The annual round of big corporate AGMs is upon us, with mining giant Rio Tinto and big oil companies BP, Shell, Exxon, Statoil and Total all having their meetings around this time of year. That creates an opportunity for shareholder activists that want the companies to clean up their act.
The oil and gas industry and its products account for half of global carbon dioxide emissions. So altering the course of the fossil fuel industry is the key to meeting global carbon targets.
The NGO CDP offers a snapshot of how prepared the fossil fuel industry is for a major low carbon transition. The answer is: not very. It ranked 11 of the largest and highest-emitting global oil and gas companies. According to the report, four out of the eleven are graded ‘E’ for their climate governance and strategy.
This needs to change if the world is going to limit warming to the promised two degrees or lower. Shareholder activism is one strategy to push for that change.
So here’s an outline of what shareholder activism is, the AGMs coming up, and the changes activists are demanding.
Big Polluter AGMs in 2018
BP Manchester on 21 May 2018
Shell the Hague 22 May 2018 (with presentation in London two days later).
Exxon Dallas Texas 30 May 2018
Total June 1 2018
Statoil 15 May 2018, Stavanager, Norway
Rio Tinto: the AGM for Rio Tinto plc was held in London on 11 April 2018. The AGM for Rio Tinto Limited was held in Melbourne on 2 May 2018.
What is Shareholder Activism?
Here’s how shareholder activism works: activists buy a few shares in a company, which gives them access to the AGMs as shareholders. Sometimes it even gives them voting rights.
That means groups of shareholder activists can come together to try and force companies to adopt more climate-friendly policies, or at the very least disclose how efforts to prevent global warming might affect the company’s bottom line.
Dylan Tanner, Executive Director of think tank InfluenceMap told DeSmog UK:
“We have been tracking climate lobbying and trade groups for several years and working with investors on the corporations of concern to them. I feel 2018 will be the year shareholders get tough on companies who maintain links to egregious lobbyists holding back critical policy progress on a key existential threat to our common future.”
Campaign group ShareAction describe the three core elements of shareholder activism:
- Building a movement for change in the investment system by working with people inside and outside the industry to challenge its methods;
- Unlocking the positive potential of the investment system by working with large and small investors to stop unsustainable corporate practices;
- Reforming the investment system by advocating for change in the policies, governance, and incentives that drive behaviours in the investment industry.
But how much difference can a few minor shareholder make, when making profit from fossil fuels is woven into the makeup of Big OIl companies?
Jeanne Martin, Senior Campaigns Officer, from Shareaction told DeSmog UK:
“The divestment movement put the issue of climate change on the agenda of some of the world’s largest investors, and created the space for forceful engagement to happen.”
“Investor engagement with teeth holds the key to freezing investments in new fossil fuel infrastructure and high-carbon projects, and reallocating capital either back into positive climate solutions – or the pockets of their shareholders.”
Martin said it’s a potentially powerful approach.
“Investors are slowly waking up to the challenge. The last few years have seen some of the world’s largest investors defying management on climate issues and speaking out about their disappointment at the lack of companies’ progress in this area – the 2017 resolutions at Exxon and Occidental Petroleum being prime examples.”
Danielle Fugere of As We Sow, America’s leading shareholder activism group told DeSmog UK:
“Shareholder action can be effective in moving corporations to change, but asking businesses to change their very business model takes more time. We’ve seen action from oil companies in reducing operational greenhouse gas emissions, producing carbon asset risk reports, creating board committees to address climate change, etc., but very little action to change their core products and business models.”
“We believe large shareholders can play an important role in achieving measured transitions from oil and gas companies, achieving the goals of helping to ensure a two degree world while reducing risk and strengthening bottom lines of companies. In the short term, transition means moving away from tar sands, deep water, Arctic oil, and other similar high carbon/high cost projects.”
