AGMs Highlight Investor Divides on Climate

Results of votes on emissions-focused shareholder initiatives at the annual general meetings (AGM) of Western majors highlighted a hardening dichotomy between investors in the US and Europe — as well as the increasing divide between some climate-focused investment funds and large asset managers who are taking a more hands-off approach to wielding their considerable clout. The trends play out amid changing public perceptions over the past year, as the Ukraine war gave renewed emphasis to energy security alongside protecting the climate. Activist Follow This filed proposals asking for stronger 2030 Scope 3 emissions targets from all the majors. Support for the measures was roughly flat with last year at BP (17%) and Shell (20%), despite moves by both to potentially produce more oil and gas this decade. Calls by some investors to vote against the BP and Shell boards due to that renewed upstream focus failed to resonate, with all candidates receiving more than 90% support. At Exxon, support for Scope 3 emissions reduction goals fell from 28% to 11%, while only 10% voted for these at Chevron, down from 33% last year. Only TotalEnergies saw shareholder support for tighter emissions standards increase, with more than 30% voting in favor this year against 17% when a similar proposal came up in 2020.

Ambitious climate proposals brought in endorsements from some financial heavyweights, including members of the influential Climate Action 100+, Norway’s massive sovereign wealth fund and influential proxy advisor ISS. But these entities did not pool their support around a single idea or advocate consistent positions across a single set of companies. This diffused the net impact on voting results. The ISS decision to support the Follow This proposal at Total seems to have had the most impact. But ISS notably did not support similar calls for action at BP and Shell. Church of England and other European pension funds pledged to vote for climate action at Shell and vote against its directors. And Norges Bank Investment Management, the largest single equity investor globally, committed to support climate proposals at Exxon and Chevron but remained silent on Shell, BP and Total. There was no public evidence that the largest US asset managers, many of whom have been caught up in the growing culture war over environmental, social and governance (ESG) investing there, swung behind any of the proposals. Adam Matthews, chief responsible investment officer at the Church of England Pension Fund, noted the growing “gap between how fund managers interpret the long-term interests of their pension fund clients.” Oil companies, he added, "have clearly said they are being encouraged down this short-term path by their largest fund managers.”

Attention at both ends of the spectrum seems to be turning away from shareholder initiatives and towards direct voting on company directors. US investment giants Vanguard and Blackrock largely stayed quiet ahead of meetings, with both issuing position papers seeking emissions disclosures and calling for companies to ensure boards are educated on climate risks. Some climate focused funds said they would express their displeasure with what they saw as backsliding on emissions at some European majors by voting against board nominees and pushed others to do the same. Some frustrated climate focused funds said they may need to more seriously consider underweighting or outright divestment of companies they see lagging on climate. Blackrock CEO Larry Fink, who swung his firm’s support behind calls for more aggressive climate action in 2020, said in a March position paper that asset managers must consider “the global economy’s current dependence on traditional energy sources and the parallel need to invest in cleaner energy alternatives” when engaging with companies. Matthews, who has been an influential advocate for climate engagement with oil companies through the Climate Action 100+ group, said the sector “should no longer be a priority” for the group, adding that firms that cannot commit to a shift to renewables should “stop spending shareholder funds on the upstream and commit to wind down.”

Looking ahead, almost one in five shareholders at Exxon and Chevron backed calls for the companies to provide better accounting for how divestments impact their emissions goals. The resolutions ask for the pair to adjust their 2016 emissions baselines to reflect asset sales, allowing investors to gauge the impact of long-term reductions versus sales that just shift emissions to other owners. Shell already does something similar with its Scope 1 and 2 emissions, noting that it will reset its own 2016 base “if an acquisition or a divestment has an impact of more than 10% on the total Scope 1 and 2 emissions.”