BlackRock Joins Investors in Flagging Barrier Reef Eco-RisksJames Paton and Elisabeth Behrmann
The potential threats posed by coal and natural gas projects to the Great Barrier Reef are sparking everything from lawsuits to tweets from Hollywood stars.
They’re also prompting close scrutiny from investors as a global campaign against fossil fuels gains momentum.
Asia’s surging energy demand is fueling about $65 billion of liquefied natural gas and coal terminal construction on Australia’s northeast coast. Environmental and community groups argue that this development can harm the reef - the planet’s largest living structure and home to 30 species of whales and dolphins - as well as add to global climate change concerns.
“It’s a huge issue potentially for any company operating in the Great Barrier Reef if there is a failure of management systems from an environmental perspective,” Pru Bennett, Hong Kong-based Asia Pacific director of corporate governance and responsible investment at BlackRock Inc., the world’s biggest fund manager, said in an interview. “The reputational damage that could be done, and the potential to lose that social license to operate, is very high.”
Bennett, who’s sailed and dived along the reef and toured it by helicopter, said a portfolio manager could decide to sell an active holding if they formed the view the company isn’t appropriately managing environmental risk. “If it’s an indexed holding, and a lot of our investments in Australia are indexed, then selling is not an option,” she said.
The 1,400 mile, World Heritage-listed reef hosts 3,000 coral reefs, 1,625 species of fish, marine turtles and 133 types of sharks and rays. Climate change, extreme weather, port developments, gas export plants and the grounding of ships are among the threats to the reef, according to The United Nations Educational, Scientific and Cultural Organization, or UNESCO.
“There’s a strong and growing awareness in a large part of the investment community that there are potential risks for a lot of these large resources projects in Queensland and alongside the Great Barrier Reef,” said Simon O’Connor, chief executive officer of the Responsible Investment Association Australasia, whose 150 members manage more than A$500 billion ($462 billion) and include BlackRock and AMP Ltd.
Groups of members from the association speak to companies involved in the projects and some of their bankers to ensure they are managing environmental risk, said O’Connor.
Government approval for further dredging for the expansion of the Abbot Point coal terminal triggered the latest round of protests and new lawsuits about development around the reef. Plans by Royal Dutch Shell Plc and PetroChina Co. to build a fourth LNG project at Curtis Island also were approved in December, though the companies delayed a decision on the plant. Australia is the world’s second-biggest exporter of coal and is forecast to become the top shipper of LNG by the end of the decade.
“Fund managers have been looking at the whole range of environmental and social issues associated with the LNG plants,” said Ian Woods, head of environmental, social and governance at AMP Capital, a unit of Australia’s biggest pension manager that oversees A$179 billion. “We need to think about what are our exposures to longer-term risk.”
Origin Energy Ltd. is developing a A$24.7 billion LNG venture with ConocoPhillips in a safe and responsible manner and maintains active dialogue with investors, according to a spokesman for the Sydney-based company. LNG carriers have completed more than 100,000 voyages without a major accident or significant loss of cargo, according to Origin and BG Group Plc, which is also building an LNG project. LNG ships will use lanes that avoid the marine park, BG said in an e-mail.
“We know that our ports and the associated dredging have posed little risk to the Great Barrier Reef, but we are also acutely aware that the Great Barrier Reef is under threat,” Brad Fish, chief executive officer of North Queensland Bulk Ports Corp., which is responsible for Abbot Point, said in a statement on its website this month.
Hancock Coal Pty, controlled by Australia’s richest person Gina Rinehart, is confident port dredging won’t affect the “universal value” of the reef, according to a company spokesman. Hancock is partner in GVK Group’s $11 billion coal mine, rail and port project. Shell and PetroChina’s Australian gas venture Arrow Energy Ltd. declined to comment.
Factors causing 90 percent of the damage to the coral are extreme weather and coral-eating crown of thorns starfish, which proliferate due to nutrient runoff from onshore agricultural operations, Michael Roche, chief executive officer of the Queensland Resources Council said, citing a study by the Australian Institute of Marine Science spanning 25 years.
In recent months, campaigns seeking to pressure fund managers to sell fossil fuel assets have gained traction, according to a Citigroup Inc. report this month. Only 14 percent of Australia’s benchmark index relates to fossil fuels and most coal exposure lies with BHP Billiton Ltd., Rio Tinto Group and Wesfarmers Ltd., according to Citigroup research last year. For many funds it isn’t really an option to sell out of the large companies, the investment association’s O’Connor said.
Elisabeth Behrmann in Sydney at +61-2-9777-8624 or email@example.com
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