“This capital discipline will increase company value, while reducing risk of stranded assets. Over the longer term, companies will need to become truly diversified energy companies, shrink their oil & gas assets, or diversify in other ways (or all of the above). Without an orderly and planned reduction of oil and gas assets, however, we are likely to see tremendous value destruction as demand inexorably declines while the market remains oversupplied.”
So what are shareholder activists asking of companies this year?
BP and Shell
While both companies are publicly committed to the Paris climate agreement, their actions are characterised by an inability to shift to low-carbon activities which represent only a tiny percentage of their activities.
BP’s low-carbon investments constitute just 1.3 percent of its total expenditure, while Shell has pledged to invest three percent of its expenditure in low-carbon solutions by 2020. Both companies lack a bold solution to the problem of peak oil demand, which could be with us as early as 2021, according to former Shell CFO, Simon Henry.
Michael Chaitow, Senior Campaigns Officer at ShareAction, says:
“Shell and BP want to have their oil and drink it too, by advocating for the landmark Paris Agreement to limit global temperature rises to below two degrees Celsius, while planning for scenarios that would violate it. There’s an uncomfortable discrepancy between Shell and BP’s public support for a low-carbon economy and their actual business planning.”
Shell is facing a battle on climate change, after a shareholder group filed a resolution asking the company to set specific emission-reduction targets. Shell’s CEO recomended shareholders reject the resolution and instead “trust” him to help the company cut its emissions.
A Shell spokesperson said: “We’re pleased the key proxy agencies support the view of Shell’s board of directors that the resolution is not in the best interests of the company or its shareholders. We share the objective of Follow This for Shell to show leadership in the energy transition but we consider their resolution unnecessary as we have already outlined an approach, through our industry-leading net carbon footprint ambition, that is wider-ranging and more progressive”
Royal Dutch Shell will also face difficult questions after an investor group urged shareholders to challenge executive pay and the company’s response to a fatal accident in Pakistan in which 200 people died in the Punjab province.
The company was criticised for its “excessive” executive pay. Chief executive Ben van Beurden's total pay is 471 percent of his base salary, City AM reported.
A Shell spokesperson told DeSmog UK “it is important to understand that the fuel tanker was owned and operated by a Shell Pakistan Limited sub-contractor, and thus operating outside the operational controls of Shell Pakistan Limited.”
“Shell takes safety extremely seriously. Last year’s tragedy in Pakistan has been discussed by Shell’s Board of Directors, and we continue to assess the lessons we can learn from it.”
Regarding executive pay, the spokesperson said: “The policy is a measurable and performance based plan, and as previously stated by ISS, Shell’s bonus scorecard appears in line with the Company’s strategy”.
BP also faces a rebellion over shareholder pay.
Shareholders are being urged to vote against the “unacceptable” pay of chief executive Bob Dudley, whose remuneration is 48 times higher than the company's average employee. They will vote on the resolution at the AGM on May 22.
Rio Tinto Zinc
Shareholders with $1.8 trillion assets under management want Rio Tinto's climate lobbying links firmly on the agenda at its Sydney AGM this week, but their concerns go further than climate change. The company's response to its governance on the issue has left investors unsure whether its top-line statements on climate can be relied on at all.
This growing problem of ‘misalignment’ - where the voice of the corporation doesn’t match its actions or its covert support for lobby groups - is becoming more obvious.
As Brynn O’Brien, Executive Director of the ethical investment group Australasian Centre for Corporate Responsibility told DeSmog UK:
“As a major asset owner and energy user, Rio Tinto has an interest in sensible, predictable climate and energy policy at a national level. Rio's CEO has said that the company aims to be 'part of the solution' to climate change.
“Yet the company continues to fund, with shareholders' money, lobby groups that constitute significant blockages in our global ability to deal with the threat of climate change. In calling attention to this misalignment, we hope to improve governance around lobbying activities that risk the future of shareholders' assets and the planet.”
Last week saw a shareholder revolt at Rio Tinto’s London AGM over what is being called “outright climate hypocrisy”.
