsibility. ‘The music will soon stop in this game of musical chairs for fossil fuel assets. Investors will increasingly demand that companies assess the climate plans and intentions of the buyers rather than selling to just anyone.’
The Spectator’s Martin Vander Weyer recently echoed this concern in relation to pressure from shareholders, activists and regulators on Shell to accelerate its shift to cleaner energy, when he wrote that it is ‘better to encourage responsible operators like Shell to stay in the game (for a couple of decades) until our energy future is secure,’ than for ‘private investors less sensitive to political and media pressure buying up oil and gas projects with which public companies can no longer afford to be associated. In short, the planet still suffers while unseen actors reap the profit of sin.’ Or, as the Financial Times said, such assets become ‘private capital’s dirty little secret’.
On the BHP sale, there is little solace for activists in the assurance in the latest annual report of Stanmore’s parent company, Golden Energy and Resources Ltd, that the group’s objectives include ‘innovation and sustainability’ aimed at ‘minimising our impact on the environment’, as its recent substantial move into solar installations seems aimed more at providing carbon offsets for ever-increasing emissions rather than being part of any emissions reduction plans.
Stanmore Resources (which the Australian Financial Review quaintly referred to as a mining ‘tiddler’) is a subsidiary of Indonesia’s Sinar Mas Group, owned by the multi-billionaire Widjaja family — not unusually, for Indonesia, of ethnic Chinese background but required to adopt Indonesian names. Fuganto Widjaja, grandson of the group’s late founder and an heir to the family-owned conglomerate covering (environmentally controversial) pulp and paper, huge agri-businesses and food, financial services, real estate development, communications technology and infrastructure, is chairman of its rapidly expanding energy business. Under the banner of the Singapore Stock Exchange-listed Golden Energy and Resources Ltd, it has several mines in Indonesia producing and exporting over a billion tonnes of relatively low-quality, heavily polluting steaming coal (mainly to China and India), contributing to Indonesia’s dominance in the thermal coal exports that Asia increasingly needs — and which create far more greenhouse gasses per tonne than cleaner Australian coal. Widjaja’s big move into coal seven years ago by acquiring the Rothschild-owned steaming coal mines was aimed, he claimed, ‘to support the Indonesian government’s aim to boost electricity supply for the country through coal’ — an aim that this month brought governmental export bans as coal producers rushed to take advantage of buoyant world markets rather than the much lower fixed domestic prices.
Fuganto Widjaja’s ‘mission to modernise the family business’, has involved what Euro Money magazine has described as ‘eye-popping deals and borrowing billions of dollars’ in a remarkable recovery from its 2001 pariah status in financial markets after the group’s then crown-jewel, Asia Pulp and Paper defaulted on $US14 billion of bonds and loans. But the memory of 20 years ago is not the reason for the eye-popping interest rates the Widjajas had to pay to help finance the BHP deal.
With banks and finance houses world-wide succumbing to activist pressure to achieve environmental purity by banning any coal funding, Stanmore’s $845 million five-year secured debt facility will have a fixed cash interest rate of 11.5 per cent, with excess cashflow to be paid towards the loan. So, while Australian banks are depriving their shareholders of around $90 million a year in interest earnings, foreign investors from US-headquartered Varde Partners and Canyon Capital Advisors LLC, along with Hong Kong’s Farallon Capital Asia and other credit funds are turning a rewarding dollar. These interest rates may be stratospheric – but coal export profits are even higher.
But it is not just the banks and finance houses that have black-listed coal — raising the prospect of cracking down on other big emitters. Regulators are increasingly seeking to exercise control over climate ‘risk’, with the right-wing US think tank, the American Enterprise Institute, warning last week of the potential consequences of a Biden administration executive order that requires the Financial Stability Oversight Council (FSOC) and its member agencies to report on the risks that climate change poses for the financial sector and to recommend the measures needed to mitigate the purported risks. This ‘represents the first step in the administration’s plan to use Dodd-Frank Act powers to effectively nationalise and thoroughly politicise the financial system. Existing statutes will be used to promulgate new financial regulations that will allow the administration to control the allocation of investment capital under the pretext of controlling financial sector systemic risk.’
‘By using the systemic risk powers granted in the Dodd-Frank Act, unless they are stopped, agenda-driven financial regulators will modify the minimum regulatory standards that apply to investments made by banks, securities firms, insurance companies, mutual funds, private equity and other asset managers in ways that choke off funding to businesses that are allegedly endangering the financial system through their greenhouse gas emissions.’
‘If this is allowed to happen, not only will the price of energy and energy-consuming consumer goods increase dramatically, but our capitalist system, which allocates investment capital to its highest and most productive use, will be replaced by a system where unelected federal bureaucrats decide what investments and activities are funded.’
Don’t think it can’t happen here.
Got something to add? Join the discussion and comment below.
You might disagree with half of it, but you’ll enjoy reading all of it. Try your first 10 weeks for just $10