Battle lines have been drawn ahead of AGL Energy’s scheme meeting on 15 June, where the company’s planned demerger will finally be put to a vote.
And in the latest public show of opposition, HESTA declared on Wednesday that it will vote against the demerger having deemed that an “orderly transition” to net zero emissions is in the “best financial interests of our members”.
HESTA said that, having reviewed AGL’s plan, it remained unconvinced that the overall demerger would sufficiently accelerate decarbonisation to meet Paris-aligned targets.
“A standalone company owning AGL’s coal-fired power plants risks making it more difficult for Australia to transition to a low-carbon future. We believe this company would struggle to make the transition out of coal successfully were power prices to fall or the transition further accelerated to limit the worst impacts of climate change,” HESTA said.
It also deemed the proposed company a “potential takeover target”, flagging the risk of private owners seeking to extend the life of emission-intensive assets.
“When voting this AGM season, we’re considering if companies are suitably managing risk and enabling the creation of long-term value. And that they’re doing this in a way that promotes a stronger economy and the management of systemic risks that benefits our members and all Australians,” HESTA CEO, Debby Blakey, said.
“The events at AGL represent a watershed in active ownership in this country. Shareholders are pushing for greater action on climate change and a more rapid transition that aims to enhance the company’s ability to create long-term, sustainable value,” Ms Blakey continued.
She noted that HESTA “cannot simply divest away from the risk of Australia being slow to transition to a low-carbon future”.
“Responsible investors have a responsibility to their members to go to where the biggest emissions are and as owners try and first change the behaviour of these companies.”
Demerger = range of positives
In a separate statement issued on Wednesday, Morningstar pleaded with shareholders to support the demerger.
According to the financial services firm, AGL’s split into two entities – Accel Energy and AGL Australia – represents a “range of positives”.
“Not demerging would risk losing support from the banks and likely make it very difficult for AGL Energy to refinance debt as it matures. That would be a high-risk position to be in,” Morningstar said.
The biggest and most vocal opposer of the demerger has been Mike Cannon-Brookes, who recently purchased an 11.3 per cent stake in AGL via his Grok Ventures.
In a bid to sway votes, Mr Cannon-Brookes recently published an open letter on his new website, created in a bid to enlist support for his vision, arguing that the demerger plan “makes no sense, or cents”.
“We are incredibly optimistic about AGL’s potential – which is why we’ve joined you as a shareholder – but there will be no turning back if this flawed demerger plan goes ahead. This is our best opportunity, and quite possibly the last to steer this company in the right commercial direction,” Mr Cannon-Brookes said.
However, according to Morningstar, Mr Cannon-Brookes’ views are “naive”.
“A sceptic might think this was a ruthless plan to force AGL Energy’s board to accept a lowball takeover offer,” the firm said.
AGL responds
Despite heavy opposition, AGL does not appear to be wavering.
In fact, the company released a statement on Wednesday afternoon reaffirming its “strong commitment” to investment in renewables and decarbonisation and reiterated the “financial strength”, including anticipated investment credit grade ratings, of both AGL Australia and Accel Energy.
“AGL Energy has outlined a clear and detailed demerger plan that is the best path forward for the company, for shareholders, and for Australia’s responsible energy transition. It has been unanimously recommended by the AGL Energy Board and it is supported by the Grant Samuel Independent Expert report,” AGL managing director and CEO Graeme Hunt said.
“It is critical that AGL shareholders make this important decision based on information that is factual and consistent.”
