Australians have become re-acquainted with an old favourite, the Ampol brand, since it was relaunched in 2020. The transport fuel and convenience retailer, which until 2020 was known as Caltex following a merger 25 years ago, is listed on the Australian Securities Exchange. So, many of us own a portion of it, often through our super fund.
Ampol is presently refreshing its sustainability strategy as part of its brand update. Many ASX-listed businesses are also prioritising their approach to environmental, social and governance or ESG elements and publishing more information about these aspects of their enterprises. It can, however, be hard for retail shareholders to make sense of this information and work out what’s material to the business when making investment decisions.
First, some definitions. Sustainability is a broad term, but the United Nations defines it as, “meeting the needs of the present without compromising the ability of future generations to meet their own needs.” In practice, it’s an expectation the organisations that operate in society will minimise their harmful impacts on the environment and make positive contributions to the communities and groups they touch, including their staff.
ESG is more specifically a concept in investing. The global investment research house MSCI defines ESG investing as considering environmental, social and governance factors, together with financial factors, when making investment decisions.
The notions of sustainability and ESG have gained prominence over the last two decades as organisations have come to understand the pursuit of short-term profits without looking at the bigger picture could ultimately destroy shareholder value.
Ampol’s approach to ESG is illuminating for retail investors. CEO and managing director Matt Halliday explains the business is evolving its approach to sustainability.
“We need to reflect how our stakeholders’ expectations are shifting, including our employees, customers, community and shareholders. We must operate in a way that meets their expectations. We are also working on climate disclosures to demonstrate the progress we have made with our future energy and decarbonisation strategy, including how we embed climate considerations into our strategic and business planning.”
Halliday says shareholders want to know the business has a plan in place to manage its environmental, social and governance risks. “Part of this is establishing targets and publishing high-quality information on our performance against them. Given the nature of our business, the main areas of interest are our climate-related risks and opportunities. Shareholders want to know how we consider this in our strategic and business planning and capital allocation.”
He says emphasis is on the transition to renewable energy sources. “This includes threats to the liquid fuels business, but also the opportunities that will arise for Ampol to assist decarbonisation of the transport sector. There is a lot of uncertainty about how this will play out, including how fast it will occur and alternatives to liquid fuels.”
Investors are also keen to understand opportunities to repurpose Ampol’s existing infrastructure assets to enable the transition to renewable energy sources, and how it can leverage the business’s capabilities to deliver new energy solutions.
“All of this leads to the disciplined allocation of capital. We need to invest in the liquid fuels business to maintain safe and reliable operations and at the same time invest ahead of demand into the low carbon transport solutions like e-mobility. Returns will be lower for a few years until there is a higher penetration of electric vehicles. But we believe it is critical to build a network that gives customers confidence Ampol can power their journey as they transition their fleets.”
In terms of who looks after it in the business, Ampol has a sustainability team, which is responsible for understanding what’s happening in its external environments and stakeholders’ changing priorities. The team feeds this information into the broader company for planning and decision-making purposes.
“The sustainability team reports into the executive general manager for is responsible for international and new business, but sustainability is an enterprise-wide function. The head of sustainability and climate change works with the leadership team to set the sustainability strategy and annual action plans and is responsible for tracking progress against the commitments we have made. This is reported to the Ampol board’s safety and sustainability committee on a routine basis,” says Halliday.
“We also have a strategic risk committee comprising the Ampol leadership team that oversees several risks, including climate change. This climate change risk is ultimately owned by me as the CEO. The board also has approved a link between executive remuneration and progress towards our 2025 decarbonisation targets, with climate objectives comprising 10 per cent of the remuneration scorecard,” he adds.
Having concrete targets and accountability for sustainability across the business is important to address any perception Ampol is merely paying lip service to its ESG commitments, a practice known as greenwashing. This happens when companies publish amorphous statements about their commitment to the business’s impact on the environmental and society, without being able to measure or prove them.
ESG and corporate communication expert Amber Daines, co-founder of Grace & Grit Strategic Communications Advisory, explains greenwashing, or green sheen, is false or overstated claims to deceive stakeholders into believing a company’s products or services are environmentally safer or sustainable when they may not be.
“In the past decade, some of world’s biggest carbon emitters, such as old-school energy companies or coal mines, have attempted to rebrand themselves as environmentally-conscious. A common approach is to use schemes like carbon offset initiatives to present the business in a green way through community initiatives such as scholarships for Indigenous education. They are all very good ideas, of course. Yet, sometimes these businesses just re-package business-as-usual activities.”
It can be challenging for retail investors to understand what’s material when it comes to a company’s actions around its ESG commitments. Much of the information is highly technical, and companies can struggle to communicate what they are doing in plain English.
Paula Ferrao is an executive director of and company secretary for the funds management businesses Pengana Capital Group and Pengana International Equities. Pengana manages a number of investment funds that take ESG factors into consideration.
Ferrao believes a company’s ESG policy and sustainability report should be the main resources retail shareholders use to understand its strategy and performance. She says the ESG policy should describe how the company manages non-financial factors to deliver better outcomes for all stakeholders, while a comprehensive sustainability report will set, and report progress against, targets.
“But actions are what matters and investors should evaluate these policies in the context of the organisation’s behaviours. There are no shortcuts and investors need to check, not just accept, inforamtion. ESG claims should be subjected to the same level of due diligence and scrutiny as any other claims regarding company performance or investment management.”
One thing certain is the focus on ESG is escalating and companies need to continue to evolve their actions and disclosures around these issues to support the success of their business. Or the risk is they will disenfranchise retail shareholders, who will take their investment dollars and apply them to assets and management teams that can prove they are looking after the environment and the communities in which they operate.