McKinsey paid $1.6m to ‘guide’ Australian climate policy despite working for fossil fuel companies

Firm disclosed its private sector work, Guardian Australia is told, but it is not known which clients were listed

The consultancy firm McKinsey was paid $1.6m over 11 weeks to “inform” and “guide” Australian energy and climate policy, despite its work for the world’s biggest fossil fuel companies.

The firm, whose links to oil and gas giants are well known, conducted “detailed market, economic and policy analysis” and produced modelling that underpinned “internal energy and climate policy work”.

The Department of Climate Change, Energy, the Environment and Water said the work had been outsourced because it did not have the “technical capacity” required. But critics claim the contract was inappropriate given the firm’s private sector clients.

The Centre for Climate Reporting and the non-profit research organisation Aria have linked McKinsey to several fossil fuel companies with an Australian presence, after assessing US court documents. These companies include Caltex, Peabody Energy Australia, Santos, Shell Australia, Woodside, Inpex, BHP, Rio Tinto, AGL and Origin.

McKinsey would not confirm whether it has worked for these companies, which were all contacted for comment. Some have confirmed that they had previously contracted the firm. Shell in Australia has had no engagements with McKinsey since at least 2019.

According to the firm’s website, McKinsey helps oil and gas companies “accelerate sustainable and inclusive growth” and “create distinctive outcomes across the energy value chain and in every region”.

“We have led projects in a variety of topics, including portfolio strategy, regulatory and policy making, commercial excellence, contracting and trading, capital productivity, organisation, and digital and advanced analytics,” McKinsey’s website says.

A government procurement document shows McKinsey was initially paid $1,193,500, before the contract was increased by more than $455,000. The firm was asked to provide “a robust evidence-base to inform and guide the department to develop a cohesive package of policy measures”.

A department spokesperson said McKinsey had been contracted after a competitive tender process but would not say which specific policies the firm worked on. The consultancy firm did not make recommendations to the government.

Guardian Australia has been told the firm disclosed its private sector work but it is not known which clients were listed.

McKinsey has established processes for handling conflicts of interest and believes they were followed.

“McKinsey’s services reflected skills in financial and economic analysis unavailable within the department at the scale required due to a short-term capability gap,” a department spokesperson said.

“The work supplemented the department’s existing internal capability and supported internal capability development through on-the-job knowledge transfer.”

McKinsey was commissioned in August 2023 after two high-profile parliamentary committees raised concerns about the risks of outsourcing government work to consultancy firms.

The Greens senator Barbara Pocock, who sat on two both committees, said the type of McKinsey’s private sector clients raised a number of concerns surrounding conflicts of interest.

“Who would think it’s a good idea to hire a company that works for some of the world’s biggest fossil fuel producers?” Pocock said. “This is core government work that needs to be conducted by public servants who are accountable to the public interest.”

The independent senator David Pocock said it was “completely inappropriate for a consulting firm that derives so much revenue from fossil fuel companies to be advising the government on its climate and energy policies”.

Polly Hemming, the director of the Australia Institute’s climate and energy program, said it was “alarming that McKinsey was relied on to ‘guide’ the development of Australia’s climate policy”.

“The need for economic expertise and modelling capability in the public service has been evident for some time,” Hemming said. “It is more transparent and more cost effective than spending millions of dollars on private consultants.”

Prof Fran Baum, a public health expert at the University of Adelaide’s Stretton Institute who testified before an inquiry into consultants, said the department should consider academics for future work.

“Our public universities are full of independent climate experts who could be commissioned to assist the public service and [are] likely much cheaper and better informed,” Baum said.

Since coming to office, the federal government has reduced spending on consultants by almost $900m. The number of public servants employed has increased by 16.4% since May 2022, with 26,000 extra roles created.

Cover photo: By The Guardian