Major UK institutional investors in Rio Tinto used their voting power in protest against the company’s affiliation with obstructive lobby groups on climate change.
Activist lawyers ClientEarth climate lawyer Sophie Marjanac told DeSmog UK:
“The miner may be pulling out of coal, but it can’t claim its hands are clean while funding lobbies that keep coal very much alive. This is outright climate hypocrisy and at the London AGM, investors demanded action.”
“You cannot say you are actively working to tackle climate change while pouring money into pressure groups that exist to keep the road open for high-carbon energy projects. It is disingenuous and a threat to the value of investors’ shares. The board must give this serious issue the attention it deserves.”
After a year of political and legal skirmishes, Exxon remains the worst of the worst in terms of failing to address its polluting activity. According to CDP’s report, “ExxonMobil performs below its peers in its emissions performance and wider climate governance and strategy considerations.”
Scientific American reported that: “Exxon was aware of climate change, as early as 1977, 11 years before it became a public issue, according to a recent investigation from InsideClimate News. This knowledge did not prevent the company (now ExxonMobil and the world’s largest oil and gas company) from spending decades refusing to publicly acknowledge climate change and even promoting climate misinformation.”
According to an analysis by NextGen Climate published by the Huffington Post this week, Exxon gave more than $6.5 million to groups that deny fossil fuels contribute to global warming between 2008 and 2015. The company vowed nine years ago to stop funding groups that promoted misinformation about climate change.
Last year saw major a shareholder revolt with 62 percent of ballots cast forcing the company to re-think the way it communicates the risks from climate change and increase transparency.
As You Sow filed a business planning, low carbon transition resolution with Exxon this year, but it was omitted by the SEC. It asked the Company to outline plans for how it will transition to a 2 degree world which must rapidly move away from fossil fuels.
The American giant Chevron is also facing intense pressure to change practice. America’s leading shareholder activism group has filed a resolution with Chevron this year.
As We Sow’s Fugere, told DeSmog UK that it asks the company to report “on how it is planning to bring its business model in line with a two degree world. This could mean reducing the carbon intensity and/or the quantity of the fossil-fuel based products it produces each year, bringing more renewables online, reducing investments in future oil & gas development, diversifying the company, among other strategies”
“Through this resolution, shareholders not only want to reduce the risk of stranded assets and retain the stability of their companies, but also demand that Chevron affirmatively become part of the solution in addressing climate change. Its current business plans are in line with IEA projections of business as usual, which equate to a 2.7 degree or higher world.”
“We encourage interested stakeholders to review our latest report to gain an understanding of Chevron’s current views on climate change”, the company said.
Beyond Fossil Fuel Companies
But the focus isn't just on fossil fuel companies but wider corporate support for climate science denial or obstruction.
On May 1, students from campaign group People & Planet stormed the stage at Barclays AGM demanding they follow HSBC’s lead and stop financing coal & tar sands - the dirtiest fossil fuels.
Each armed with single 25p shares in Barclays, activists entered the meeting unchallenged, and ground it to a halt making their demands crystal clear.
A spokesperson from People & Planet told DeSmog UK: “In May 2017, Barclays joined a £5.5bn credit line for Kinder Morgan, most of which is going to the Trans Mountain pipeline. In total, the bank has £4.381 billion investments in the fossil fuel industry.”
“The Trans Mountain pipeline would transport one of the dirtiest of fossil fuels from the Canadian Tar Sands to Vancouver’s harbour. Tar sand oil emits 20 percent more greenhouse gases than regular one when extracted and burnt, its extraction contaminates the water sources of indigenous people, its spills are catastrophic, and its pipelines cross indigenous land without their consent - just a very dirty business.”
Kinder Morgan is now consulting shareholders on whether to continue with the project, with a decision to be announced by May 31.
This article was update to include details of the Exxon shareholder activism by As You Sow not known to us at time of publication.
Image: CC by 2.0/James Lee/Flickr