A new report suggests AGL’s demerger might have been avoided if its board was more serious about climate risks.
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Those invested in AGL Energy Limited (ASX: AGL) shares might be interested in new findings suggesting most S&P/ASX 200 Index (ASX: XJO) companies’ boards aren’t equipped to tackle climate change.
A new report by Investor Group on Climate Change (IGCC) has analysed the boards of 15 ASX 200 companies involved in Climate Action 100+ – AGL’s included.
As The Motley Fool Australia reported yesterday, the report found many boards don’t see climate change as a business risk. Further, it found multiple holes in companies’ climate-related disclosures.
As of yesterday’s close, the AGL share price is $5.30. That’s 1.4% lower than it was at the end of Friday’s session.
Let’s take a closer look at what the report could mean for owners of AGL shares.
AGL shareholders may lose on climate change
According to the IGCC, ASX 200 companies’ directors generally don’t have the skills or experience needed to understand climate change risk, disruption, and company transformation.
It also found that climate risk is often pigeonholed into a separate risk category. Thus, its generally not included in a company’s overall risk strategy or management.
Additionally, the report found that many companies fail to address climate-related technological risks and opportunities. It noted that failure has bitten AGL already.
As those invested in AGL shares probably know the company is planning to split in two in the near future. As noted by AGL chair Peter Botton, the report says, on announcing the demerger:
There is no doubt that the winds of change in the electricity market have been substantially faster than many people had anticipated; certainly, from my perspective, those winds have been extremely fast. I certainly didn’t see quite the level of change and the acceleration of that change here in my thinking 12 months ago and I believe that would be representative of the AGL board.
Worryingly, AGL isn’t alone in missing critical changes in technology and stakeholders’ concerns.
But IGCC argues that it’s a board’s job to understand, foresee, and assess climate-related changes affecting its organisation.
Therefore, the report states that oversights such as AGL’s expose those who own ASX 200 shares to unnecessary risk.
IGCC director of corporate engagement, Laura Hillis commented:
Boards that fail to recognise the risk of climate change and their role in driving the company transition to a low carbon business, will leave the company and investors exposed to unacceptable financial, strategic and market risks…
There are huge opportunities for Australian companies in the transition to net zero emissions. Investors want companies to capitalise on the transition.
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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.