Energy

Supporting sound corporate governance for long-term value creation

Engaging with one of Australia’s largest listed oil and gas companies on strong governance to support future growth and prevent value degradation.

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Sector	Energy
Sub-sector	Oil & Gas
Location	Global

Opportunity

Woodside Energy Group (WDS) is an Australia-based energy company primarily engaged in the exploration, development, production and sale of liquefied natural gas (LNG), oil and natural gas.

WDS’s business activities are highly carbon intensive with the company among the largest greenhouse gas emitters listed on the Australian Stock Exchange (ASX).¹ The environmental risk posed to and by WDS’s operations needs to be accompanied by strong governance structures and practices to prevent value degradation.

Understanding governance factors alongside environmental and social factors in environmental, social, and governance (ESG) assessments is critical, as companies with poor governance are more prone to mismanagement and risk their ability to capitalise on business opportunities over time.² Often when environmental or social breaches occur it is a result of ineffective corporate governance³ and therefore, good governance must be established to mitigate this risk.

Approach

As a top ten constituent of the ASX benchmarks,⁴ WDS is a significant holding in several of the Macquarie Systematic Investments (MSI) team’s funds.

As a boutique-listed equities team within Macquarie Asset Management, MSI believes responsible and sustainable investing to be a significant component in accomplishing successful long-term investment outcomes.⁵ Beyond the team’s stock selection model, responsible investment stewardship including company engagement and proxy voting is undertaken to preserve and enhance portfolio value.

MSI’s ESG engagement framework is underpinned by publicly cited frameworks and standards such as the Principles for Responsible Investment and may involve repeated engagements over time to allow for company implementation of improved policies or practices. Under the framework, governance structures including board composition and remuneration are identified as key influencers on the delivery of sustainability-related goals and progress. Therefore, MSI has undertaken an engagement program with WDS to ensure good governance is being demonstrated.

MSI first engaged with WDS in May 2022 and has since met with the company five times. Initial engagements were undertaken to determine the effectiveness of existing governance practice and sustainability strategies.

New skills, particularly in emerging energy and technology, were identified as needing enhancement to balance existing board experience as the company transitions into the future. These were viewed by the team as being complementary to the changing operating environment and valuable in achieving diversity of thought when reviewing climate action initiatives and company strategies.

Following earlier engagements discussing the importance of these new skills on the Board, MSI voted against the election of a new director at the 2023 Annual General Meeting (AGM). This vote was due to the proposed Board member not possessing these credentials and therefore not contributing to greater skills diversity on the Board. The vote was not a reflection of their individual capability. The rationale for MSI’s vote was communicated to WDS at the time.

Outcome

At WDS’s 2024 AGM, a new director was put forward for election with previous experience in roles related to emerging energy, decarbonisation and carbon-neutral technologies. MSI viewed the nominee’s skillset as being additive to the existing WDS board skills matrix and, therefore, supported their election.

In this circumstance, the new director was elected to the WDS Board. This result indicates WDS’s openness to investor feedback and the role engagement has in supporting businesses with sound governance structures.

While improvement in an investee company may be observed following an engagement, it can be difficult to draw a direct correlation between MSI’s engagement activities and a target company’s actions as MSI generally makes small, non-controlling investments. However, under MSI’s engagement program, the team will continue to work with WDS on its broader governance practices, aiming to secure and maintain effective board oversight of the company’s strategy.