Investor Climate Pressure Builds

Copyright © 2021 Energy Intelligence Group
April 2021
Jon Mainwaring and Noah Brenner

The wave of investor pressure over climate change will continue to build at the upcoming annual meetings of oil companies this year. Some European majors are adopting creative ways to address this growing pressure from shareholders. Their new approaches hold both potential risks and rewards. Meanwhile, the US majors, which are moving more slowly, are finding themselves more exposed than ever in part due to shifts in the regulatory environment from the administration of US President Joe Biden. Even companies based in resource-rich countries like Australia face increasing calls to align their corporate strategies with the Paris Agreement. The coming round of annual meetings will be a time of testing for oil company management teams and their strategies for the energy transition.

Pressure on oil and gas companies to define their emissions-reduction and energy transition strategies has continued to grow this year, despite all the other issues they must overcome due to the global pandemic. This mounting pressure will be especially evident during the forthcoming round of annual meetings, particularly in Europe, with activist, retail and institutional investors becoming increasingly aligned on ambitious requests for the majors to act more forcefully on climate change. For oil company management teams, responding to such initiatives requires the careful balancing of public relations with corporate realities.

Faced with this challenge, the European majors are pioneering a new approach. Some of them are going to allow their shareholders to vote directly on their strategies for the energy transition. Royal Dutch Shell, Total and Equinor have announced that they will give investors the opportunity to vote on key energy transition-related strategies and policies. Most are proposing having these votes every three years, with annual updates.

These votes on strategies for the transition could provide some relief from shareholder groups that have consistently pushed for more stringent emissions targets. This approach will enable companies to gauge how investors are responding to plans and better communicate those plans to the public. They could also help fend off calls from activist investors demanding the majors stop producing oil and gas altogether. Already, in response to Shell's decision to hold a vote on its strategy, the Church of England Pensions Board announced it would cease its support for a resolution calling for Shell to set short- and long-term emissions targets consistent with Paris. However, it still plans to vote with activists at companies that do not plan to put their strategies to a vote.

But there are also risks to these votes: How should a company respond if investors reject its plan? What if the nay votes are split between investors who think a strategy is too aggressive and those that think it not aggressive enough? While only advisory, these votes could also create a cycle of high-stakes outreach between companies and stakeholders.

Oil companies ignore advisory votes on climate issues at their peril. Those that have not responded to shareholder requests previously can expect to see renewed pressure for such votes. And companies that hold votes on energy transition issues need to be careful how they respond to them. For example, after rejecting a shareholder vote to address its Scope 3 emissions from the use of its products, Woodside saw some 19% of shareholders support a much more radical measure calling for the company to come up with a plan to "wind up" its oil and gas operations in a timeline consistent with the Paris accords.

US majors are not insulated from the escalation of pressure for climate action. Both Exxon Mobil and Chevron face a raft of climate-driven resolutions from shareholders this year, despite Exxon unveiling massive carbon capture and storage ambitions this month. In the past, US securities regulators have allowed companies to ignore climate proposals rather than put them to a vote, but that stance has changed with the new Biden administration. As pressure for climate action mounts among shareholders, securities regulators in the US seem sure to become more demanding as well.

Jon Mainwaring is editor of Energy Intelligence Finance. Noah Brenner is executive editor for operations at Energy Intelligence. This story originally appeared as an editorial in Energy Intelligence Finance.

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